Targeted advertising: how effective are online ads and what is the future of it?

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Targeted advertising can be annoying for many, and in some cases, borderline illegal - but how effective are they really?

Targeted advertising was almost revolutionary. There is a certain impressive, although slightly dystopian play in monitoring online searches to track patterns and create algorithms to persuade people to manoeuvre towards a product or service. They can often come across as creepy too - as it can predict your next wanted purchase and offers it to you before you weigh up whether you need it. However, for businesses, it can be helpful by creating personalised adverts to cater towards consumers' specific needs and wants which in turn, leads to higher revenue and a more successful business. 

These tailor made adverts appear after users agree to cookies on a site, and this data is then used to generate targeted ads but they are not always used for good. Complaints made in 2018 by privacy campaigner Max Schrems has led to Meta being fined €390m euros (£346m) after an investigation found the tech giant asked users to click accept to their updated GDPR services on Facebook and Instagram. If users did not accept, then they could not use the site. This means that Meta was almost "forcing" people to consent to their data being used for targeted ads.

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So just how effective are targeted adverts, and is targeted advertising the way of the future? 

Is targeted advertising effective?

Boomathi Boominathan, head of data analysis at Preciso, says: “Targeted Ads are the holy grail of advertising – getting the right ad to the right person, at the right time.” She says that targeted ads help businesses waste less time and money on people who are less likely to become customers. There is a certain art to these types of ads, as minus the targeted part, it would “run according to the same metrics as television commercials” and leave niche interests underserved. 

Precio is a real-time bidding (RTB) marketplace, and through its flagship Smart-Bid technology, and use of actual customer journey and machine learning it can predict customer behaviour to calculate which display ad placement to buy. For the advertisers, “targeted ads are incredibly effective in helping find an audience that has a need for the products or services we are advertising” Boominathan says. She further explains: “Brands can improve their reputation by presenting relevant ads and valuable content to the audiences that are likely to appreciate them.”

Targeted advertising can be annoying for many - but how effective are they really?Targeted advertising can be annoying for many - but how effective are they really?
Targeted advertising can be annoying for many - but how effective are they really? | NWLD/KM

According to Preciso, general studies have found that 71% of customers prefer personalised advertisements, personalisation in digital marketing can boost revenue by 15% and personalisation encourages repeat purchases, with 44% of customers becoming repeat buyers with ad personalisation. 

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For targeted advertisements to appear, Boominathan says advertisers will use data collected on the user which can include demographic information and behavioural data. For example, if a person views a certain product on a website, their browser will submit this piece of data to third-party advertising networks and that information will be stored in a browser cookie - a snippet of code showing sites a person has viewed. From there, contextual targeting will match the adverts content with the context in which it's placed. 

Guillaume Kendall, CEO and founder of the Attention Exchange, set up his business due to the “lack of effective advertising from one particular brand”. During the first Covid lockdown, Kendall spent a few hundred pounds with a company, and was later “interrupted on every website, every YouTube video, every place I was finding myself online with advertising.” He expands by saying that the advertising was driven by the fact he did a search and once he landed on that website, and they hadn't clocked he had checked out and I was now a customer. Kendall says that he went from feeling very positive about a brand to being frustrated that he was constantly interrupted by the same brand.

This led to the birth of the Attention Exchange where Kendall and his team created an alternative to cookies and tracking pixels. Instead, they used consented customer banking data. In Kendall’s case, this form of tracking would have seen his spending and left out the targeted advertising for a few months until it was ‘time’ to replace the product Kendall originally used. 

The Attention Exchange may be the future of targeted advertising. Kendall says they think that “the right way to target somebody is based on where they're spending their money.” He says their click-through rate is 34%, and the reason for that is people are not being interrupted and annoyed with adverts they don't want to see. The user, however, needs to opt-in and it does depend on users giving live access to their bank transactions. 

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The way this form of targeted advertising works sees the consumer download their app, connect a bank account, give clear consent and an engine will then match relevant ads from their campaigns. Attention Exchange then stays connected for 90 days until the consumer refreshes consent. 

What should be noted about Attention Exchange is its audience is largely Gen Z. Kendall explains that whilst older generations have more disposable income, they’re also more protective when “you say connect your bank”, but there is also a problem in getting an ad noticed. He says: “I think you'd be hard-pressed to find somebody from an older generation who says, oh, yeah, I saw this great ad on this website.”

“Certainly my father couldn't tell you the last ad he saw. It doesn't resonate. People have become blind. I think a lot of older people have invested in ad blockers where they actually pay for it on a monthly basis. People want to block ads.”

The future of targeted advertising

Kendall thinks that targeted advertising is becoming less efficient, and “under a massive strain” as you can now opt out of being tracked on iOS14 and Google has announced a removal of third-party cookies in Chrome which means the whole ecosystem of ads is changing. 

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Boominathan acknowledges that data privacy is undergoing a major evolution and that although third-party cookies are vital in targeted advertising strategy, first-party can also help. She says: “First-party data is powerful because it’s gathered with the expressed consent of users, and it establishes a reliable way to reach them in the future. Another valuable data source is contextual data. 

“Media companies will still have data on their subscribers and members, which advertisers can use to target effectively.” She thinks “Third-party data, combined with machine learning and AI, is paving the way for the future of targeted advertising.”

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