Bidirectional Role of Accuracy and Recognition in Internet-Based Targeted Advertising

The effective media strategy in advertising is gradually becoming the premise of company that lives in the competition of marketing. Due to the rapid growth of new advertising media and technologies, it is possible for a firm to precisely target advertising to the potential consumer segment within a market. This research explores the extent to which an advertiser should regulate the quality of its targeting and effect on consumers' surplus and social welfare. The authors present a theoretic model measuring the targeting quality of internet-based targeted advertising with two measures termed accuracy and recognition. Accuracy measures the possibility of correct prediction in the target segment, while recognition is defined as the probability that any member of the targeted segment is identified. The authors demonstrate, within a monopolistic framework, the online targeted advertising might lower or increase both consumers' surplus and social welfare compared with mass advertising, which depends on different range of accuracy and recognition in the social media. The recognition of internet-based targeted advertising plays a positive role on equilibrium price, whereas the accuracy plays a negative role in the regulation of advertising intensity and equilibrium price. Therefore, it is believed that the accuracy and recognition of the online targeted advertising can be used as a lever for the strategic segmentation of a market.