Online ads deliver the measurability C-Suites are looking for, but is that all that matters?

Imagine you’ve been planning to hit the gym. You’ve had conversations with friends about which gyms to consider. Then one day, while scrolling through social media, an ad pops up. Guess what? It’s a nearby gym’s ad! Dang! Exactly what C-Suites are looking for: ads served only to those interested in the offer.

It doesn’t end there, as you hop from one website to another, you see more ads related to fitness. At this point, you’re curious—why are these ads popping up now? Is someone watching you? Has your phone been tapped? 

The truth is out there. Read on and let’s uncover it.

Behind these ads chasing you is a system that allows advertisers to track people whose online behaviour and/or profiles match that of the advertiser’s target audience. This is done in a couple of ways:

• On one hand, certain algorithms track our online activity to determine our areas of interest, and then match us with ads for the things we’re interested in.
• On the other hand, there are algorithms that use our demographic and/or psychographic profiles to match us with ads that similar demographic and/or psychographic profiles have shown interest in. 

This algorithm-driven form of advertising, which allows advertisers to only target people who are most likely to be interested in what they sell, has made advertising more efficient… or has it?

Yes, online ads appear to be doing a better job at targeting; but this sharper targeting is largely preaching to the choir.

First, let’s look at an illustration: You drive down to the pizza shop you’ve heard so much about lately. Just as you’re getting out of your car, someone hands you a flyer for the same pizza shop you’re about to enter, or it might even be a flyer for a competing pizza shop. At this moment you might wonder, “What’s the point? I already know which pizza shop I’m trying today. Now isn’t the time to change my mind.” Or, “This other pizza shop looks really good, but if it is as good as it looks, how come it’s not the one I heard about?”

Think about everything you heard about the pizza shop prior to going there as awareness driving advertising and word-of-mouth, and the guy with the flyer as that online advertisement that keeps chasing you, even though you’re fairly sure of which brand you’re buying from.

This illustration highlights one of the problems faced with algorithm-driven advertising. Just as the guy with the flyer was trying to convince you after you were fairly sure of what you wanted, the algorithm-driven advertisement might be making the pitch too late. 

With this in mind, one realises that it’s difficult to determine whether algorithm-driven advertising significantly drives purchase intent, because for advertising to be impactful it needs to spark an intention to purchase.

Catherine Elizabeth Tucker, Professor of Management and Marketing at MIT Sloan, after leading a study on algorithm-led advertising went on to say, “Only about 2% of occasions did you see the ad had any effect on what we are gonna call purchase intent.”

Again, in an experiment carried out by Steve Tadelis, Professor of Economics at UC Berkeley and a leading expert on e-commerce and internet economics, switching off eBay’s algorithm-led advertising had no impact on sales.

It is therefore not surprising that after seeing the results of skewing their budgets heavily towards algorithm-led advertising, the world’s biggest advertisers appear to be realigning their budgets to include algorithm-led advertising without compromising allocations towards advertising activities that drive purchase intent.

Sharp targeted measurable ads are good but, in order to succeed, you need to stray beyond them into areas that are more difficult to measure.

Clearly, it is important that advertisers do not only show up when their target audience is about to make a purchase. What is important is that by the time the target audience is in a buying situation, the first brand they consider buying from is the advertiser’s brand.

It is even better if in addition to being the first brand that your target audience considers, you also show up when they are about to make a purchase. If you only show up when another brand has been considered, as these algorithm-led ads do, you will have the tall order of trying to change an already-made-up mind.