Jun 01, 2019 - 01:50 PM
Image credit: WSJ.com:
Interesting question because just a few days ago, the Wall Street Journal published an article about it. Their conclusion was behavioral advertising works only slightly better (about 4%) than regular online ads. But because the cost is usually more than 4%, it is simply not worth it for most advertisers, unless your customer lifetime value is really, really high!
Here's an excerpt from the article:
But in one of the first empirical studies of the impacts of behaviorally targeted advertising on online publishers’ revenue, researchers at the University of Minnesota, University of California, Irvine, and Carnegie Mellon University suggest publishers only get about 4% more revenue for an ad impression that has a cookie enabled than for one that doesn’t. The study tracked millions of ad transactions at a large U.S. media company over the course of one week. That modest gain for publishers stands in contrast to the vastly larger sums advertisers are willing to pay for behaviorally targeted ads. A 2009 study by Howard Beales, a professor at George Washington University School of Business and a former director of the Bureau of Consumer Protection at the Federal Trade Commission, found advertisers are willing to pay 2.68 times more for a behaviorally targeted ad than one that wasn’t. Much of the premium likely is being eaten up by the so-called “ad tech tax,” the middlemen’s fees that eat up 60 cents of every dollar spent on programmatic ads, according to marketing intelligence firm Warc.
The study on how much advertisers are willing to pay was done in 2009, ten years ago, which is a 100 lifetimes in the online world! I wonder how much more advertisers are willing to pay today.
The study on the performance on the ads is hot of the press, published in May 2019. Here's a link to the full paper:
Jun 06, 2019 - 11:43 AM
Cindy M’s answer is excellent, and I want to add to it by digging a little deeper into how behavioral advertising works, and looking for any cases where it might still be a good idea in spite of the costs.
How Behavioral Advertising Works
The hype around behavioral marketing hinges on the idea that the more you know about a customer, the easier you can sell to them. This seems so obvious as to be pure common sense, but of course, it has to be balanced with other factors like cost-effectiveness.
Behavioral ads get shown to select customers based on their prior online behavior. Things like which sites they visit, how long they stay on those sites, and what they click on seem to tell you something important about what kind of shopper they are.
And certain aspects of behavioral advertising are now so ubiquitous that online shoppers have come to expect it - few people are surprised anymore by seeing targeted ads from sites they’ve browsed in the past, for example.
The Benefits of Behavioral Advertising
Several studies appear to show some benefits of behavioral targeting, aside from the one cited in the WSJ article. Retargeting fares especially well in these studies: it’s significantly better than many other strategies at growing new search queries, for example.
Even Kimberly-Clark, a fairly bland paper goods company, has reported 50-60 percent conversion rates from retargeted ads.
Behavioral targeting can work well, then - but only when customers are receptive to it. Some forms of targeting seem less obtrusive than others. Consumers will notice behavioral targeting, but they aren’t always opposed to it.
One study found that thirty percent of online shoppers reacted positively to retargeted ads, while sixty percent were neutral. (However, those numbers are from 2013.)
When Behavioral Advertising Isn’t Worth It
The success of behavioral advertising largely hinges on consumer receptiveness. But as online privacy becomes a greater concern for many consumers, that receptiveness may be harder to find than it once was.
And that’s where behavioral advertising runs into problems: it’s more creepy than cool in the eyes of many shoppers.
Retargeted ads that bring up a website someone’s visited before may not seem terribly intrusive. However, an ad based on a search query or prior social media behavior looks more nefarious: it’s a reminder that brands are watching what you do online, even when you’re not actively shopping on their site. While many consumers are aware of that fact, they don’t often like being reminded of it so starkly.
Lots of consumers also don’t fully understand when or how companies collect and use their data, which can make targeted ads look even more unsettling.
A 2016 literature review found that most U.S. adults don’t want personalized ads, and consider them “creepy marketing.”
The news cycles of the last few years haven’t painted online privacy issues in a more positive light, so it’s not likely that consumers have become more receptive to these ads since 2016.
Behavioral targeting, by definition, creates the uncomfortable feeling of being spied on. If brands want the benefits of behavioral targeting, they first have to find a way to minimize or eliminate that feeling. However, because of the way behavioral ads work, that may not be possible.
And the WSJ is not the first to report that the combination of creepiness and higher advertising costs can result in lower ad revenue.
For example, the New York Times reported a growth in ad revenue after eliminating behavioral targeting in Europe following the GDPR agreement. Behavioral targeting sounds beneficial, even common-sense, at first glance - but the numbers just don’t back it up.
With new rules like the GDPR, this type of advertising also becomes riskier. One privacy mishap can result in hefty fines. In fact, TechCrunch predicts that someday, this type of advertising could become altogether illegal.
Ultimately, the benefits of behavioral ads seem to rarely outweigh the drawbacks, although there may be exceptions. Retargeting, for example, seems to register as less creepy than other types of behavioral advertising. But in the end, behavioral marketing may go the way of neuromarketing: a once-hyped concept that proved useless, even detrimental, to brands.
Jun 06, 2019 - 06:35 PM
The answers above are thoughtful and thorough, but they seem to confuse the question of whether behaviorally targeted ads are “worth it.”
To the marketer, BT ads are worth a big premium price — and they are paying that premium because of higher returns.
The the owner of the behavioral data, obviously, BT ads are worth it, and they are making bank on licensing that data.
To the publisher, BT ads are only moderately more lucrative — that’s what the study referenced WSJ shows. The lesson is that the publisher is the “dumb inventory” in this value chain, and receives the smallest benefit. That’s all.
Nielsen recently released a study of dozens of digital ad campaigns and measured thenROI on different forms of targeting. Some are below avg. (sorry, demographics) and some are well above (like shopping history). BT delivers positive returns, after considering increase cost for marketers.