Thanks to online tracking technology, marketers no longer have to rely on assumptions about consumer behavior. Instead, they can deliver ads targeted specifically to individuals based on their behavior online. Marketers have long known that this type of personalized advertising is more effective at generating both clicks and conversions, but they have not fully understood the consumer psychology that makes these behaviorally targeted ads so effective.

These ads are indeed more relevant and interesting to consumers—but that’s not the entire story. In our research, recently published in the Journal of Consumer Research, we explored whether behaviorally targeted ads have unique psychological consequences that help make them more effective than ads that rely on traditional demographic or psychographic targeting.

In one study we conducted with 188 undergraduate students, we found that participants were more interested in buying a Groupon for a restaurant advertised as sophisticated when they thought the ad had been targeted to them based on specific websites they had visited during an earlier task (browsing the web to make a travel itinerary) compared to when they thought the ad was targeted based on demographics (their age and gender) or not targeted at all. This suggested that behavioral targeting specifically—not targeting group level attributes—increased their interest in the product.

But why would the mere belief that an ad is targeted based on your online history make you more interested in buying the product?

To answer this question, we conducted a second study. We exposed students to an ad that they believed to be either behaviorally targeted or non-targeted for a high-end watch brand. Then we asked them to rate how sophisticated they perceived themselves to be. The data show that participants evaluated themselves as more sophisticated after receiving an ad that they thought was individually targeted to them, compared to when they thought the same ad was not targeted. In other words, participants saw the targeted ad as reflective of their own characteristics. The ad told them that, based on their browsing history, they had sophisticated tastes. They accepted this information, saw themselves as more sophisticated consumers, and this shift in how they saw themselves increased their interest in the sophisticated product.

A third study demonstrated that such changes in self-perceptions from behaviorally targeted ads can impact behaviors extending beyond purchase intentions. After receiving a behaviorally targeted ad for an environmentally friendly product, undergraduate study participants rated themselves as more “green” and were (at least in the short-term) subsequently more willing to buy the advertised product and to donate to a pro-environmental charity, which they were prompted about at the end of the same lab session.

This powerful effect of behaviorally targeted ads on self-perceptions does have its limits, however. Our final study tested the role of targeting accuracy. We found that behavioral targeting has to be at least moderately accurate (i.e., plausibly connected to consumers’ past behavior) or people will reject it. A sample of online adult consumers received either accurately or inaccurately targeted ads for hot chocolate positioned as good for the outdoors. If these participants had at least some interest in the outdoors (measured in a shopping task at the beginning of the study session), the behaviorally targeted ad made them feel more outdoorsy and more likely to buy the hot chocolate. If they had no interest in the outdoors and the targeting was inaccurate, behavioral targeting did not lead to changes in self-perceptions or higher likelihood of buying.

It’s important to note that the effects on self-perceptions we observed are contingent on consumers being aware that a given ad was or was not tied to their past behavior. Across all of our studies we provided participants with an explanation of behavioral targeting, so that those in the behaviorally targeted ad condition believed that they received the ad as a result of their own online behavior.

Given that the ads in our studies were not actually matched to participants’ behavior — we merely created the perception that they were — we expect that effects may be even stronger in the real world when behaviorally targeted ads are more accurate. If consumers are not aware that an ad has been behaviorally targeted, though, even if it is actually matched to their online actions, they likely won’t perceive the ad as a reflection of the self.

What does this all mean for marketers? First, in evaluating whether to implement an advertising campaign using behavioral targeting, managers should consider that the impact may extend beyond click through rates and conversions. This targeting may change how consumers see themselves and make them feel like they already have traits implied by the ads. This suggests that brands with strong personalities might particularly benefit from behavioral targeting.

Second, managers should be aware that behavioral targeting could be a double-edged sword. On one hand, it could benefit a brand by increasing interest in a greater variety of products that the brand ties to a specific trait. On the other hand, behavioral targeting may benefit one’s competition by strengthening a trait that can be expressed through purchasing from similar brands.

Finally, and perhaps most importantly, our results suggest that transparency benefits consumers and firms. These effects of behaviorally targeted ads only occur when consumers know that an ad has been behaviorally targeted, so it behooves advertisers to include the AdChoices icon to clearly label behaviorally targeted ads as such. Additionally, identifying ads as behaviorally targeted gives consumers greater control over the use of their data and may help alleviate many of the privacy concerns cited by the FTC in relation to disclosure of the use of consumer data in delivering online ads.

In sum, our research suggests that there are a lot of upsides for companies to use behavioral targeting, so long as the targeting is accurate and the traits implied by an ad are traits that would lead a consumer to purchase the advertised brand.