Trade-Offs in Online Advertising: Advertising Effectiveness and Annoyance Dynamics Across the Purchase Funnel

Digital advertisers often harness technology-enabled advertising-scheduling strategies, such as ad repetition at the individual consumer level, in order to improve advertising effectiveness. However, such strategies might elicit annoyance in consumers as indicated by anecdotal evidence, such as the popularity of ad-blocking technologies. Our study captures this trade-off between effective and annoying display advertising. We propose a hidden Markov model that allows us to investigate both the enduring impact of display advertising on consumers’ purchase decisions and the potential of persistent display advertising to stimulate annoyance in consumers. Additionally, we study the structural dynamics of these advertising effects by allowing them to be contingent on the latent state of the funnel path in which each consumer resides. Our findings demonstrate that a tension exists between generating interest and triggering annoyance in consumers; whereas display advertising has an enduring impact on transitioning consumers further down the purchase funnel, persistent display advertising exposures beyond a frequency threshold can have an adverse effect by increasing the chances that consumers will be annoyed. Investigating the dynamics of these annoyance effects, we reveal that consumers who reside in different stages of the purchase funnel exhibit considerably different tolerance for annoyance stimulation. Our findings also reveal that the format of display advertisements and the level of diversification of ad creatives as well as consumer demographics moderate consumers’ thresholds for annoyance elicitation. For instance, advertisers can reduce annoyance elicitation as a result of frequent display advertising exposures when they use static rather than animated display ads as well as when they diversify the display ad creatives shown to consumers. Our paper contributes to the literature on digital advertising and consumer annoyance and has significant managerial implications for the online advertising ecosystem.