Targeted Advertising - Effectiveness

Effectiveness

The Network Advertising Initiative conducted a study in 2009 measuring the pricing and effectiveness of targeted advertising. It revealed that targeted advertising:

• Secured an average of 2.7 times as much revenue per ad as non-targeted “run of network” advertising.
• Twice as effective at converting users who click on the ads into buyers

One of the major difficulties in measuring the economic efficiency of targeting, however, is being able to observe what would have happened in the absence of targeting since the users targeted by advertisers are more likely to convert than the general population. Farahat and Bailey exploit a large-scale natural experiment on Yahoo! allowing them to measure the true economic impact of targeted advertising on brand searches and clicks. They find, assuming the cost per 1000 ad impressions (CPM) is $1, that:

• The marginal cost of a brand-related search resulting from ads is $15.65 per search, but is only $1.69 per search from a targeted campaign.
• The marginal cost of a click is 72 cents, but only 13 cents from a targeted campaign.
• The variation in CTR lifts from targeted advertising campaigns is mostly determined by pre-existing brand interest.