The Death of the Salesman

Personalized Advertising:

The Death of the Salesman

ERASMUS UNIVERSITY ROTTERDAM

Faculty of Economics and Business

Marketing, Entrepreneurship and Organization

Name:Elio Keko

Exam Number: 313379

E-mail address:

Study:International Economics and Business Economics (IBEB)

Thesis:Bachelor (FEB13100X)

Table of Contents

Abstract

Chapter 1: Introduction to the research

1.1The intent for the research

1.2 The scientific and social relevance of the subject

1.3 Nature of the research

1.4 The research process, structure and methodology

1.5 The theoretical framework

1.6 The problem statement and research questions

Chapter 2: Background information

2.1 Consumer trends

2.2 New media

2.3 Advertising expenditure

Chapter 3: Benefits of personalized advertising

Chapter 4: Types of personalized advertising mediums

4.1 Internet

4.2 Digital television

4.3 Mobile phones

4.4 Further innovative ideas

Chapter 5: Collection and data usage

5.1 Considerations

5.2 Internet

5.3 Digital television

5.4 Mobile phones

5.5 Real time bidding

Chapter 6: Issues and disadvantages

6.1 Privacy and security concerns

6.2 Targeting the consumer appropriately

6.3 Additional disadvantages

6.4 Limitations of the literature

Chapter 7: Consumer research

7.1 Explanation of research

7.2 Presentation of the general data

7.3 Detailed analysis of results

7.4 Significance and correlation of results

7.5 Limitations of the research

Chapter 8: Conclusion

Suggestions for further research

References

Abstract

As a result of constant and overwhelming exposure to the modern consumer, traditional advertising has endured intense scrutiny due to its intrusive nature. With the advent of digital media on the mobile phone and the internet and the use of modern technology in television,marketers are attempting to minimize traditional advertising as a form of promotion. It has therefore become necessary to be innovative in enticing and involving the consumer. Personalized advertising is a recently developed platform that can revolutionize the manner in which individuals are approached and in turn lead to a paradigm shift in the way advertising is developed. This paper presents the cutting-edge approach of personalization in interactive media utilizing a format which draws upon information such as demographics, psychographics, personal preferences, consumer clustering, and new opportunities in mobile space to create an advertisement targeted and tailored to individual consumers. In this context, this paper will initially discuss issues related to the provision and implementation of personalized advertising in mediums such as the Web, digital TV and mobile phones. Subsequently, it will incorporate personal research conducted via a statistical survey which will analyze and comprehend the consumer’s attitude towards this development in an attempt to reveal further implications. Ultimately, an in depth analysis of advanced techniques for personalization will establish whether this is the right path to follow towards the future of advertising.

Chapter 1: Introduction to the research

1.1The intent for the research

Through my concentrated studies and research in marketing, I discovered one remarkable feature:the influence advertising has on the consumer and the manner in which it is presented. In order for advertising to be successful, constant innovation and research must be taken into consideration. In regards to the latter, the cutting-edge technology seems to create immense possibilities in terms of innovation and wide reach of this promotional tool. Moreover, by examining my surroundings, it seems intriguing to see how technology has been able to impose itself in most of society and has become such an important part of our daily lives. The combination of these elements has led my attention to personalized advertising which tends to combine technological advancement and the consumer’s increased use of technology, in order to provide innovative ways to attract and influence the consumer.

1.2 The scientific and social relevance of the subject

Advertising is a crucial component of a company’s marketing strategy which promotes their success. In a society where technology is becoming a systematically greater part of our daily lives, advertising has the potential to use this trend in order to attract consumers. One method employed, still in its developmental stage, is that of personalization. This form of promotion could become a great tool in the hand of marketers and its potential should be evaluated. In addition, the willingness of the consumer to accept this type of advertisement and allow the use of their personal information plays an important role.

In a time where traditional advertising is criticized due to the intrusion and interruption it causes, it is imperative to find innovative ways to draw the consumer’s attention. The difficulty with marketing via the internet is that people disregard advertisement. Recent research claims that an increasing amount of people switch channels when advertisements air (Winer R. S. 2009). New methods of advertising, however, through digitalized television allow for minimum amounts of this form of promotion. Techniques such as personalized advertising will attempt to draw their attention and possibly make the consumers interested in viewing the advertisement.

Personalization would eventually lead to better information for consumers and better efficiency for advertising companies previously spending millions on an advertisement that only reaches a small proportion of viewers. Through personalization they would be able to target individual consumers and hence spend their budget effectively. Nevertheless, the main issue to be addressed is whether the consumer would be willing to share or allow collection of their personal information and whether personalized advertising is truly effective in this case.

1.3 Nature of the research

Even though extensive studies have been conducted in the field of market segmentation so that advertisers can better target the consumer, consumers’ attitude toward personalization and their willingness to disclose their personal information has not been affected.In my study,I will attempt to tackle in particular the issue of consumers’ trust in releasing their information and whether certain types of medias hold an advantage over others. Moreover, assuming that personalized advertising will be logistically possible, this paper will analyze whether the consumer will be drawn towards this specific type of promotion. Furthermore, the survey I conducted has taken into account individuals in the US and, although limited in the number of respondents, it allows for the research to further understand cultural differences and the role of a different environment. This will be followed by an analysis of various other aspects, such as the effect of age and gender on the attitude of the respondent. The purpose of the research lies in understanding exactly how personalized advertising operates, and thereafter understanding the consumer’s attitude towards this form of promotion.

1.4 The research process, structure and methodology

The initial part of the research will be obtained through the analysis of the work presented by various authors,focusing mainly on books, research papers, and journal articles. Background information on the market situation is necessary to understand the reasons for these studies. The purpose of this research analysis is to enable the reader to get accustomed and thoroughly understand the implications of personalized advertising and its repercussions. In an attempt to explain today’s advertising challenges, I will further examine the driving motivational force that urges advertising companies to use this form of promotion.

Since one of the main difficulties advertisers face in terms of personalization is the reluctance of individuals to provide personal information, it is imperative to examine the consumer’s fears vis-à-vis their willingness to provide information. In this respect, the research will further attest the effectiveness personalization could have on these respondents.

The questionnaire itself, which can be found in the appendix (pg. 45-47), consists of several close-ended questions with the inclusion of few open-ended ones. It also includes a set of background questions, inquiring upon the respondent’s age, gender, and nationality. The remaining questions are related to their attitude towards personalized advertising and information they would release. The data will then be arranged, coded and analyzed through the use of Excel and SPSS.

The aforementioned questionnaire has been distributed online in order to achieve the largest possible number and variety of respondents, including a list of respondents varying in background. The survey has been completed by over 100 individuals ensuring an adequate conclusion. Anonymity hasalso been secured, thus allowing for more truthful responses. I have attempted to maintain a simple and concise questionnaire in order to eliminate problems of misunderstanding and loss of focus, even though its limitations will inevitably be discussed.

1.5 The theoretical framework

There are numerous variables that need to be taken into account in order to achieve a viable conclusion. Initially, there is a correlation between the increased use of technology in our daily lives and the increased expenditure of advertising agencies to reach the consumer through the use of these technologies. This paper will analyze this relationship and explain the reason for personalized advertising, which in turn leads to its benefits and challenges. The next step will be to assess its possibilities of success, examining the relationship between acceptance by the consumer and the success of this type of advertising. This success will also be measured by understanding whether the consumer is willing to take part in creating personalization. By analyzing the answers to the questionnaire, I will attempt to understand if and how personalized advertising will achieve popularity, and hence become widely used as a powerful tool for advertisers. Consequently, the possible relationship between consumer attitude and success of personalization will be investigated.

1.6 The problem statement and research questions

The continues developments in technology and the increasing role in our daily lives have led advertisers to create new ways in which to attract and influence the consumer. One of these developments, whose success still remains to be seen, is that of personalized advertising. This paper will present an in-depth analysis of personalized advertising and by focusing on whether the consumer will allow and accept this innovation should provide an examination of its future success.

The questionnaire will focus on understanding the attitude of the consumer towards personalized advertising, leading to theimperative research questions below:

1. Will the consumer provide or allow their information to be used by advertising agencies?
2. Will the consumer be more attracted by personalized advertisements?

The research will inevitably lead to the investigation of these partial research questions:

1. Which information is the consumer willing to provide to advertising agencies and what are their main concerns?
2. Which information, if included in a personalized advertisement, will appeal to the consumer?
3. Which media is preferred in the eyes of the consumer?
4. Does knowledge of personalization affect their attitude?
5. Does gender affect the consumers’ attitude?

(Ho: There is no significant difference between male and female responses)

1. Does age affect the consumers’ attitude?

(Ho: There is no significant difference between the responses of separate age groups)

1. Does nationality affect the consumers’ attitude?

(Ho: There is no significant difference between the responses of separate age groups)

This will then allow understanding as to whether personalized advertising could become a successful new way for companies to get their message across and attract customers, as well as consider further implications of the research conducted.

Chapter 2: Background information

2.1 Consumer trends

The recent changes in technology and lifestyle of the consumers have caused major concern for advertising companies. Throughout recent years, the use of media such as television and radio has remained steady or diminished, while the use of the internet has substantially increased. An interesting factor that needs to be analyzed when judging the further development of this particular data would be how the internet currently provides easy and cheap ways to use other forms of media such as e-magazines and television. This will inevitably lead to a shift of resources and innovation in order to capture and retain the individual’s attention. The graph below shows the changes that have occurred in the use of several media, and research confirms that this pattern will continue in the upcoming years. The biggest trend is the 117% increase in the use of internet throughout the last half decade, while television remains steady but still taking up most of an individual’s time.

Fig1. Use of mass media[1]

2.2 New media

When considering the various platforms that are being used for advertising purposes, it is important to understand and distinguish the different types of media. One crucial development that needs to be taken into account is the use of what is being called “new media”. Even though it has been around for more than a decade, it does not seize to innovate and create opportunities for marketers. New media envelopes a digital and interactive platform leading to an increased power of the consumer. An important aspect is the greater availability and possibility by users to communicate with one another bringing great challenges and opportunities for advertisers. Another aspect to consider is the importance of social networks and the flow of information between individuals. (Straubaar et al. 2009) This type of media, which is slowly taking over traditional modes of communication, will inevitably lead to a new strategy being employed by marketers. As a consequence, there seems to be a set of problems with the current promotional platform.

Due to the invention of digitalized television, and use of technologies such as DVR and TiVo, commercialscan be skipped. In addition, the increased use of the internet allows advertisements to be ignored and blocked when possible. Marketers are forced to remain innovative in order for advertising campaigns to survive the technological revolution. It is also of vital concern to TV broadcasters and internet websites to surpass this obstacle.

The empowerment of the consumer leads to the necessity to engage individuals, making relevance to the viewer an imperative characteristic of modern advertising campaigns. There seems to be a consensus between marketers that they need to establish new ways to engage the consumer with more original and interactive advertising and focus on creating a more personal bond with these individuals in order to attract their immediate attention (ZenithOptMedia 2010). Furthermore, social media has almost become an obsession of today’s society and a clear and easy manner in which marketers can acquire useful information for personalization.

Another aspect that needs to be taken into account is the increased use of ”Smart phone’s” such as the I-phone, which contain several interesting functionalities further described below. In addition, there are a lot of resources being devoted to create further improvement to this platform, and soon we will have phones with many of the same characteristics as computers. As the figure below shows, the growing amount of people who use these types of phones, take advantage of their services and are a clear target for advertisers to exploit. These mobiles not only allow for advertising to be shown through the individuals’ use of the internet application, but also allow for more creative and interactive promotions due to aspects such as the recognition of the phone movements and easy application of touch screen technology.

Fig 2. Usage of new smart phones (E.g I-phone)[2]

The newest product that is expected to revolutionize and enhance the mobile advertising industry is the release of the I-phone 4 from Apple. It includes an innovative version of iAds which make extensive use of personalization and will provide a better experience for the consumer as well as higher profits for providers. These types of advertising will be included within the various applications that the phone provides. Its progress relates to the fact that 60% of revenues will be given to the developers of these free applications. This enables a general exchange of services which will satisfy all the involved parties, and create a proposition in which the consumer gladly accepts advertising. In an extensive presentation given by the CEO of Apple, Steve Jobs, on June 3, 2010, just a few weeks before the release of this device, he explains this reasoning by declaring that the rationale behind these advertisements reads:

“To help our developers earn money so they continue to create free and low-cost apps” and

“Combine the emotion of video with the interactivity of apps” [3]

One of the many advantages of this system is also the fact that these iAds, as compared to previous versions, keep the user in the application and a new window is opened to view the further details of the advertisement which is initially presented as a banner. Due to its many benefits, Apple has been able to sell a large amount of this service. Even though still not in operation and available for purchase for only 8 weeks, sales have reached an amount of 60 million from some of the biggest names in all areas of business. According to recent analysis, this constitutes almost half of the total amount of the US mobile advertising expenditure for the second half of 2010. The use of personalization to create better advertising plays a major role in convincing both developers and advertisers to accept and invest in this platform, and its success shows the growth potential of this form of promotion in regards to the mobile phone industry.

2.3 Advertising expenditure

As expected, the change in consumers’ trends has inevitably led to a shift of expenditure by advertisers. There seems to be an upward trend in terms of total expenditure accompanied by a movement towards financing advertising through the internet, mainly consisting of banner ads. As previously acknowledged, due to the difficulties being faced, the efficiency of these advertisements plays a major role when analyzing this expenditure. The table shown below presents a clearer analysis of the breakdown of this expenditure between the various types of media. Television remains a clear giant in this respect, but the highest increases have and will be in terms of internet and mobile advertising, while other platforms remain steady or decline in popularity.

Fig 3. Worldwide advertising expenditure by medium ($ millions)[4]`[5]