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  • Evah Fan
  • Business Impact

    Digital Advertising Takes a Hit

    Big-name advertisers have begun to question whether they’ve placed too much faith—and money—in targeted advertising.

    Since its infancy in the 1990s, the digital advertising industry has trumpeted the special power of digital ads. Unlike newspaper or television ads, online advertising can be aimed precisely at the very people a company wants to reach, so businesses won’t waste money by showing ads to those consumers outside predetermined parameters.

    Then last year Procter & Gamble’s chief marketing officer, Marc Pritchard, declared that the company would pull back on ad targeting on Facebook. One of a number of recent announcements by Pritchard regarding P&G’s dissatisfaction with digital advertising, the news led some to question the value of digital advertising’s distinguishing characteristic: its capacity to target narrow segments of the population.

    P&G’s reëvaluation of its approach is part of a trend that appears to be growing among advertisers, says Tom Riordan, special operations consultant at Adobe Advertising Cloud, a platform that helps advertisers manage ad strategy and measurement (see “The End of Internet Advertising as We Know It”).

    The movement has yet to show up in the overall numbers, however, as digital ad spending continues to climb. Research firm eMarketer predicts that U.S. digital ad spending will experience double-digit growth from $83 billion this year, or about 40 percent of the overall projected $206 billion that will be spent on all advertising in 2017, to more than $129 billion in 2021. Typically, the more targeted the ads, the higher the prices.

    The types of digital targeting that can boost ad prices vary widely. Targeting allows businesses not just to advertise a pair of shoes or an SUV someone just looked at online but to aim ads based on geographic, demographic, and psychographic data (see “Has Big Data Made Anonymity Impossible?”). Or audience targets can be narrowed based on data from a wide variety of providers, such as information about previous purchases or about the current weather in a consumer’s location.

    But how effectively does that information work to meet advertiser goals? As advertisers including P&G, which spends billions of dollars each year on all its advertising for brands including Crest, Old Spice, and Gillette, have tried to assess the effectiveness of their increasing digital ad budgets, they’ve discovered that hyper-targeting consumers doesn’t always work.

    When a beer brand wanted to hit a thin slice of the male audience, calorie-conscious men aged 21 to 27, Adobe tested the tactic and showed the client that perhaps it was looking through the wrong goggles to gauge success. By making its ad campaign less targeted, the brand lowered the cost of each ad impression and in the end sold more beer. Opening the target audience to a wider 21-to-34-year-old range led new households to purchase the product, Riordan says.

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    Advertisers are certainly not abandoning the practice of targeting ads, but they are realizing that sometimes their original targets are wrong. When aiming ads for its fitness apparel at the 18-to-24-year-old men who wore it, one advertiser realized it was “mothers and wives buying for their sons and husbands” who were really driving the sales, says Ric Elert, president of Conversant, a digital ad firm whose roots are in direct or personalized digital marketing.

    “The answer is not whether you should do refined targeting or not. Of course you should do refined targeting,” says Irwin Gotlieb, chairman of GroupM Global, the media agency that controls the largest chunk of the world’s ad spending, which works with P&G in international markets and its competitor Unilever overseas and in the U.S.

    The mistake companies have made, he says, is to rely too much on targeted advertising, cutting too far back on broader advertising that builds brand awareness with people outside the existing customer base and eventually leads to new sales. A heavy emphasis on targeting can sometimes improve a company’s return on its advertising investment in the short term, says Gotlieb, but lead to a loss in market share over time.

    Rather than a referendum on all digital targeting, pronouncements by companies like P&G may be a sign of maturity in the online advertising market as it assesses what this strategy can do very well and what it cannot.

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