Hi, I'm Kartik Hosanagar, and this is a session on digital advertising. Digital advertising or paid media offers a plethora of options. Before we discuss what these options are and how to use them, it's useful to first talk about the goals of an online advertising campaign. For some firms, the goal of an online advertising campaign might be to profitably acquire customers for the long term. For another firm, it might be to support the launch of a product. In which case, the goal might be to maximize customer acquisitions given some customer budget. And for someone else, it might be that you already are advertising on other channels. And you are looking to advertise online, but match the cost per acquisition of those other channels. It is important to recognize this, because while digital advertising is more targeted than offline advertising, it can nonetheless be expensive and not always be profitable, especially if your product's price point is low. Next let's talk about the difference aspect of digital advertising. As an advertiser, you have many options. One class of options is search engine marketing. That is essentially posting ads on search engines, like Google. Another option is display ads. These might be images or video ads on premium publishers or online blogs. A third option is social ads. This are ads that might appear in the social media feeds of your customers on Facebook, on Twitter, or other social media platforms. In trying to select the right option for you, it is useful to go through the pros and cons of each platform. Search engine advertising has the advantage that is based on consumer search, meaning the customer is pulling information as supposed to you pushing information towards the customer. There tends to be high purchase intent, and therefore response rates for search engine advertising are usually high. In addition, it's a relatively simple format. Search engine ads usually involve three lines of text, and can be put together in a matter of a couple minutes. On the flip side, because it is a very effective marketing medium, search engine advertising can also be expensive. Further, you have very limited demographic information in search engine advertising. Looking at display ads, their main advantage is their reach. Lots of web sites offer advertising, and therefore this is a format that can be used to reach lots of consumers. Also there's a lot of ad inventory available to display advertising. Finally display ads support a range of formats, including images, videos, and interactive images. The flip side is the high variability in quality and performance of display ads. Your ad might show up on a premium publisher like New York Times or it might show up in a small blog, and the performance depends on where it shows up. Furthermore, display ads tend to be associated with low customer interest and also poor response rates. Especially with increasing ad blocking among consumers, display ads do not have the same kinds of effectiveness that they used to have. Finally, talking about social ads, the primary advantage of social ads is the range of targeting options available on social media platforms. For example, you can target customers based on where they work, what's their job title, what are their interests, and so on. Secondly, the cost of social media ads can be lower than other formats such as search engine advertising, especially in instances such as mobile apps. The flip side of social media advertising is that it might be harder to quantify the benefit of advertising in context where the purchase happens after several customer visits. Such as in e-commerce where the customer might click on an ad, visit the web site, but come back on a later day and purchase the product. And it becomes harder to quantify the actual benefit of that social advertising. I'm now going to discuss each of these formats in turn. Let's start with search engine marketing. Search engines usually run keyword options in a continuous basis to sell ad slots available in search engine result pages. To advertise in these search engine result pages, advertisers have to follow three simple steps. The first is to identify keywords that are relevant to your business. For each of these keywords, one next designs simple ads and submits a bid which indicates the advertiser's willingness to pay per consumer click on that ad. Then based on the performance of each ad, advertisers can then refine their advertising policies. For example, lower their bids for poor performing ads or keywords and increase their bids for ads that are doing very well. These three steps of keyword selection, ad design and bidding, and finally optimization make up the three key pillars of search engine marketing. First in terms of keyword creation, advertisers identify a list of keywords that consumers might type in search engines and that are relevant to the business. For example, an auto dealer might select keywords such as fine auto dealer in New York City, sports car in New York City, leasing a car in New York City, and so on. Several tools are available online that can help advertisers identify keywords that are relevant for their businesses. For example, one that I often use is the Google AdWords Keyword Planner. The next step is to design ads. Search engine ads are relatively simple and involve three lines of text. So there isn't a whole lot of room for creativity. That said, there are many good principles worth following. For example, ads that are more precise and specific about their value to the customer and what makes the advertiser different tend to perform better than ads that tend to be more general. Similarly, ads that have a clear call to action do better. In this example on this slide, I have on the left side an ad where the advertiser is trying to sell stamps. And is asking the customer to click on the ad and visit the website. The ad on the right is designed much better. It's more precise and clear about the value proposition to the customer. It clarifies that the advertiser has rare stamps for sale. Furthermore, it clarifies that these rare stamps are from 19th century Europe. And finally it has a clear call to action. It clarifies that if the user buys today, they get 20% discount. After designing the ad, the advertiser next needs to select a bid which indicates the advertiser's willingness to pay for each consumer click on that ad. Good bidding strategies tend to bid high for keywords that are associated with a high willingness to pay and also have a lower cost per click on search engines. In the example I've presented here, a keyword like sports car has a much higher cost per click than a keyword like Porsche dealer New York City. And key words like leasing car in New York City and auto insurance in New York City are somewhere in between. Next, if you look at the revenues generated, which depends on the probability that a click converts to a purchase and multiplied by the value of the purchase. We observe that sports car New York City and Porsche dealer New York City have much higher value or revenue per click. As opposed to keywords like auto insurance and lease car for this advertiser. Based on this kind of information, the advertiser might decide to bid higher for keywords like Porsche dealer New York City, which are keywords that have high value and lower costs. As opposed to keywords that have lower value and higher costs. Estimates for costs associated with the keywords are readily available from tools such as Google AdWords Tool. And the revenues associated with these keywords can be calculated based on data that the advertiser is collecting on an ongoing basis. Once an advertiser submits their keyword along with the ad and a bid to the search engine, the search engine then decides which advertisers to show in response to a search query and how to rank order these advertisers. Now, you might wonder what determines the rank of your ad on a search engine. You submit a bid, which is an important determinant of the rank of your ad. However it's not the only determinant. Search engines usually rank ads based on bid times the quality score of the ad. The quality score of an ad indicates how often people click on that ad. It depends on the past click performance of the ad, it depends on the quality of the ad, it depends on the quality of the landing page associated with the ad, and so on. So it's possible that you may have a lower bid than the competitor, but be ranked higher than the competitor because your ad has a higher quality score. Meaning customers gravitate towards your ad and click on it more often than they do on the competitor's ad. Therefore it is important to place attention on good ad design and designing appropriate landing pages for each ad. For more information on how search engines rank their ads and how search engines determine how to combine the quality score of an ad with bids, I've provided a link here to a YouTube resource that elaborates on this model. Now if you find all of these details too complex for you to manage on your own, there are several third-party firms that offer search engine marketing services. One can use these services, but it is important to assess their performance by monitoring the right metrics. I usually tend to classify search engine marketing metrics based on the quantity of exposure, the quality of exposure and the cost of exposure. In terms of quantity of exposure, it's useful to ask for every $100 spent, how many people were shown our ads? In other words, what are the number of ad impressions per dollar spent? Further in terms of quantity, we might ask, what proportion of those impressions resulted in clicks, or what is known as the clickthrough rate of an ad. Together, the number of impressions and the clickthrough rate give us the total number of clicks on the ad, meaning the total number of visitors to our website through our search engine marketing campaign. So that makes up the quantity of exposure. Next, we are interested in the quality of that exposure. The quality of exposure, in turn, depends on two metrics. The first is, what proportion of clicks resulted in outcomes of interest? These outcomes of interest may be a purchase, or it may be creation of an account on a website or the download of a research report or things like that. These outcomes are also known as conversions. The fraction of clicks that result in conversions is the conversion rate associated with your ad. So we are interested in the conversion rates of various ads, and we're of course interested in ads that have high conversion rates. Next we are interested in the value of each of these conversions. So for example, for a keyword such as dental cleaning, the revenue generated for a dentist may be a little bit lower than for keywords such as dental surgery, where one conversion might generate higher revenues. And so together these two metrics, that is conversion rate along with revenues, or value per conversion, make up the quality of the exposure. And finally we're interested in cost of exposure, which one can measure in terms of cost per click. And we can evaluate our different keywords in terms of the quantity, quality, and cost of exposure, and determine which ones to increase the bids and which ones to lower the bids. And in terms of assessing the performance of a search engine marketing firm that's doing this work for us. There are several third party reports available that benchmark the performance of advertisers in various industries. And one can compare your performance relative to these benchmarks to determine whether your search engine marketing company is doing better than average or worse. Or your internal team is doing better than average or worse. Moving on from search engines, let's talk about display ads. Display ads or banner ads, are usually placed on publisher web sites. In order to place these ads on publisher web sites, advertisers usually go through ad networks, which are intermediaries that connect advertisers to publishers. Examples of ad networks include Google AdWords, which not only shows ads on its own properties, but also on many third party web sites. Similarly, there's Millennial Media, which is also an ad network that shows ads on publisher websites. InMobi is an ad network that's focused specifically on ads on mobile devices. There are several dozen ad networks that an advertiser can choose from. In determining what ad network is right for you, it's useful to look at the reach of each ad network. Meaning, how many potential end consumers they touch through their publishers. Next, it's useful to look at what kind of ad inventory they have. Meaning, do they have ads on premium websites like New York Times or smaller blogs. And also, are these ads that are top banner ads or smaller ads elsewhere on the website? We can also ask about the audience composition of these websites. Some ad networks might have a focus on certain kinds of publishers. For example, there are ad networks that focus mainly on publishers that create content for women. So if you have a product where your target customer tend to be women, you might be better off trying to go with a specialized ad network, like that. There are ad networks that are focused on technology related content. So, if you have a product that's right for developers, you might prefer an ad network of that type. And finally, we are interested in targeting capabilities of the ad networks. Ad networks with better targeting capabilities can deliver better performance. So we can observe past performance of these ad networks to determine which ones have the best data capabilities, which in turn, result in long-term performance for the advertiser. Finally, let's explore social advertising. Social media platforms like Facebook, Twitter, and others offer very rich targeting capabilities. For example, you can target customers based on their interests. So one might say I'm interested in customers who have an interest in anime movies, or someone else might say, I'm interested in showing my ads to customers who are interested in dieting and so on. You can also target customers based on their income level, which firms like Facebook infer based on posts people share on Facebook. You might also target people based on behavioral profiles. Here again, social media platforms like Facebook analyze posts submitted by consumers to create behavioral profiles. For example, you can target moms of preschool kids or corporate moms and several other behavioral profiles that are available by default on platforms like Facebook. And finally, you can also target consumers based on the name of their employer, their job title, or which educational institution they attended. Running successful social advertising campaigns and in fact, all kinds of online advertising campaigns requires constant experimentation. For example, on the left side I have a Facebook ad for a children’s educational app that I created with friends. In this ad, I have chosen certain lines of text, I've chosen certain images, and I have also made certain decisions about what kinds of customers to target. Now in order to really get benefits from these campaigns, I have to ask myself, what's the right image to show in the ad? I have to ask myself given any image, what's the right targeting message that the companies to image? I have to ask myself, what's the right targeting settings, meaning, am I targeting women or men? Am I targeting people who work in certain kinds of companies? Or am I targeting people with college degrees or people with a certain income level? And so I have to run experiments constantly to figure out an ad campaign setting, meaning an image, a message, and a targeting setting that actually works. In this example, I have chosen one image on the left side. But I might ask, what happens if I change the image and use other potential images? On the right hand side, I have shown several potential images of girls and boys of preschool age that I could potentially use. So I might run an ad campaign, multiple ad campaigns, where I show several of these images. And I identify which is the image associated with the highest level of customer response. Next, given an image, I might ask how I should vary the text associated with the image. In one ad on the left hand side, I say, Learn to love learning on The Good Screen. Download our free iPad games for kids ages three to seven. On the right hand side the message says, Give your little genius a fun learning buddy. Download our free iPad App for kids ages three to seven. Another ad text that I might try might focus on fears that potential customers might have. For example, I might say, Are you worried your child is falling behind? Here's an iPad app for children ages three to seven. These are different ad texts and they might elicit different kinds of responses among customers. And it's important to try multiple ad texts for any given image to determine what's the right ad text associated with an image. Similarly, we might change ad targeting settings as well, and ultimately constant experimentation will help us identify, what's the right ad, and for whom? In summary, social media advertising offers several options. It ranges from sponsored search, display ads, and social ads. Sponsored search have very high response rates because they're in response to a customer's stated information needs. However, you have very limited demographic information in sponsored search and also they can be expensive. In contrast, display ads offer great reach and offer a range of formats including videos and interactive images. However, they can be highly variable in terms of their performance and customers are increasingly becoming blind to a lot of display ads. And finally, social ads offer some of the richest targeting capabilities. However, social ads might not generate purchases right away. And quantifying the value of those social ads might not be easy. In summary, digital advertising is a data driven activity. Success on this medium requires constant experimentation. It requires focus on measurement, looking at the right metrics to figure out how to optimize your ad campaigns on a continuous basis. Remember that online advertising is more targeted than any other form of advertising that you might consider. It's also more measurable than any other advertising medium you might consider. But you have to make the measurability and the targeting work for you.
