How do targeted ads work? A complete guide

Ads are nearly everywhere online. Watching a YouTube video? You have to watch a video ad first. Browsing Facebook or reading a blog? There are ads left and right vying for your clicks. As a netizen, you likely also come across targeted ads without registering them as such. So how do targeted ads work, and why do they warrant your attention?

How do targeted ads work?

Here’s a likely familiar scenario: You’re browsing on Amazon and looking up yoga mats. You leave the site and log into your Facebook account. Lo and behold, you see an ad for yoga mats. This isn’t a coincidence. These are targeted ads at work. 

When you visited Amazon, the e-commerce giant embedded cookies into your computer. Later, when you’re on an unrelated site, the site reads the cookies on your device and auto-generates ads based on your recent Amazon visit and items browsed.

Types of targeted ads

Personalized advertising can be divided into these categories, though they’re by no means limited to these sub-groups.

1. Behavioral targeting 

Ads are shown based on the person’s online behavior. This includes products searched, time spent on a specific page, purchase frequency, etc. Behavioral targeting is also referred to as interest-based targeting since onsite behaviors yield clues for products likely to interest you.

2. Retargeting

Retargeted ads can be shown to customers who visit a site and partially go through the sales funnel process. For example, a customer browses an item and adds it to their shopping cart but stops short of proceeding to checkout. If the customer remains inactive, the company can show an ad for the same product as a gentle nudge for the customer to complete the purchase. For retargeting optimization, target customers further along the journey, such as:

• Those who have contacted the company with a product inquiry
• Those who have signed up for a trial offer
• Those with a high email open rate

3. Geo-targeting

Ads are displayed based on the user’s current location. People who reside in hot and humid regions, for instance, may be more interested in products like sunglasses, dehumidifiers, and sunscreen than people in colder climates.

4. Demographic targeting

Demographics can be broken down by many variables, such as age, economic status, gender, etc. If you’re a marketer, you’ll want to advertise the latest Billie Eilish album, for example, to a teen and 20-something demographic. Likewise, it makes sense to target a high-income-earning demographic when advertising Rolex watches.

5. Contextual targeting

This is an advanced form of machine learning to determine the most relevant ads. For example, if you read a blog on baby showers, then the AI may interpret that to mean you’re a soon-to-be parent and show ads for strollers, cribs, etc.

Top benefits of targeted ads

Since ads are more personalized to a specific demographic, conversions are naturally higher. This isn’t just conjecture; targeted ads have been proven effective in numerous studies. One study from Lyon University found that targeted ads resulted in 5.3 times more click-throughs compared to non-targeted ads.

The advantages are more customers entering the sales funnel, going farther along the customer journey, and brand loyalty. This results in greater revenue and customer lifetime value.

Targeted advertising best practices

Here are three ad targeting techniques to consider to kickstart your campaign in a positive direction.

1. A/B test often

A/B testing—also known as ad testing or split testing—is an ad targeting strategy that involves trial and error, but can pay dividends. If a customer purchases a yoga mat, you can split-test different ads for related products, such as yoga pants, balance balls, and yoga blocks. If yoga pants yield the highest click-throughs, then readjust your campaign by showing more ad variety of different yoga pants brands.

2. Let the metrics guide you

Targeted ad campaigns need to be data-centric, meaning decisions are based on evidence and real-time insight. An analytics tracking tool is crucial for syncing various data points and yielding metrics that reveal customer behaviors, trends, and purchasing patterns. Metrics will show, for example, the bounce rate comparison between a product page that was visited from a clicked ad and the product page found through a web search.

3. Add conversational marketing to the mix

Conversational marketing is a form of hyper-personalized marketing where a representative speaks and consults with the prospective customer. This is a dialogue-driven approach where the rep listens intently and then proceeds with product-service recommendations. Due to the time-intensive nature of conversational marketing, reserve this for customers who reach the tail-end of the sales funnel and have a high probability of converting. Some companies also opt to use chatbots and AI assistants, though a human representative is always ideal.

Leverage analytics for the best ad targeting results

No matter how you approach ad targeting, one thing is clear: the decision-making process needs to be guided by analytics and real-time data. Acquire analytics and actionable insight with Lytics Decision Engine.