Digital Advertising &

Display Ads
Yijun Chen

BUSI70200 Digital Marketing

June 2024
Module Structure

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Previous Recap
Advertising Strategy Workflow

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Consumer Decision-making Process

Content & Ads at different stages have different purposes Attention

Attention: brand awareness formation
Interest: brand preferences formation
Interest
Desire: consideration set formation/information search
Action: purchase decisions
Desire

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Action

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Traditional Ad Spending Decision

With so many advertising channels, how to allocate the marketing budget?

Traditional method: ROI = Sales Increase/Ad Cost
Rely on key metrics: ad viewing, purchase action

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Is the TV Ad Viewed?

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Attribution Failure
Different marketing campaigns work at different stages of DMP
Attention
TV/outdoor ad increases brand awareness, instagram/search ads
increases brand preferences/interests, complementarity across ad
channels
But only the final purchase decision is observed
Interest

Attribution: Hard to measure the effectiveness of each ad in each stage

that leads to final purchase decisions
Desire

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Action

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Challenges in Traditional Advertising

Ad effectiveness measurement is hard -> hard to track whether the ad is viewed

Attribution failure, which ad works at which stage? How to attribute the effectiveness of each
ad? Only the final purchase decision is observed!

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Digital & Traditional Advertising
Comparison
In-Class Discussion: TV vs YouTube

YouTube ads achieve but TV ads don’t

Targeting
individual level rather than aggregated level
behavioral rather than observed
demographics
Planning
Automated targeting, real time optimization
Measurement of effectiveness
click vs view , skip

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Digital Advertising Workflow
Targeting, Automation, Personalisation, Measurement: target the right person, in the right
place and at the right time with accurate measurement of effectiveness

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Target the Right Person

Demographics
Publisher uses data that a customer has volunteered
Or publisher uses data that a customer has provided elsewhere
Contextual targeting
Ad is matched to content it is displayed beside
Geographic targeting
User entered, inferred from IP, `pinging’ computer, shared by mobile
Behavioral Targeting / Retargeting

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Cross Platform Tracking and Profiling

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The Power of Data Aggregators

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Data on Customer Preference
Traditional advertising may rely on customer survey -> reported preference
Digital advertising relies on rich behavioural data -> revealed preference
What’s the difference between revealed preference and reported preference? Which is more
trust-worthy?

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TikTok For You Page & Recommendation Algorithm

“TikTok relies on a number of signals to identify what

kinds of videos users Strong signals include whether
you watched a video to the end, whether you shared
it… TikTok also considers negative feedback on a
video, like whether a user tapped “Not Interested,” or
if they choose to hide content from a certain creator
or featuring a specific sound.” - Wired TikTok Finally
Explains How the ‘For You’ Algorithm Works

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Target at the Right Place
Where do your consumers go online, why do they go there?
Business can infer consumer preferences from online behaviors

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Target at the Right Time
Not only day-of-the-week, time-of-the-week, but also across devices and channels

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Digital Ads Effectiveness Measurement

Instead of ROI, digital marketers rely on different key performance indicators (KPIs)
KPI is a customised measure that depends on
What stages the campaign influence (AIDA)
Awareness? Preferences? Information search? Point of purchase?
What advertising channel to use
Social media? Search? Display ads?
Who do you target
Loyal customers? General public? New customers?
Modern web tools enable advertisers to determine the current stage of the consumer and use
the right KPI to measure effectiveness

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Common KPI Discussion

Early Stages: awareness & Middle stage: desire Last stage: action
interest
Social media interaction Add to cart
Display ads
Facebook likes&shares, Retargeting email open rate
frequency and reach Twitter retweets counts
Ad engagement Search ad
mouse-over-time , click search count, click
through rate through rate, bounce rate
New product email YouTube
open rate product review videos
watch time

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Display Ads
Display Ads

Goal: increase awareness

Method: reach target audiences with
desired frequencies
Common Metrics
• An impression: an occurrence of an ad on
the page
• Cost-per-mille (CPM) = $X/1000
impressions
• Click through rate = Click/Impression

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How Does this Ad Get Filled?

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Matching in a Two-sided Platform

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Two Ways To Sell an Ad

User Generates
Impression Opportunity

Guaranteed Contract
Publisher
Chooses Sales Channel & Advertiser • Bulk ad purchase, pre-specified price &
quantity, time-frame, targeting criteria
Guaranteed Contract Ad Exchange Ad Exchange (Programmatic Advertising)
• Auction-based, real-time, run by a platform
Advertisers
Buy ads targeted at users

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Guaranteed Contract

Bulk ad purchase that specifies the price and

quantity, as well as the time frame and targeting
criteria
Examples:
“all impressions on the FT homepage on Sept
21”
“200,000 impressions to UK users on the
Financial Times finance related pages in July”

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Guaranteed Contract +/-

Advantages:
Commitment : guarantees ad message gets out
Fixed pricing: stability in terms of budgeting
For branding advertisers, ensures brand-safe content
Disadvantages
Lack of flexibility: need to forecast ad supply and demand and prices
High contracting costs
Potential overpaying: the market condition changes, paying more per impression

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Use Cases for Guaranteed Contract

Brand Awareness Campaigns: securing prominent ad placements on high-traffic websites or

within specific content sections -> brand message is consistently delivered to a relevant
audience
Targeting Niche or Local Audiences

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Ad Exchanges (Programmatic Buying)

A digital marketplace where advertisers and publishers come together to buy and sell ad
inventory in an automated and real-time manner
Intermediary platform that facilitates the auction-based buying and selling of ad impressions
Ad exchanges are operated by Google (AdX), OpenX, AppNexus
Reach
Ad Formats
Targeting capabilities
Auction Mechanisms
Analytics

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 User Generates
Impression Opportunity

Publisher
Chooses Sales Channel & Advertiser Real Time Bidders bid on
individual impressions using
automated bidding
Guaranteed Contract Ad Exchange algorithm (user data,
- Advertiser G1 $2
- Advertiser G2 $1.50 publisher quality, targeting
- Advertiser G3 $4
parameter) -> optimal
bidding amount
Real Time Bidders
Offline Bidders Offline Bidders submit their
- Advertiser OB1 $0.10
- Advertiser OB2 $1
bids price, budget, targeting
RTB1 RTB1 RTB1 - Advertiser OB3 $0.25 information ahead of time
$1 $1.10 No Bid

RTB2 RTB1
No Bid $0.10

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Advantages of Ad Exchanges

Ad exchanges aggregate ad inventory from multiple publishers

Advertisers can access a wide range of websites/apps, broader reach
Targeting Parameters
Demographic/Geographic/Behavioral/Contextual, etc, Reach specific audience effectively
Data-driven insights
Audience engagement, ad performance, bidding insights
Transparency and Control
Visibility of ad inventory, control over bid amounts
Real-Time Optimization
Monitor key metrics, click-through-rate, make adjustment to ad creatives, targeting parameters

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Display Ad Buying Business Model Summary

Key Problem: matching efficiency between seller(publisher) and buyer(advertiser)

Benefits of programmatic ad exchange: reach, transparency, rich-behavioural data, real-time,
insights, optimisation

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What are the challenges for display ads?
One impression served = one
impression viewed?
Display Ads Viewability Issue
One impression served = one impression viewed? Same old problem as traditional tv ad
Ad viewability is an industry concern, e.g. intrusive pop up ads
New viewability definition by the Media Rating Council
Ad viewability depends on the location (above the fold/below the fold), size, media, product
category
A display ad is counted as viewable when at least 50% of its area is visible on the screen for
at least one second
A video ad is counted as viewable when at least 50% of its area is visible on the screen while
the video is playing for at least two seconds
The Internet&web technology is evolving with the view ability metrics

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 How to measure effectiveness of
display ad?

What is the impact of display ad on

sales?
Experiments in Digital Advertising
Experiments in Digital Advertising

Experiments allow companies to determine causality between ads and sales

Digitization means these can be run at relatively low cost once the infrastructure is
established
Industry jargon: often called “A/B tests”, e.g.:
Amazon: Red background/blue background
Google runs several thousand a year (and has set up an infrastructure for its advertisers to
run experiments)

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Apparel Retailer’s Problem: Does My Advertising Work?

Apparel retailer not satisfied with conventional

ad metrics like reach & frequency
Advertising is a business decision:
Do my ads cause an increase in my sales?
What is the lift of sales from my ads?
Is my ad profitable?
Decides to partner with Yahoo! to run an
experiment

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Experimental Set-Up
The experimenters created a list 3M users to track during the experiment
Individuals who according to the information available would of commercial interest (target
audience of the retailer)
Assign users from the list to the treatment and control groups at random

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Medicine: Randomized Control Trials

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Marketing: A/B Tests or Experiments

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The Importance of Randomization

If we have randomized correctly, treatment and control groups should look the same before
the experiment!
Check that the groups look the “same”
Pre-experiment sales levels
Demographics (e.g. age, gender)
Plot distribution of variables (e.g. histogram)
Difference in average of these variables by group should be close to 0

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Treatment & Control Group

Treatment group: sees combination of

retailer and other ads
Control group: sees a combination of public
service announcements and other ads

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Treatment Group: Users Exposed to Ads

Some users in the experiment don’t see ads—Why?

• Don’t show up on Yahoo! during experiment
• Don’t browse enough on Yahoo! to see our ad

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4 Kinds of People Exist

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Observational Estimator of Sales Lift

Observational Estimator = AvgSalesExposed-AvgSalesUnexposed = $9.05 - $10.2 = -$1.15

• No experiment means no control group, so estimate only uses the treatment group
• Without an experiment, this is what many marketers do
• Negative effect? Ad decreases the sales?
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Treatment-on-Treated (TOT) Estimator

TOT = AvgSales(Treatment,exposed) -AvgSales(Control, exposed) = $9.05 - $8.57 =

$0.47
• With control group, estimate uses both treatment and control group
• Positive effect!
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Ad Profitability Calculation

Ad Profit=Revenue Lift*Gross Margin – Ad Cost

Sales lift: $0.477 per exposure
570K exposed to campaign
50% gross margin, 88K ad costs
Profits = $0.477 * 570K *50% - 88K = $48K
Ad ROI= Ad Profit / Ad Cost = 48/88 = 54%

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Summary of Ad Profitability

Advertisers should optimize ads by maximizing (incremental) profit

But profit lift is even harder to detect than sales!
Profitability can be a very high bar
High-end retailer with 50% gross margins on sales sales lift must be at least 2X cost
E-commerce retailer/platform with ~5% gross margins sales lift must be 20X cost!
An experiment with control ads (PSA) makes estimates of ad efficiency a lot less noisy

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Today’s market demands ad viewabiliy
measurement & tomorrow’s market
demands to know incremental lift
Next: Search Advertising