In Depth

Column: Targeted Ads: The Holy Grail?

The idea of targeted advertising has been held out as the promised land of marketing, a sort of holy place where advertisers can finally talk directly to consumers about their products and services, without mindless chatter.

In this nirvana state of marketing, advertisers would commune only with the people who are in the market to buy their products—dog food for dog owners, cola ads for cola drinkers, sports cars if you like that kind of thing.

Now that the television business is finally stepping into its targeted advertising future with actual commercial launches—not just tests, but real honest-to-goodness rollouts of so-called addressable ads—it’s worth asking if addressable advertising works, and to what degree.

The early evidence is promising. In its Huntsville, Ala., market, Comcast says customers are 38% less likely to tune away when a targeted ad is delivered. In general, targeted ads on television are generating a 7% click-through rate, meaning consumers click on the ads using the remote 7% of the time. That’s much better than the rate of 1% or less for direct-response ads, Josh Herman, innovation leader for Acxiom’s Global Multichannel Marketing Services Group, said during a panel I moderated at Ad:Tech in San Francisco in late April.

We’ll need to keep a close eye on the numbers as targeted advertising grows. As the reach for these ads expands, will they still deliver the same payoff? The footprint for such ads is getting bigger.

Just a few months ago, Cablevision turned its 100,000-home targeted advertising experiment into a full-fledged launch across 500,000 homes in Brooklyn, the Bronx and New Jersey. It’s using Visible World technology to send ads to households based on information about income, gender, number of kids and even pets in the home.

Then there’s Comcast, which has introduced targeted advertising in two markets, including Baltimore, where it can target consumers based on demographic data and habits. Of course, it should be noted Google TV Ads also delivers ads targeted to specific demographics via its deal with EchoStar.

The next big step is Canoe Ventures, the cable operator consortium that includes Cablevision, Cox, Comcast, Time Warner, Charter and Bright House. Canoe is aiming to develop standards for addressable ads and a national footprint for operators.

Operators like targeted ads because they’re charging about 30% more on a CPM basis for them.

To be sure, privacy groups have expressed concerns for some time that delivering ads targeted to specific homes could be an invasion of privacy.

Kyle McSlarrow, president and CEO of the National Cable Television Association, told Congress last week that Canoe had no plans to collect set-top box info, according to CableFax. The consortium plans to use other demographic information to deliver the ads, CableFax said.

But privacy concerns aside, the bigger issue for this brave new world of addressable advertising is how far do you go? How deep do you slice and dice a demographic?

“It’s possible to oversegment,” Mr. Herman said. “You need a certain critical mass for an ad.”
Which means you’re not going to get one-to-one targeting with TV. It’s just not worth it. But that’s OK. Targeted ads are essentially more refined TV ads. And that can be nothing but a good thing.