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Flashcards in 6. Digital Advertising Deck (10)
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Entities in digital advertising

  • Customers
  • Publisher 
  • Search engine
  • Ad platform
  • Advertisers (firms)


Digital Advertising Strategies

Search Advertising

  • Goal: Create awareness/interest

Display ads in search-engine results whenever someone searches for the services or products by the advertiser

  • Advertisers bid on certain words
  • Highest bidder wins the auction



Digital Advertising Strategies

Display Advertising

  • Goal: Awareness/Interest
  • Advertisers bid on customer 
  • Highest bidder wins the auction



Digital Advertising Strategies


  • Goal: Consideration/Conversion
  • Advertisers bid on customer (based on browsing information)
  • Highest bidder wins the auction


How to measure effectiveness

  • Number of people who see the add
  • Number of people that click the add
  • Number of people that click the ad from all that have seen the ad
  • Number of people who buy


Types of Digital Ads Contracts

  • Cost per Thousand
  • Cost per Click
  • Cost per Action


Challenges measuring ad effectiveness 

It is difficult to measure returns on advertising:

  • Power (efficiency)
    • Small effect require prohibitively large datasets
  • Activity bias
    • More active users are more likely to be exposed to ads
  • Attribution problem
    • Last-click attribution discards potential effects of previous exposures 


Ad platform reporting systems

Allow us to answer the question:

  • How many people purchased after seeing an ad?

But not the question:

  • What was the incremental uplift due to the ad?

Research Questions:

  • Do ad platforms bid in the true interest of firms?


Ad platform and firm want to target different consumers

There seems to be an incentive misalignment between the consumers the ad platform targets and the consumers the firm wants to target.

To assess the presence of incentive misalignment, we need to empirically assess the distribution of consumers in the space.


Field Experiment in Retargeting

A large-scale randomized field experiment with major European e-retailer selling consumer electronics

  • 80% of consumer are confronted with retargeting ads
  • 20% of consumer are confronted with charity ads


  • Ads to generally increase consumer purchase probabilities
  • Ad platforms target consumers with high baseline purchase probabilities
  • BUT: Consumers that are targeted are not more receptive to ads
    • Incentive misalignment results in a loss of 6% in total welfare
    • Ad platform creates only 63% of value it appropriates