What Is Targeted Advertising?
Updated · Mar 06, 2023
In today's competitive marketplace, businesses are always looking for ways to get ahead of the competition. The internet has created a whole new field in advertising, and companies are taking advantage of every opportunity to reach their target customers.
As a result, networks are constantly strengthening their advertising offerings, and targeted advertising has become one of the most effective tools in a business's arsenal.
However, the practice is not without its critics, especially concerning user privacy. Join us as we discuss the targeted advertising definition, how it works, and some controversy around it.
What Is Targeted Advertising?
Targeted advertising involves businesses tracking consumers and targeting those most likely to be interested in their products.
It allows businesses to focus advertising efforts on consumers who are more likely to convert, resulting in a higher return on investment and less wasted spending.
Targeted advertising has become increasingly prevalent in recent years, as technology constantly is making it easier for businesses to collect and interpret data.
As a result, those who utilize targeted advertising can often achieve greater success than those that do not.
How Do Targeted Ads Work?
You’ve probably seen ads targeted at you before—advertisements that seem to follow you from site to site, often suspiciously centered around products you’ve been researching or surprisingly relevant to your interests.
How do the ads do this?
More often than not, through cookies.
Cookies are small bits of data that sites load into your browser so that they can follow you around.
These cookies track you around the internet and gather information on your interests and habits.
When the companies get this info, they can serve you targeted advertisements based on it. This is just one part of the data market, which is so enormous that an estimated 99% of collected data is never even analyzed.
Now, you may be wondering if this is legal, and the answer is yes, with a few caveats.
Recently, the practice of using cookies has come under some scrutiny, as it allows companies to collect a vast amount of data on users, often without their knowledge or consent.
As a result, cookies are now governed by the GDPR in Europe, with 67% of Americans saying they want similar protection in the USA.
The GDPR requires websites to get explicit consent from users before storing tracking cookies on their computers. Failure to compile can result in fines of over $24.4 million.
This means that previously, websites could force cookies on everyone, but they must now allow users to choose whether they are tracked if they are from Europe.
Consequently, targeted ads are not as pervasive as they once were. They’re still a feature, but businesses have learned not to hedge their bets on them for the long term.
Do Targeted Ads Work?
Now you know how targeted ads are crafted, but if you’re running a business, you want to know if they work.
According to a study by Harvard Business, they most certainly do. Targeted adverts are shown to the people most likely to be interested, meaning that some of the guesswork of advertising is eliminated.
The more data a company collects, the more it can fine-tune its advertising.
This is part of why advertising is a business worth over $350 billion. Ads targeting is one of the strongest benefits of online advertising vs. offline advertising.
Of course, as we mentioned, there is some controversy around them. Users may be put off by ads that feel intrusive, and then they’ll have the opposite effect.
So what can you do?
It’s all about targeting the correct categories.
Targeted Ads Examples
There are four main categories in which ads can target users:
Location-based ads are the simplest form of targeted advertising.
Businesses can set ads to be targeted to people in a specific place. This can be great for stores with a brick-and-mortar presence in a particular area.
This type of tracking is somewhat accepted, as long as the general area is tracked rather than each step.
Ads can also target people based on their behavior, such as their prior purchases or what they have been searching for online.
Users are likely to appreciate recommendations based on previous purchases because it’s part of their ecommerce activity.
People appear uncomfortable when targeted internet marketing strays away from purchases and starts including things that have to do with them searching for info on sensitive personal subjects.
Interest-based ads go off people’s interests, such as the music they like and films they enjoy, but they can be broader and include interests in social causes and political movements.
Again, targeting users based on their entertainment preferences isn’t likely to spook them, but social and political interests are a lot more “charged” and could make them uncomfortable.
The final area of targeted marketing online is demographics.
Here we mean users’ gender, race, age, and sexual orientation.
Due to how personal these things are, they are the most likely to make users uncomfortable.
Moreover, these ads have raised concerns about topics such as radicalization and a skirting of accountability by allowing groups to micro-target, effectively allowing them to advertise away from prying eyes.
The concern is that nefarious parties could use such advertising to influence users to join their cause and that the fact that this data is being cataloged could be dangerous.
In fact, due to backlash over this form of targeting online, Meta restricted the ability of advertisers to target “sensitive categories” in early 2022.
Tips for Targeted Advertising
Targeted advertising can be a great tool, but it must be done correctly.
First, you need to ensure you, or the advertising network you’re using, abide by the relevant online laws. As we’ve already pointed out, this can differ from region to region.
As an online business, there is a good chance you’ll deal with European customers, and so you must be GDPR compliant.
Next, you need to make a careful decision about what categories you’re using for targeted campaigns. You could try and target them all, but we’d recommend sticking to those least likely to upset your customers.
Being sneaky may be tempting, but trust between you and your customers is essential for any sustainable business.
Let's summarize what is targeted advertising.
Its advertising served to a specific audience. As you’ve just seen, there’s more to targeted advertising than its definition.
It’s an effective advertising method, but it can be tricky to get right on multiple fronts.
To do it well, a business needs to be careful about what it targets, obey the law, and be transparent.
Remember, advertising is just one part of marketing; the primary focus should be on creating a long-term relationship with your customers.
Garan is a writer interested in how tech reshapes the environment, and how the environment reshapes tech. You'll usually find him inoculating against future shock and arguing with bots.