How retargeted advertising works

Retargeting consumers as part of a marketing and advertising plan is gaining popularity but with the rise of mobile devices, there are pitfalls ahead

In the offline world, it is not uncommon for a customer to get so far as to take an item to the sales counter before deciding they don’t want it.

While a savvy sales clerk might talk that customer into reconsidering, they can hardly spend the rest of their day following a consumer around with follow-up offers.

But they can online. The concept of retargeting consumers with advertising in the hope they might complete an action – such as finalising an abandoned purchase – is now common practice among many online retailers and other transaction-based organisations.

It’s easy to understand why. With transaction rates often sitting below one per cent of total site visitors, site operators are keen to push that number upwards, and retargeting has been shown to potentially double transactions.

As a result, the market for retargeting tools is evolving rapidly as providers seek a technical edge on their competitors. And that is attracting a host of new providers and investors.

US-based developer AdRoll, for instance, secured US$70 million in venture funding in April, and has grown to service more than 15,000 customers in over 100 countries – 500 of them in Australia. According to AdRoll’s managing director for Australia and New Zealand, Ben Sharp, his company provides greater mileage for the money marketers are already spending to attract customers to their sites.

“For a standard desktop retargeting campaign, we can increase conversions by about seven times what they would have otherwise been receiving,” Sharp says.

The wary public

But it is not all smooth sailing. With the practice proving to be highly beneficial, there is a danger that retargeting becomes overused and scares away consumers who feel they are being stalked. Group business director at media agency ZenithOptimedia Group, Jonathan Betts, also points out retargeting only converts existing leads – it doesn’t generate new ones.

“Remarketing is only about improving that conversion from the thousand people who first landed on your website - it never actually grows that thousand,” he says.

It is important marketers remain cautious in their use of retargeting, lest they offend the very people they are trying to convert.

“There’s an acceptance gap between the marketers that employ the technique, and the people who notice it and understand why they are seeing more adverts from that particular brand,” Betts says. “There is a level of discomfort with the idea that they are being served ads because of actions they have taken online, but broadly people seem to be OK with it.”

Chief revenue officer at audience data specialists Exponential, John McKoy, says retargeting can help with conversion but ignores upper-funnel activity and gives a false impression to the advertiser about what media is driving a more qualified consumer.

“The focus should be on driving more qualified consumers via ‘prospecting’ down the purchase funnel and using data to find the right audience first,” he says. “Retargeting plays a part but has too much focus.”

McKoy also warns advertisers to ensure their brands do not turn up in places they might otherwise not want to be seen, and says some retargeting makes no distinction between people who have looked at a product and bought versus people who looked and didn’t buy.

“Everyone from retargeting specialists through to trading desks are doing retargeting poorly, whether it’s people either being retargeted with an ad for a hotel they have just booked to stay at, or publishers who have multiple ad units on one page,” he claims. “Essentially, retargeters are being rewarded for doing this, but the frequency is appalling.”

Ensuring consumers are comfortable with retargeting is one of the tasks taken on by the IAB Australia. Its CEO, Alice Manners, says the need to educate consumers and allay privacy concerns is addressed through the Your Online Choices website, which was launched in 2009, and is being updated now along with best practice guidelines for third-party, interest-based advertising.

“There is a real appetite among consumers who are aware of online behavioural advertising to know more, and once they do, their comfort levels rise remarkably,” Manner says.

Mobile advertising implications

While desktop retargeting has arguably been effective, an emerging problem is the massive migration of browsing minutes onto mobile devices, and the difficulty posed in matching consumers across devices.

Betts cites a growing desire to see the same tools made available on mobile. However, the standard retargeting model quickly breaks down in this channel, as the ability to place tracking cookies within mobile browsers is not as reliable as it is with desktop versions. Technologies that aim to get around this problem, such as those that use a unique identifying for the accessing device, are not yet robust.

“The train thundering down the tracks is that as people are moving over to mobile devices at an ever-increasing rate, a lot of these retargeting solutions use cookies as the key to help you know who it was that came to your website,” Betts says. “They are not universally accepted on mobile and can’t be used consistently in the same way they can on desktops.

“So while it always gets more and more sophisticated, the biggest challenge is that no one knows how to do it fully in the mobile environment.”

The relatively small reach of mobile advertising also means fewer locations where retargeted offers can appear. The huge amount of mobile browsing that occurs within apps further limits access for advertisers to consumers.

And that is before even considering the difficulty advertisers have when a potential buyer on one device continues their search on another.

To cope, some retargeting services use a process known as probabilistic matching, which looks for specific signals to determine if a user on a mobile may have also been a specific desktop user. However, Betts says it is generally very difficult for a third-party tracking provider operating off cookies in the desktop environment to recreate that product in the mobile environment.

“The first challenge for networks as we move into a mobile space is getting a consistent unique device identifier that you can track and at least retarget on mobile,” he says. “The next question is: How you connect a desktop identifier with a mobile identifier? I haven’t seen anybody solve it from a third-party model.”

Group chief executive at mobile advertising technology specialist Snakkk Media, Mark Ryan, also believes cross-screen targeting is nascent.

“I’m not so sure how creditable a lot of the stuff out there about hard-core attribution modelling really is,” he comments.

Other retargeting players

Third-party data providers are endeavouring to tackle the issue. One of these is Oracle-owned Bluekai, which has partnered with cross-screen technology provider, Tapad, to deliver a more unified view of target audiences. Another startup to offer cross-screen matching is Drawbridge, which claims to make accurately scaling campaigns with mobile ‘easy’.

But the easiest way to circumvent these problems is through encouraging users to log into services. This is baked in to services such as Facebook, Twitter and Pandora, and also for many Google services. It’s also partly why a Pew Research Centre study in the US found that these four companies earn roughly $2 out of every $3 dollars of total mobile display ad revenue.

Facebook, Google and Twitter all offer retargeting, and retargeting through Facebook in particular has become big business, with both AdRoll and Criteo offering this capability.

Related: How Domain is tapping into personalised marketing

AdRoll solves part of this cross-screen problem using a process known as deterministic matching.

“If a consumer is using their Facebook ID and Twitter handle we are able to do an anonymous handshake to match that user we’ve picked up on the general Web and serve a relevant ad to them in the mobile environment,” Sharp says. “And there is 100 per cent match, as the majority of people do not sign out of their Facebook account on their browser. And it is exactly the same Facebook account of Twitter handle that they are using in the mobile environment.”

But according to Betts, the large collective audience held by such a small number of mobiles publishers may warp the flow of display advertising dollars, and potentially also lead to higher costs for advertisers.

“As people move into the mobile environment for advertisers, our choice of media partners might become smaller – we might become more reliant on Google and Facebook to help us do this,” Betts says.

“It is a massive strength for the big players like Google and Facebook, and in the desktop environment it was much easier for advertisers to use multiple players. That does help give them more value. When advertisers have less choice about who they can use, that does have an impact on the price they have to pay in order to reach the audience they want.”

SurfStitch rides the retargeting wave

While retargeting is still evolving, it has certainly delivered results for the online active wear retailer, SurfStitch.

“We operate far above industry averages in terms of our website conversion rate, but still there is a significant amount of customers that visit the website and within that session they don’t purchase something,” says Martin Corr, marketing director at SurfStitch. "Retargeting is one of our biggest tools for driving new customers and reaching existing customers to allow them to come back and increase their frequency of purchase.”

Corr says SurfStitch will not only retarget customers with products that they have looked at, but also with related products from different ranges, in a bid to upsell. The company uses Criteo technology to support its retargeting efforts.

But Corr is very much aware of the danger of annoying customers through bombarding them with offers.

“The customer perception of brands that frequently retarget without any consideration of the frequency that ads are being shown is a concern for us,” he says. “We are addressing that via the use of frequency caps, so if a user has seen and not clicked on an ad a number of times that ad will disappear and we’ll update our strategy accordingly.

“If it is done well people respond to it. You need to know when to bow out very, very quickly.”

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