Targeted Advertising: Does it Actually Work?

While scrolling through Instagram, I recently stumbled on an advertisement for a hoodie. But it wasn’t just any old hoodie—this one was special. Emblazoned across its chest were the following words: “I’m Proud to be a University of Reading Grad in Berlin.”

There is a slim chance of an apparel company catering solely to alumni of a regional British college living in the German capital. Although I wouldn’t back it on Shark Tank, it could exist—in theory.

More likely, though, a firm bought data from Instagram parent Meta (formerly known as Facebook) and advertised to me a product based on my Facebook profile. I promptly headed to the social media platform and stripped my profile of 99 percent of its data points.

Thinking about that incident leads me to this question: for marketers, is targeted advertising even worth it?

Marketers shift their stance on targeted ads

In ancient times, such as in the 1990s, the best way to market a product was on television, radio, or highway billboards. Then, in 1994, the first banner ad appeared on the website of WIRED offshoot HotWired. Targeted advertising began the following year, but it wasn’t until 2006 that social media platforms, suddenly privy to unthinkable datasets, pushed targeted ads into the mainstream.

Today social media comprises most of the $455 billion spent annually by digital marketers worldwide. Almost 92 percent of companies with over 100 employees advertise with social media, which offers targeting so precise it often falls foul of regulators.

That’s no surprise, given marketing divisions are operating increasingly on a shoestring. According to researcher Gartner, marketing budgets have fallen to their lowest recorded level, dropping to 6.4 percent of company revenue in 2021 from 11 percent in 2020. Targeted ads are supposed to offer better value for money, after all.

But new data also shows that perhaps social media is no longer the end-all and be-all of ad spending. Instead, marketers have begun to diversify their advertising channels, which means the return of mediums like linear TV and direct mail.

The logic behind targeted advertising—the more I know about you, the better placed I am to sell you something—makes sense. And for years, it suited big platforms to sing the praises of CPMs based on data they were collecting. But times are changing, and that’s partially due to the reliability of the average click.

Attack of the bots

Ad fraud occurs when bad actors put out bots—automated, fake users—to click on ads many times, fooling companies into thinking their ads are working and therefore putting more money in the pockets of advertising firms. According to security company Cloudfare, “Bots comprise roughly 50 percent of all Internet traffic. As much as 20 percent of websites that serve ads are visited exclusively by fraudulent click bots.”

Online ad fraud was worth $30 million in 1996. By next year the market is projected to be worth $87 billion. Using analytics tools, marketers should watch for sudden traffic spikes to their website; bounce rates—the number of users who hop on, then immediately off, your site—approaching 100 percent; and a near-nonexistent session duration.

If any of these are prevalent, have a conversation with your ad provider. Ad fraud prevention tools also exist, including AppsFlyer, Adjust, and Perform.

AppsFlyer EMEA and LATAM general manager Gal Ekstein says data collection is critical, but brands also need to go further. “Marketers also need appropriate tools that can process and analyze the data so that they can get the most value out of it. These solutions, which are becoming increasingly sophisticated, are fast becoming a key component in any marketer’s tech stack.”

“In addition, particularly in light of Apple’s update to iOS 14.5, privacy is moving to the forefront of ad targeting,” he adds. “There’s a growing preference for aggregated data over user-level data, and as a result, we’re seeing a rise in contextual, cohort-based targeting, as opposed to targeting based on the behavior of specific, individual users.”

Consumer awareness increases

The jury is still out on just how effective targeted ads are. However, in the wake of the Cambridge Analytica scandal, the January 6 Capitol riots, and a host of electoral frauds worldwide, users’ eyes are now open to the ubiquity and perniciousness of “surveillance capitalism.” Consequently, the FTC and, to a much greater extent, the European Union, have railed against online data collection in recent years. The EU has even tabled plans to ban targeted advertising altogether, prompting fears that such a move would undercut business models and even harm media expression.

In 2018, a Harvard Business Review report asked how targeted ads can be most effective in an age of increased customer awareness. It cites two major problems marketers must address when considering targeted advertising. Firstly, people don’t act logically regarding their privacy: we’ll tell strangers our most intimate details while keeping secrets from our nearest and dearest. The more personal the data (think sex, health, and finances), the less comfortable people are about others knowing it.

Second, people don’t like gossip. A large portion of the data used by targeted advertisers is third-party information gleaned from other websites. This type of data is frequently simply junk. Last July, Adalytics, an ad analysis browser extension, considered fewer than one in one hundred targeted ads relevant. The Harvard Business Review authors found that users targeted with third-party data were 24 percent less likely to express interest in a product.

“There is definitely a ‘creepy line’ for targeted advertisements,” says technologist and writer Robert Quinlivan. “We’re being slowly conditioned to accept privacy invasions as inevitable, but people are still creeped out by the ‘surprise’ factor.”

When it comes to targeted advertising, it’s best to assume that data collection is creepy— and work back from there.

Relevance matters

According to Katie Arena, director of product marketing at dynamic ad startup Clinch, digital advertising should be less about knowing everything about a user and more about providing them with relevant digital experiences.

“When advertisers shift to a mindset of relevancy and seek out ad technologies that foster it,” Arena adds, “they tend to find it easier to avoid the creep factor.” To avoid that creep factor, marketers should bear three points in mind:

  • Trust. Be open about ads, which may manifest in an AdChoice button.
  • Give users the ability to choose which data they share.
  • Explain to users why the use of their personal data is important.

“When it comes to ad personalization, there’s a fine line between creepy and delightful, so it could be tempting to conclude that the safest approach is to keep people in the dark,” the HBR report states.

In the short term, this might work. In the long term, however, it will harm your business. “An off-line analogue may be useful here as a guide: You might gain a temporary advantage by deceiving a friend, but the damage if the deception is discovered is deep and lasting,” the report adds. “Relationships are stronger if they are honest.”

In short, get clever—because Internet users already have. Targeted advertising can seem a complex, Rube Goldberg machine of data points, bots, and bad information. In truth, it’s more a case of choosing the right technology platforms to fight the industry’s many pitfalls. There was a time when targeted advertising was the only future marketers could imagine. That may already be changing.

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