What Is Targeted Advertising & How Does It Work?

Mobile subscriptions are estimated to reach 5.7 billion or 71 percent of the global population by 2023. Users have turned to smartphones, and most of them have social media accounts. How to find the right customer in this massive and active audience? The following article will tell you its essence, main principles, and critical settings.

A brief overview

1. How does it work?
2. What do the main targeting formats look like?
3. Targeting vs. context
4. Clients or why targeting isn’t for everyone
5. Social media for targeting
6. Additional information
7. Efficiency
8. What is the price?
9. Before-setting-your-targeting check-list
10. Customer’s portrait and how to create it

How it works

Targeted advertisement showcases promotions on social media, applications, and users’ websites. This ad meets «targeting points» — particular criteria such as age, sex, education, geolocation, and behavior. Targeting is usually associated with social media targeting campaigns. Those interested in the offer and who can buy the product are called the right audience.

Targeting performance

1. While signing up, a user consents to process given personal data such as date of birth or age, sex, education, and interests. These parameters are needed to cherry-pick the required categories of users;
2. The intelligent system evaluates users' behavior. If a given user provides a small amount of personal information, it is possible to specify the smartphone’s model, geolocation, and the response to publication on social media. The system will decide whether it is practical to sho,w the ad to the specific user. The more precisely one describes the right audience, the better the targeted advertising campaign.

The launch of targeting campaigns begins with a description of the target audience. The more accurately the advertiser defines the target audience, the more effective the promotion.

Types of targeted ads

A few basic parameters are common to most social networks to set up audience targeting.

• social-demographic metrics like age, sex, education, occupation e.t.c;
• geotargeting determines where to show ads in terms of towns, streets, or any specified range from a given point;
• the behavior of customers on the web is related to click-through rate, purchases, and website traffic;
• user interests, liking, values, opinions based on requests, subscription-based on interests;
• time targeting, which enables to show ads at a specific time.

The main formats of targeted advertising

• in the feed;
• in stories;
• when leaving to the next page;
• in recommended;
• in reels;
• in the left or right screen column on social media while using the desktop version.

The visual component plays a decisive role: the headline, text, and creativity. The attractiveness of the creative determines whether it «hooks» the user. There are many ad formats to convey the information about the product, not overloading a potential client. 

Generic post or button post

It can be seen in the feed, and blends in perfectly, being hardly distinguished from all news and posts.

A call-to-action button can be placed on the generic post to redirect a user to the landing page.

Carousel

It contains from 2 to 10 images, enabling an independent link on each of them. The format is suitable when one picture is not enough to show multiple features or different goods.

Slide-show

There are multiple images with a soundtrack to resemble a video-like experience. This format is not as resource-demanding as video. It may be crucial for those who use slow internet, and a slide show is worth adding to social media marketing strategy.

Advertisement in stories

Ads take up the entire screen. Therefore, it grabs the user's attention completely.

Video

Streaming advertising videos to publish on Facebook or Audience Network (advertising network within mobile apps).

Targeting vs. context difference

Sometimes targeting advertising is confused with contextual advertising. Both are effective in promoting a product but do it differently.

Who needs and doesn't need targeted advertising

PPC experts believe that targeting advertising can be used for absolutely any business. Depending on the niche and the business objectives, the main thing is elaborating the sales funnel stages and choosing the appropriate goals for campaigns, audiences, and creatives. And to evaluate their effectiveness by the required KPIs.

Here's the classic advertising funnel:

• see — don’t know about the company and its products;
• think — know about the company and its product, but never bought anything;
• do — users who wanted to buy something and got interested in a product;
• care — those users who made a purchase.

Funnel operation phases in advertising

Depending on the complexity of the product, advertising budgets and business objectives, it is necessary to work at different levels of the funnel.

Bogdan Voloshin, Middle PPC Specialist at Netpeak:

You can effectively promote B2B through social media ads if you appropriately target those who make business decisions. For example, on Facebook, you can target by position.

Below there are some benefits of targeted ads as well as disadvantages.

Targeting has some apparent benefits:

1. Work only with the target audience, thanks to forming an accurate portrait of the client on the given parameters.
2. Personalization of ads. You can divide your audience into segments and create relevant ads for each user group.
3. Fast optimization of campaigns. Statistics are instantly reflected in the advertising cabinet; this allows you to quickly analyze them and make the necessary changes in the advertising settings.
4. Ability to promote products/services or get leads when there is no website. For example, when a user clicks on an ad, he goes to the brand's page in a social network or to a form where he can leave his contacts.
5. The presence of tools that work to expand and warm up the audience: look alike, retargeting (more on that later).

Targeting drawbacks:

1. Strict moderation of creatives. Each site has its requirements based on the law or the policies of the social networks themselves.
2. Audience burnout. To keep users interested in the product, you have to constantly change your creatives and maintain their quality at the appropriate level.
3. Differences in settings in different social networks. You need to know the specifics of each platform, as they differ from each other.
4. Complexity for beginners. Setting up targeted ads requires experience in determining the target audience, choosing ad formats, conducting A/B testing, the ability to combine several types of promotion, and other skills.

Alexander Kovalevich, Pre-Middle PPC Specialist at Netpeak:

In addition, it is essential to fit targeted advertising into the overall marketing strategy — to interact with users comprehensively across all traffic channels. For several products and services (car sales, where the brand and model are essential), it is more appropriate to search advertising to close the existing demand and then target advertising on social networks.

Social media for targeting

Choosing those advertising platforms whose subscribers align with your client's portrait is necessary. At the same time, the audiences of social networks overlap, and you can find your potential client on several channels.

According to a DATAREPORTAL report, 25.7 million Ukrainians (58.9%) are users of social networks.

According to another study, 74% have accounts on one or more social networks, and the most popular:

• Facebook 61%;
• YouTube 46%;
• Instagram 35%;
• Telegram 20%.

Targeted ads on Facebook

The Ukrainian audience of this social network is 24 million people. 26% account for the largest age group — 25-34 years old, with users aged 35-44 years in second place.

There are advertising formats for mobile and desktop versions and recommendations for their placement on different placements.

Targeted ads on Youtube

YouTube is Google's largest KMS site. 96% of Ukrainians watch videos on YouTube and spend 40 minutes a day on the site. Targeted advertising campaigns are also applicable there.

The platform combines the functions of a social network and a search engine. There are targeting settings by topic and audience parameters. These parameters enable you to select specific YouTube channels with a similar audience if related to monetization.

Six video ad formats are available.

Targeted ads on Instagram

The number of Instagram users in Ukraine is 14.3 million, with a predominantly female audience. Ads of different formats are placed in the feed and stories.

Targeting on Telegram

Telegram is not a social network but a messenger, and there are no tools to describe the target audience. But this does not take away from the fact that it has many users, and the advertising purchase is very active. However, it is not a merit to targeted ads. Here the most common way to promote — is the purchase of advertising in channels. When the place for advertising according to the target audience is selected manually.

For all that mentioned above, we launched ads through Telegram Ads last year.

What else do you need to know about targeting?

Special targeting tools allow you to expand your audience. To implement them, you need a social media pixel.

Social media pixel and its potential

This is a unique code that tracks the behavior of visitors to a site or app. The social media advertising cabinet generates its own pixel. This code should be added to your site. For example, browsing the feed, the user sees an ad and clicks on the link. If there is no pixel, his actions on the site will remain unknown.

Following the installation and setting up, pixel performs as follows:

• identifies site visitors with a subscription to a social network;
• tracks the user's behavior on the site: visited pages, buttons of interaction; whether the user made a purchase or just added a product to the cart;
• sends information about the visitors' actions to the social network advertising cabinet.

The data collected allows you to segment users in different ways; for example:

• those who put the item in the cart but didn't pay for it;
• those who visited the contact page;
• those who were interested in particular products;
• those who stayed on the site for a certain amount of time.

Installing the pixel expands your targeting options and allows you to:

• set up remarketing;
• shape a look-alike audience;
• optimize your audience.

Remarketing/retargeting

Remarketing and retargeting are names for the same technology. These ads target users who have already visited your site and are interested in the product but haven't completed the action. Put the product in the cart but didn't buy it.

Often the potential customer forgets about the site visit. Retargeting in social networking aims to remind about the product and lead the user to buy, register, and subscribe. Since he is already familiar with your offer, the chance for the desired action is higher.

How does it work? The social network pixel placed on the site «remembers» every visitor and their behavior. It creates user lists — remarketing lists: for example, a list of people interested in your contacts or people who put items in their cart but didn't make a purchase. After the specific settings in the social network's ad cabinet and Google Tag Manager have been made, Pixel automatically sends ads to these particular users.

Look-alike audience

Look-alike is a tool for finding new potential customers among those registered in the network, similar to your existing clients. The method also adds an audience similar to your competitors’ one.

Create an initial audience from your base with a pixel. The network builds a look-alike audience according to these parameters for the target action.

The neural network needs to be trained to find a look-alike audience, so the initial user base must be extensive. Facebook works with any number of users, but at least 100 people from one country are recommended.

Ad campaign optimization

By tracking targeted actions, you can improve your campaigns. Say you run three ads in one campaign. Two of them were generating bids thanks to the code, and one was not. Accordingly, you will disable the ad that is not working and reduce spending. Or you can exclude from displaying the segment of users who won't be interested in your offer.

Advertising Effectiveness

To fully assess the ad campaign's success, you need to understand its effectiveness. That is, to know whether the goals of the advertising campaign were achieved at a specific cost.

Target or KPI (Key Performance Indicators) is set before the launch of advertising: for example, applications not more than $100 or ten registrations per day. Or you can set KPI for coverage. This figure is essential for increasing brand awareness: the higher it is, the better. Let's say 300,000 unique users per month.

Here are some indicators to measure the effectiveness of targeting:

1. CR (conversion rate) — conversion rate. CR is the ratio of conversions on the page (targeted actions) to the number of visits. The indicator characterizes users' interest in the proposal and is expressed as a percentage.
2. CPM (cost per mille) is the price per 1,000 impressions. This figure is most often used in targeting. It is calculated as the ratio of the cost of placing ads to the number of impressions multiplied by 1000 in monetary units.
3. CTR (click-through rate). The number of clicks on the advertisement to the number of presentations in percent. It characterizes how much advertising interests users. CTR depends mainly on the quality of ads: the relevance of the title, text, and creativity.
4. CPA (cost per action), CPS — the price per action or sale. It is an indicator of the ratio of advertising costs to the number of target actions (sales) in monetary units.
5. ROI (Return on Investment) or ROMI (Return on Marketing Investment) — is an indicator of return on investment in the project: In the first case, we are talking about the return on any investment; in the second case — the return on marketing investment. The formula for both is the same:

ROI = (Return on Investment — Cost of Investment) / Cost of Investment * 100%.

The indicator shows whether the campaign is profitable or unprofitable. If expenses return, the value is positive. The optimal ROI for different types of business differs. But in any case, you should strive to exceed 100%.

How much is the ad?

The cost of an advertising campaign depends on many variables. Estimating your budget is worth calculating whether it will be effective in advance.

Auction and other factors

Advertising messages are shown based on the results of an auction: ads with higher rates have more chances among competitors. You either pay for clicks on ads or pay for displays.

There are many factors to affect the ad cost. The main of them are the following:

1. The competitiveness of the niche. The higher it is, the more expensive the advertising will be.
2. Payment method. Depending on your goals, you choose it in the settings:

• CPM (Cost Per Mille) — payment per thousand impressions;
• CPC (Cost Per Click) — cost per clicks.

3. The selected social network. They differ in payment models, auction algorithms, minimum bid sizes, and daily limits.
4. Audience settings. Different segments have different costs. Adjusting the portrait of the potential client allows you to optimize the budget.
5. Geography. Advertising in big cities is more expensive than in small ones. Consider this if you advertise in towns of different sizes to separate such campaigns.
6. The daily limit and duration of the advertising campaign. Based on the budget, decide when the ad presentation will be and the maximum budget per day. These settings allow you to distribute money evenly over the entire period of the advertising campaign.

The average cost per thousand impressions from fall 2020 to October 2021 went from $5.75 to $7.7.

Source

What the budget is made of

Although there are many variables in the cost of advertising, this figure can be predicted. Before you plan your budget, let me remind you to determine the advertising campaign's goal. For example, you want to get 300 orders on the site. Other inputs are also needed for the calculation: you can take them from statistics if this is not your first advertising campaign.

1. Average check. The indicator is needed to calculate the income from sales to attract customers. If the average bill is $2000, the income from advertising will be $300 orders * $2000 = $600 000.
2. How much are you willing to pay to attract one customer: $200. Based on this, you may give us a preliminary budget for the campaign: $200  * 300 orders = $60 000.
3. CR is your website conversion rate. Using CR calculate how many conversions to the website you need to have for them to be converted to leads. The conversion rate is 4%, which means that 300 / 0,04 (4%) = 7,500 visitors need to come to the site.
4. CTR — clickability. The test campaign will determine its value. For preliminary calculations, take the average value — of 1%. To get 7500 visitors to the site, you need 7500 / 0,01 (1%) = 750 000 hits.

Now you can calculate the rates: CPM — cost per 1000 clicks will be ($60 000 / 750 000) * 1000 = $80, and CPC — cost per click — $60 000 / 7500 = $8.

So you have predicted the critical CPM and CPC values. Next, the test campaign will determine their final values and CTR. On average, 20% of the budget is allocated to it.

The costs of $60 000 are not final. You still need to add to them:

• 20% — testing costs;
• 20% — VAT;
• 10% — commission for replenishing the account in the advertising cabinet;
• 10% — minimum service rate of advertising specialist.

Total advertising costs in the example would be $96,000, and revenue from it — $600,000 - $96,000 = $504,000.

This is a preliminary calculation that needs to be verified by testing. In addition, adjustments may need to be made during the advertising campaign to meet the intended KPIs.

If there is no analytics on sales, for example, if you just started a business, determine how many customers (200) and the level of income per customer ($1500) expect. Designate the amount you are willing to pay to attract one customer ($100) and multiply it by the number of customers you want to attract (200). Then the budget will be $100 * 200 customers = $20 000. To calculate the cost per click, take the average metrics.

Before setting up a targeted ads checklist

Launching targeting campaigns requires careful preparation.

1. Determine the purpose of the campaign: brand promotion, expanding the loyal audience, or increasing sales.
2. Study your target audience and describe a portrait of your customer: age, gender, the field of activity, interests, and geolocation accurately.
3. Analyze your competitors and see what you can improve:

• profile or site design;
• product selection and prices;
• content and audience response — likes, comments, study their target audience;
• advertisements.

4. Prepare the landing page. The place where a click on the ad leads (landing page, blog, online store) must match the ad and be clear and attractive to the user in terms of content, navigation, and button functionality. The presence of a mobile version is mandatory.
5. Think in advance about ad formats, texts, and creatives. Develop several variants with different styles and content for different audience segments.

Defining a client’s portrait

Let me remind you that for a product to be in demand and bring profit, it must be offered to those interested in it — the target audience. Therefore, its selection is the crucial stage of targeting. And here's how to do it.

Describe your audience

Before you promote a product, imagine and describe your target audience. The more detailed it is, the more relevant the offer you can make.

Important features of a client’s portrait:

1. Socio-demographic. Gender, age, education, where they live, marital status, whether they have children, place of work or type of employment, and income level.
2. Psychographic characteristics:

• values — health, beauty, family, environmental issues, money;
• lifestyle — interests, hobbies, how they spend their free time;
• communication with others — social circle, number of friends, how often they meet,
• where and how they spend their time, shared interests;
• pains — health problems, low income, lack of knowledge.

3. Demand for the product — the quality, the amount of information on it, the convenience of purchase, and the quality of service.
4. Behavior in social networks — how much time they spend online and when, what they read, and how they react to publications.

Divide the target audience (TA) into segments

Segmentation is the division of TA into separate groups with the most similar characteristics. It allows:

• to cover the needs of different parts of the target audience;
• adjust targeting more accurately;
• increase the personalization of ads;
• to get maximum conversions.

It would be best to create a separate ad for each segment of your target audience. For example, the target audience of a travel agency may have elements:

• married couples, women, men / 25-40 years old / with children — they should be offered hotels with children's entertainment, animators, comfortable rooms and beaches, children's menu;
• couples 25-45 years old without children — they will be interested in hotels with restaurants, organized parties, out-of-town trips and excursions, recreational and grooming procedures;
• single men and women ages 18-24 and 25-34 — they would be interested in recreational facilities categorized as 18+ with nightclubs and adult entertainment.

It is segmented by recreation: trips to the beach, shopping tours, excursions to famous places, and hiking tours with or without overnight stays.

It would be best to create a separate ad for each segment of your target audience.

Use TA data

A description of the customer portrait and segmentation of the target audience is necessary to:

• develop ads with your offers and creatives for different target audience segments;
• optimize the site and create landing pages for other groups of your potential customers;
• select the channels for placing ads;
• optimize the time of broadcast advertising;
• create a content strategy for communicating with users about their interests and choose a language they understand.

Worth remembering

There are almost all targeting options in this article. However, it is just a beginner’s guide to the vast and complex universe of advertising. Keep in mind that social media ads play a crucial role in modern marketing.

1. Targeted advertising displays ads on social networks, apps, and websites to those who match the specified parameters. These users essentially should have a potential interest in it.
2. It is necessary to define the portrait of the target audience as accurately as possible: the effectiveness of advertising depends on this.
3. The advantages of targeting:

• work only with the target audience;
• personalization of ads;
• the ability to optimize campaigns;
• the ability to promote a product when there is no site;
• availability of tools that work to warm up the audience.

4. It is necessary to pay attention to planning an advertising campaign and evaluate its effectiveness.
5. The preparatory phase plays an essential role in achieving KPI: compiling a portrait of the client, analyzing competitors, preparing a landing page, and developing ads.

Read more how we use PPC:

• OLX (by Naspers) Success Story: 50,000 Clients Ready to Launch Their Online Stores.
• Colin’s success story: increased ROAS by 110% in six months.
• Bekker success story: revenue growth by 500%.