Behavioural Targeting - An Online Analysis for Efficient Media Planning?

MA-Thesis / Master von Alice Klever

Introduction:

Consumers today are in the focus of a wide range of companies in a more and more global world, all of which implies an increase of marketing activities and hence an increase of advertising effort. Hundreds or even thousands of advertising messages are put in front of consumers every day through various media channels. However, every targeted customer has a very limited ability of perceiving advertising messages and even a smaller percentage of what has been recognized is considered as being relevant. Therefore consumers quite often feel harassed and overloaded by the mass of information, the quality of advertising and the context in which it is shown, and react protective towards advertising, especially when they do not belong to the target group of the advertised product or service. This implies a great amount of budget wastage and a potential damage to brand images, since too many consumers are targeted with the wrong advertising message.

Furthermore media consumption has changed over the years, while the consumption of TV for instance remains stable, the internet consumption increases dramatically, in the younger target groups it has already outgrown the TV consumption, and therefore an attenuation of this trend can be expected.

This means more and more prospective consumers will spend more and more time online and are therefore important potential targets for advertising campaigns. Keeping in mind the negative consequences of the irrelevant and too intense advertising the question arises if there is a way to avoid the drawbacks of offline media and use the opportunities offered by online media. The necessity of defining the right target group for an advertising campaign is as undoubted as the difficulties implied in that process, the end product being able to target the right persons online. Behavioural targeting might offer a way to analyse online media and therefore to contribute to the requirements for optimal media planning in order to achieve a high degree of efficiency.

Against the background of the increasing interest in behavioural targeting an examination of its potential importance for marketing will be conducted in this paper in order to asses if behavioural targeting can increase the efficiency of media planning in online media.

The foundation for this paper is provided by the description of media planning in general, its objectives including the target group segmentation, media strategy and selection programmes and concluding by summarizing the requirements for optimal media planning.

In order to systematize the subject area of behavioural targeting an insight into online advertising is provided. This thesis aims to preserve an international scope, however due to the fact that the actual maturity of the online media industry is at very diverse stages worldwide, focus will be on the U.S. and selected countries in Europe such as Germany, France, the UK and Scandinavia.

The focus of this thesis is online display advertising which comprises both branding and performance advertising but excludes search, meaning the use of text links on web pages.

Behavioural targeting is one of several online targeting methods; therefore the different principles of targeting are reviewed in order to frame behavioural targeting in this context.

Three major approaches to behavioural targeting exist: ‘Affinity-based’, ‘Predictive’ and ‘Re-targeting’. These will be examined along with a model process of applying behavioural targeting.

A behavioural targeting SWOT- Analysis frames the current merits and shortcomings of the methods, and a presentation of the current state of affairs gives an overview of the current maturity state of the technology in practice.

Based on the behavioural targeting SWOT-Analysis and concluding an future outlook shall be dared and furthermore a summary with a final remark on the importance of behavioural targeting regarding media planning.

Table of Contents:

Text Sample:

Chapter 2.6, Media selection programmes: Media selection has the intention of distributing the given advertising budget with the objective of reaching maximum advertising impact. Media selection can be divided into intra-media selection and inter-media selection. The inter-media selection describes „the budget allocation to the respective forms of appearance of one instrument“ (compare to Figure 1: communication mix). In order to compare the different forms, heuristic methods such as scoring-models, equation/checklists and portfolio-analysis are used. The intra-media selection means „the division of the budget of the respective forms to the several media“ in order to reach the objectives discussed under section 2.3.

The overall objective is creating a media-mix with a division of the advertising budget to several media in such a way that with no other allocation a greater advertising impact could have been realized. There are three model-supported methods to reach this objective: Ranking methods; Evaluation methods; Optimization methods; 1. Ranking methods: Ranking methods are computer-based methods, where the potential media types are listed by the media planner, after which a ranking is calculated by the computer. This ranking depends on performance criteria such as reach, GRP or cost-per-thousand ad impressions (CPM), which are related to the resulting costs. The product is a list of media, which are ranked by their return-on-investment (RoI). CPM is the most common key performance indicator (KPI); it indicates the costs incurred to reach 1000 contacts in the target group. Through value-based assesment of the target group in relation to the used media, the Return-on-investment is in the focus of this method.

Criticisms of ranking methods point out the isolated approach, the disregard of qualitative differences and non-distinction of primary and repeated contacts. Therefore ranking methods are mostly used for a pre-selection of the eligible media types.

2. Evaluation methods: After a pre-selection of different media types a range of media-mix plan alternatives are created by the media planner. Within those plans the different media types and placement intensity vary and are then evaluated by a computer program on the basis of different criteria, e.g. reach, CPM and frequency. The program therefore locates the best solution out of the media plans created by the media planner. A great disadvantage is that selection only takes place within a narrow set of alternatives, and the best solution might lie outside of this set owing to the limited knowledge and experience of the media planner.

3. Optimization method: Optimization methods are also computer-based programs, which analyze the optimal media plan, relying on the defined target such as maximized target group reach, efficient cost-performance-relationship and so forth, as well as constraints such as budget, obligatory media etc. Optimization methods are based on mathematical methods such as linear programming and do not consider contact-overlapping, -allocation or frequency and therefore do not live up to the expectations of media planning and are for that reason hardly used anymore in practice.

The most common method despite its disadvantages is the evaluation method, because it involves a multitude of criteria and is therefore best suited to find a solution for a successful media plan.

The situation in online media planning differs from the initial situation of traditional media since in contrast to offline media, where the campaign can be optimized on the basis of several possibilities before it is placed and then evaluated after it has been run, an online campaign can be optimized in the course of its placement based on the permanent measurement of media performance.

Starting with a ranking method to pre-select different options is very common in online media planning; reach and frequency are as important index numbers as in traditional media planning. A big difference here is the ability - via cookies - to completely control the actual frequency. Next to those numbers the quality of the contacts is of high interest, meaning whether the target group has been reached with the advertisement Here the cookie-based approach is an advantage, as you can objectively demonstrate exactly who got the ad how many times. Starting with the ranking method tends to result in coarse media planning in the first few weeks, which means a waste of time and money and therefore less efficiency before the target group online is actually reached. In this paper it will discussed under section 5 if behavioural targeting can deliver a solution to that drawback and enables media planners to set up an efficient media plan before the campaign, and continuously improving it while minimizing waste.

Chapter 2.7, Requirements for optimal media planning: Elements and process: This chapter has examined the requirements for optimal media planning and can be summarized in the following elements: The foundation are clearly defined and set marketing objectives such as for example market share and sales increase as well as communication objectives which intend to influence the attitudes and motivations of consumer provide the foundation for meaningful media objectives.

As a consequence of the marketing and advertising objectives the media objectives need to be equally well defined and include the reach, the frequency, the message weight and the continuity as well as the definition of the target group. Optimal media planning means reaching the right customers, therefore the definition of the target group is at the centre of attention.

In order to be able to define the target group and the market segment a solid information basis is necessary. Market research therefore provides the foundation of media planning and represents next to the setting of objectives the beginning of the process. It comprises a market analysis in order to get an overview of market forces and their various dynamics, as well as consumer research and a competitive analysis. Market analysis is done by a variety of market research firms such as AC Nielsen, publishing houses such as Gruner+Jahr as well as small specialized agencies, which use a number of analysis methods.

After the media objectives are set, the market research is done and the target group is defined the budget has to be determined on that basis. In practice this is the most difficult part, since there is a deep disagreement in the industry over which objective is most important, and therefore a variety of budgeting methods exist.

Based on the media objectives and the budget, media channels need to be identified and selected. It includes the determination of the media scheduling (booking, timing, placement, and dimensions of an advertisement). This step represents the media strategy in order to meet the target group and the objectives which have been set.

Since the budget determines the media strategy, it also determines the media plan, meaning the choice of channels and concrete media in each channel. So once the media strategy has been established, several alternative media plans are created, e.g. via the media selection programmes as explained in section 2.7., in order to find the best one. Once a final media plan exists a briefing of the media and creative agencies can be carried out.

The final the step is the supervision and control of the media plan execution, which includes an evaluation of the campaign effectiveness after it has run and an assessment of the extent to which the objectives have been reached.

Chapter 3, Online as advertising medium: There is a wide range of media types such as TV, magazines, news papers, outdoor advertising, radio, cinema and the internet.

For the purpose of this thesis a short comparison of offline and online media is appropriate. In order to define online advertising, the term ‘advertising’ is defined first: „Advertising is a paid, mediated form of communication from an identifiable source, designed to persuade the receiver to take some action now or in the future.” Therefore „all paid space on a Web site or in an email is considered advertising. Internet advertising parallels traditional media advertising, in which companies create content and then sell space to outside advertisers.” „Under Online advertising in its original sense the placement of advertising material, primarily banner, on web pages in order to support marketing and communication objectives is understood”. Under traditional media all types which are mentioned above besides the internet are understood.

Chapter 3.1, The importance of online advertising: The amount of media effort has drastically increased in the last years within all types of media. This has resulted in a situation where the audience is not just limited in the capacity to capture advertising messages, it even refuses to do so on a massive scale. Therefore the new keywords are individualisation and personalisation.

While traditional offline media work through the ‘push-principle’, meaning that a mass communication and marketing is only directed at the prospect consumer through broad-casting with little or no interaction, the new media internet works with the ‘pull-principle’, meaning the individual user pulls the content and related advertising into attention through his own selection. On the Internet the consumer has the possibility to interact and influence actively, opening the possibility of one-to-one communication, but he can also be targeted with mass communication, the one-to-many communication. The greatest improvement gained by online advertising is therefore the possibility to create a personal and individual communication between consumer and advertiser, which functions in both directions.

The ‘Digital Influence Index Study’ from June 2008 which has addressed the issue of understanding the role of the internet in the lives of consumers in the UK, Germany and France is based on an online survey among a representative sample of nearly 5000 internet users across the mentioned countries between December 2007 and January 2008 and shows very well the changed picture within the media landscape. The most interesting finding is: „The internet is by far the most important medium in the lives of European consumers – but companies are underinvesting in that influence.” The Internet is twice as influential as TV and has ten times the influence of print media, however the global online advertising spending accounts only for 7-8% of the total advertising market. Reich (2006) arrives at the same conclusion stating that the advertising impact is higher within online advertising than traditional media.

The worldwide online advertising spending added up to 32.867.900 in 2007, compared to 9.451.300 in 2002 - an increase of 350% in five years. So online advertising is experiencing strong growth but as mentioned a big discrepancy still exists between online ad spend and online media consumption and advertising effectiveness.

The online advertising market can sensibly be divided into the U.S. and Europe, since the rest of the world is currently not nearly as advanced as these markets and can therefore not provide a foundation for the examination of the actual state of affairs. Europe in itself is also very diverse in its development.

Therefore the U.S. market has grown much faster than the European one with total internet advertising revenues of $12.5 billion in 2005 forecast to grow by nearly 500% to $61.300 billion in 2012. In contrast Europe can be seen as a patchwork with its countries at different stages of development and divided by language barriers. The ‘digital giants’ in Europe are the UK, France and Germany, which account for more than 85% of online advertising spending, furthermore the Scandinavian countries grow rapidly, while other countries still have to cross the tipping point in order to realize a substantial growth within their digital markets. This circumstance causes some heterogeneity in the European market but is forecasted to balance out within the next few years.

So although online advertising spending is rapidly growing, from the researchers point of view advertisers are still ‘underspending’ - but this is very likely to change: „Advertising spend eventually synchronize with shifts in consumer attention from television to other media formats.” The future development of online advertising will be one issue examined in section 6.4., since it is of great importance for the growth of behavioural targeting and the implications for media planner in a changing media environment.