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It is estimated that the average consumer is exposed to up to 10,000 ads in a single day. Advertising is a big part of the consumer experience and as technology increasingly plays a protagonist role in our daily lives, it is no news that online advertisements are steadily replacing the more traditional forms of publicity. The UK's Internet Advertising Bureau recently announced that the overall digital ad spend in the UK grew by 13.8% to £5.56 billion in the first half of 2017 alone, with spend in online video ads overtaking the expenditure on banner ads for the first time.

At the same time, over 40% of the world's are also making an impact by population now has access to the internet and creating platforms that enable data not only users are constantly leaving digital footprints, to be collected more easily but also analysed across a range of online channels, by willingly and extracted. sharing mass volumes of useful data. This creates a huge market for advertisers, as well These combined developments have as a vast pool of insightful information about kick-started the reshaping of the advertising consumer behaviours and preferences. industry, particularly in terms of enabling Technology giants such as and organisations to target advertising at their 02 HERBERT SMITH FREEHILLS THE FUTURE OF RETAIL

most receptive audiences. And the forms of targeting can take place based on "partner , data and consumer continuously evolve – they categories", which are groups created by third protection concerns can be based on a wide range of information, party data providers and based on the users' All forms of targeted advertising can bring including browsing history, purchasing habits, browsing activities outside of Facebook. huge benefits to the organisations that make sociodemographic traits such as consumers' use of them, and this is even more the case age, gender, race and economic status, Advertisers can also undertake "location- where companies invest in new technologies psychographic characteristics, including a based advertising" by making use of the that can help them go the extra mile in terms consumer's lifestyle, opinions and values, or location data collected by mobile devices to of research and insight. Targeted advertising geographic location, to name a few. Add to the personalise their messages to consumers can also be advantageous to consumers, who mix the increasingly sophisticated based on their current location. Since the data can gain free access to content and no longer technologies that companies are developing is given in real time, this makes the ads very have to be exposed to irrelevant advertising. and applying to deepen their understanding of timely and this is one of the key strengths of Nonetheless, targeted advertising, and OBA in consumer reactions and accurately predict this type of targeted advertising. For example, particular, also gives rise to a variety of behaviours, and you end up in a world where in 2014, Starbucks tracked users' device ID concerns and associated legal issues. advertising becomes incredibly personalised. and location and provided ads based on that information. The metric for assessing success Privacy is the key concern and consumers have Tracking consumers' digital footprints was the number of people that walked into a repeatedly expressed worries about the Starbucks as a result of the ad. The conclusion The most significant type of targeted potential misuse of the data collected. was that the likelihood of a person entering advertising is known as "online behavioural Therefore, the issue of obtaining consent from into a branch increased by 100% after seeing advertising" (OBA), and involves the use by consumers is crucial. In the UK, the processing the location-based ad. companies of information about an individual's of as part of OBA must be online browsing habits to produce advertising The next level – using technology to performed in compliance with the Data that is personalised to that individual's identify consumer reactions to ads Protection Act 1998, which requires that preferences and interests. This can be either individuals' personal data be processed fairly "site-based" or "network-based". The majority In order to maximise the efficiency of and lawfully. This means that users must be of OBA is site-based and works through targeted advertising, companies are already given notice about the use of their personal "cookie" files that are placed on consumers' taking it to the next level by linking different data and must consent to such use. However, computers to track the pages that the user forms of targeted advertising with emerging it remains to be seen exactly how this must visits either only on the tracking organisation's technologies to obtain a deeper understanding apply in practice, depending on the type of own website (first party OBA), or also on third of the way in which a target audience reacts OBA that is being used. For example, whilst it party partner websites which are members of to and interprets the ads that they are may be sufficient to simply provide the the same (third party exposed to online. information in a website privacy policy when OBA). Advertisers who use first party OBA undertaking first party OBA, the standard of For example, Canon Europe has been working include for example news websites or online notice for third party OBA and when using with Clicktale, a digital customer experience retailers such as Ebay or Amazon. OBA can DPI techniques may have to be higher to company, and using "behavioural economics also be undertaken at a network level by satisfy the fairness requirement, given the technology" to interpret a person's digital body making use of "" (DPI) greater intrusion. language by analysing user behaviour on the techniques which examine all traffic on a website and classifying them into categories user's computer. This has been trialled in the Another related question that has caused a lot such as "focused" or "disoriented". The UK, but is not currently in use. of debate is whether OBA must be conducted technology tracks online behavioural patterns on the basis of a user's explicit "opt-in" Similarly, advertising also makes based on millisecond-level actions, including consent, or whether it is enough for the user to use of its users' browsing activities, for hovers and scrolls. It uses cognitive "opt-out". Evidently, best practice would be to example by targeting ads based on Facebook computing, machine and obtain opt-in consents but the approach of the pages that someone has liked. Due to the psychological research to enable Canon to advertising industry is to rely on opt-outs. This larger amount of information that social enhance the consumer experience and their is reflected in the UK Code of Advertising networks gather, in addition to simply website design. (CAP Code) and the Internet Advertising reactively targeting users based on their Bureau's "Good Practice Principles for Online The use of sensory research technology can behaviour, advertisers on social media can also Behavioural Advertising". also add real value to in the context of create profiles and target the consumers targeted advertising. According to before they even undertake any activities On the other hand, this is further complicated Shutterstock, the picture library , the online. For example, Facebook allows by the fact that the Privacy and Electronic choice of images for online ads can be a highly advertisers to target an audience in three Communications (EC Directive) Regulations influencing factor in grabbing the attention of ways. Targeted advertising can take place via 2003 require that prior consent (ie opt-in) be consumers. Consequently, the company "precise" interests, which enables advertisers obtained before processing traffic data for the undertook eye-tracking research which to group users according to specific words purpose of providing "value-added services". revealed that the images are most effective shared on their timelines (eg relating The Information Commissioner's Office (ICO) where they reflect the demographic profile of specifically to the English cricket team), or via considers OBA to fall under this category of the target customers. For instance, ads that "Facebook categories", which is aimed at those services and therefore require opt-in consent. include pictures of children are more likely to who have shared terms on their timeline that However, again, it is unclear if this applies to be viewed longer by parents. relate to a broader topic or interest (eg relating all types of OBA or just where it uses DPI to cricket more broadly). Alternatively, techniques. TARGETED ADVERTISING HERBERT SMITH FREEHILLS 03

More generally, OBA also has the potential to amount to a criminal offence under the Key contacts Regulatory Investigatory Powers Act 2000, Susan Black which prohibits intentional interception of Partner, London communications and making the contents T +44 20 7466 2055 available to another person, except in certain M +44 7785 255 009 circumstances. However, it is unclear if OBA [email protected] will amount to an "interception" in all circumstances and it is likely that this will depend on how the technology works, as well David Coulling as the circumstances of each case. Partner, London T +44 20 7466 2442 In addition, the Consumer Protection from M +44 780 9200144 Unfair Trading Regulations 2008 (CPRs) [email protected] prohibit unfair commercial practices which distort consumers' transactional decisions and Joel Smith in the context of OBA, it remains to be seen Partner, London how successfully it can be argued that a T +44 20 7466 2331 breach of the CPRs arises if consumers take a M +44 778 5775035 different transactional decision, for example [email protected] by choosing not to view a website, because they were given false or deceptive information about how OBA works. Authors Hayley Brady Senior Associate, London T +44 207 7466 2079 [email protected] access free content and services. The law CONCLUSION Corina Salic will also have a supporting role to play in Associate, London During the past decade, developments in this regard – given the current uncertainty T +44 207 7466 2096 the Information and Communication about how such consent must be obtained [email protected] Technology (ICT) space, including a surge in compliance with data protection legislation and advertising regulation, in the number of available online channels Rich Woods further clarity from government and and platforms, together with shifts in Senior Associate, London , have produced an policy-makers on this point would be T +44 207 7466 2940 ocean of data about every minute aspect of valuable. Knowing that there are clear [email protected] digital behaviour. In combination with requirements regarding the methods used significant investment in , to obtain consent for the use of personal this has caused both disruption and data or for being subject to targeted innovation in the digital ad market. The advertising may ultimately contribute to a methods used to target advertising to the more relaxed consumer approach towards most responsive audience are clearly targeted ads. growing in complexity and accuracy. The opportunity is evident – but it does not Marketers should also realise that the come without challenges. average consumer's attention span is now extremely short – in fact, just eight seconds Chief among them is the importance that according to . And the multitude consumers place on their privacy. In 2016, of media and channels that people are a study carried out by YouGov indicated exposed to today only further contributes that only approximately 30% of internet to a potentially fragmented network of This article is part of a Future of users felt comfortable with their online avenues. Indeed, to some extent, Consumer series on upcoming issues behavioural information being used to a company's successes associated with affecting the Consumer Sector. For other provide them with more personalised targeted advertising will depend on its articles in this series see the Consumer online ads, whereas 62% expressed feeling ability to apply adequate tools and make pages of our website www.hsf.com or uncomfortable, placing greater importance use of timely consumer data. But crucially, contact Rachel Montagnon on their privacy. Media owners will it will also largely be impacted by how well therefore have to overcome the challenge the company can assess the ways in which Rachel Montagnon of reducing this resistance by appropriately its ads work together across all available Consumer PSC, London explaining the "value exchange" to platforms in order to cause customers to T +44 20 7466 2217 consumers, namely that their consent to "bite the bait" but also to take the next step M +44 7809 200 590 being shown ads gives them the ability to and make a purchase. [email protected] HERBERTSMITHFREEHILLS.COM

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