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360i Report: Behavioral Marketing

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Overview
With behavioral marketing (or “behavioral targeting”), Internet users are shown online ads that vary based on any number of actions users may have previously conducted, such as visiting an advertiser’s site, shopping for specific items, or viewing certain ads. The rise of behavioral marketing has brought with it a number of different methods for achieving this type of “holy grail” targeting, as well as a string of best practices when it comes to consumers’ privacy that are essential to understand before initiating a behavioral ad campaign.
The Growth of Behavioral

Behavioral marketing has become a growing part of advertisers’ online marketing plans. A June 2007 eMarketer study shows how behavioral spending has grown over the past few years.
Behavioral Marketing Defined

There are several types of behavioral marketing, each with their own benefits and shortcomings:

Remarketing: Remarketing is a highly-effective form of behavioral marketing where advertising messages are served across the Web to consumers who have already visited a specific marketer’s Web site and, therefore, have an expressed interest in that marketer’s product. After visiting the marketer’s Web site, these users can be tracked across the Web and served targeted messages about the marketer’s products on other sites. Ad creative can also be targeted to consumers based on specific actions they took on the site (e.g. abandoning their cart, viewing a video clip, etc.). Remarketing provides an efficient way to recapture consumers who abandon and encourage them to convert, to up sell or cross-sell customers with similar products or services, and to drive customer retention or tune-in.

Interest Based: With interest based behavioral marketing, ad networks collect data on users and segment them into ‘interests’ based on how they interact with the sites across their network. These interest segments follow general marketing verticals such as travel, retail and automotive. Ads are then served based upon these expressed interests.

Behavioral Cooperative: The concept of an online user cooperative is not dissimilar from those used by catalogues offline. Companies share their consumer data with other companies, potentially with competitors, so that these consumers can be targeted with similar products and offers. This data is not limited to site visit data and can include deeper level data such as purchase intent, purchase history, etc.

Private Networks: Remarketing utilizes data collected from a single Web site. But what if you are a corporation with multiple Web properties or a company looking to share data with complementary sites where combining user data would be mutually beneficial? In instances where marketers want to gather a higher volume of user data across a specific segment of Web sites, private behavioral networks can be established. For example, a large hotel brand could establish a partnership to utilize data collected on users visiting a car rental site, and vice versa. With the right guidance, behavioral partnership possibilities are endless.
User Targeting vs. Reach: Are They at Odds?

Achieving a high volume of users that meet specific interest groups or behavioral segments is a challenge with behavioral marketing. The general rule is the more specific a marketer is with their targeting requirements, the smaller the total pool of consumers they will reach. Indeed, the challenge behavioral networks face in finding the right user to serve an advertisement to lies in how they collect behaviors on a particular user, how they segment that user for targeting and how much reach they have through their media channels. The combination of these factors will generally determine how well a particular network can target consumers and on what scale.

This is the common challenge all networks face — how to effectively target without losing reach. A network may be able to create a segment of 5,000 highly qualified users for an advertiser to target, but at what cost to the advertiser and to the Web sites the network represents? Are advertisers willing to pay high double digit CPM’s to reach these users? Can networks fill the media inventory they represent going after such a small group of users?

It is through a combination of tactics that an advertiser can adequately scale a behavioral marketing campaign. What’s more, utilizing and testing the efficiency of each behavioral program gives marketers the ability to maintain reach, while also finding their audience sweet spot.
Where do the ‘Users’ come from?

The effectiveness and targeting flexibility of behavioral marketing is largely dependent upon how much data is collected for a particular user on a Web site or network. The more data points that are collected for a particular user, the more detailed the profile is for that user and the more targeted the advertising can be.

There are a variety of ways to collect and segment user behavior:

Participating Network Web Sites: Many behavioral networks rely on data they collect from the sites within their network. As users visit these sites, the networks collect data about what users are doing on the sites, what type of content they view and what other sites they visit. For example, a user visiting several automotive research sites and car buying sites may be in market for a new car. A network might take this information and place this ‘user’ into their ‘New Cars’ segment, which could then be targeted by an auto manufacturer.

Marketer-Side Data: Users tracked and segmented by marketers on their own Web site(s) offer the best targeting options. Data collected can be customized to meet the marketer’s unique needs and can incorporate data only the marketer is privy to, such as SKU level information, age, gender, income level and more. Utilizing this data effectively can drive high-performing remarketing campaigns and provide substantial rewards for an advertiser.

Data Exchanges: Just as media exchanges have proliferated in the past few years in order to provide marketers with new sources of advertising inventory, data exchanges now provide marketers with access to segmented, profiled users. These users are collected and segmented by the exchanges, then sold to marketers and advertising networks for targeting across available ad inventory.

Third Party Data: Virtually any data, online or off, can be used to refine user behavior profiles. There are a variety of third party data sources that behavioral networks use to enhance their user profiles. Some networks cross reference their users against demographic and psychographic data in order to increase the amount of data points on users.
What’s Next?

Behavioral marketing is constantly evolving as the industry matures and new technologies and tactics are continually being developed to increase media performance. Some examples of recent trends:

Dynamic Messaging: While the power of behavioral marketing lies in the ability to target specific users, delivering that user a generic advertisement waters down its effectiveness. It is difficult and expensive to create a banner for every user behavior that can be targeted, therefore a more cost effective means of messaging is necessary. Dynamic ads provide the ability to dynamically render images and content into a banner based on a particular user’s behavior, creating a unique and highly effective user experience.

Predictive: Good user level data is the first component of effective behavioral marketing. But once you have the users, how do you segment those users and find the most effective media channels to reach them? Historically, behavioral networks have relied on basic and manual vertical interest segmentation to target users. To target users with an interest in air travel, you might target the air travel interest category of a behavioral network. As behavioral marketing has matured and the data sources have become far more segmented, predictive modeling algorithms are being used in order to hone in on the right user. While predictive algorithms will never fully replace human know how, they take behavioral beyond the boundaries of vertical segment targeting to a system that learns how to find the right users wherever they are on the Web.

On Site: Most people associate behavioral marketing with ad delivery, where targeting and content delivery happens off of the marketer’s own Web site. However, once a user lands on a marketer’s site, how can it be ensured that the consumer is presented with the most appropriate message, content and/or product offerings? On Site behavioral seeks to solve this problem by identifying a user’s behavior across the site to craft the right experience for that user. Someone visiting a travel site multiple times who seems to be planning a trip to Las Vegas could come back to a site with On Site behavioral content and see content or travel promotions specific to Las Vegas.
Behavioral Challenges

Depth of Data: Behavioral targeting is only as good as a network’s ability to capture data and segment users properly. Often, networks rely on very basic ‘horizontal’ behavioral data when profiling someone surfing the Internet. This data is typically surface level data collected across several different Web sites that, in aggregate, is used to create user profiles. But how do you know that someone visiting several auto sites is not just a car aficionado, but someone looking to buy a car? And how do you know what car they are looking to buy…and when? Behavioral Networks must work to collect ‘vertical’ data —more specific data on consumers found deep within a site — so that they can build more robust user profiles.

With this data, ad networks can identify more specific information, such as which make and model of car a person has an interest in, if they have children, or are in the process of getting dealer quotes, etc. This data can unlock a user’s true intent and allow for further hyper-targeting of users, offering benefits to both the marketer and the consumer.

Transparency: It is not uncommon to hear someone running a behavioral campaign say, “It’s not where the ad is running, it’s who the ad is targeted to.” While it may be true that the consumer being reached is more important than the media provider, many marketers are uncomfortable buying media without full insight into where their advertising is appearing. Indeed, marketers are usually not aware where the users they are targeting came from, how they were segmented, or where their ads are being run.

Privacy: The collection of user data for the purpose of advertising naturally conjures up privacy concerns. Marketers must be aware of how user data is being collected and how it is being used when they run behavioral campaigns. There are no specific governmental guidelines for the use of behavioral data, as the industry is still young, but it is important for marketers and ad networks to follow industry best practices. Organizations such as the Network Advertising Initiative (NAI) are establishing guidelines to address these concerns and networks that are NAI members have proven their commitment to protecting user data.

Users can decide whether or not they want to receive targeted advertisements from these networks and can visit the NAI site to opt out of data collection. Visit www.networkadvertising.org for more details.

360i encourages our clients to provide a clear link on their homepage to their Privacy Statement and can provide guidance on privacy language and best practices for marketers implementing behaviorally targeted campaigns.
360i’s Recommendation

Behavioral marketing is an extremely effective form of online marketing and it is important for marketers to understand the various forms of behavioral marketing and how they can be used in combination to achieve various goals. Used effectively, the right combination of behavioral marketing programs can deliver exceptional media performance and serve as an invaluable vehicle by which to communicate with current and prospective customers.
Next Steps
Contact your 360i strategic advisor to learn how the right behavioral marketing plan can help you achieve your online marketing goals.