AI‐Driven Personalization in Social Media Advertising: How Tracking Awareness and eWOM Homophily Shape Trust and Consumer Responses

ABSTRACT This research examines how consumers' awareness that digital tracking is used to personalize social media advertising shape trust, purchase intentions, and willingness to pay (WTP). Across three experiments, we demonstrate that trust in social media ad information increases when consumers use social media more and when they perceive themselves as more influenced by digital/social media advertising. This trust subsequently enhances purchase intentions and WTP. Building on trust transfer theory, we show that awareness of digital tracking shifts how consumers interpret ad content, strengthening the relationship between trust and consumers' downstream responses. We also explore the moderating role of homophily using electronic word‐of‐mouth (eWOM). Findings reveal that consumers respond more positively when eWOM comes from similar others under less‐personalized ad display conditions, but when ad display is highly personalized due to tracking, consumers rely less on similarity and more on tracking‐based cues. These findings reveal how knowledge of personalization and social similarity cues interact to shape consumer trust in the ad information and responses in social media advertising environments. Recommendations are offered for how companies can communicate their use of digital tracking for personalization in social media advertising to build consumer trust and increase purchase intentions and WTP.