What’s up with Targeted Advertising?

A lot of people have been down on targeted advertising recently, saying its days are numbered, and that mass marketing is the way forward. Dreaming up marketing segments to target is one of the big rituals of the advertising process so, understandably, quite a few people in the industry are upset about it. Mark Ritson, for example. Ritson has called a return to mass marketing a return to the ‘dark ages’. He has said that those who bash segmentation and targeting are ‘talking nonsense’. He lays the blame squarely at the feet of Byron Sharp and his Ehrenberg-Bass institute. To many people in the advertising industry this disagreement is seen as *the* intellectual battle of the decade.

But what claim, exactly, are these two colossi of the advertising firmament disagreeing about? ‘Targeting vs mass marketing’ is a very imprecise way of framing the debate, and this is part of the problem. I am going to suggest that the debate exists at all because of a conflation of two very different claims one might make about targeted advertising, and that this conflation obscures a real, and much more interesting question.

The two claims are as follows:

(1) In the context of an individual campaign, targeting a subset of the market can generate a larger ROI than advertising to the whole market.

(2) In the context of a long-term advertising strategy, targeted advertising can grow the brand more quickly per unit spend than advertising to the whole market.

I think Byron Sharp denies (2). People get upset with Sharp because they believe he denies (1). In fact, as I shall show, Sharp has come close to accepting (1). I also believe that, based on Sharp’s own principles and some plausible assumptions, (1) is true.

In order for (1) to be true both of the following must be true:

(I) Responsiveness to advertising must vary across your market. In other words, there must be some people who are more likely than others to buy your product if they receive the advertising message (e.g. heavy buyers vs light category buyers).

(II) The expected return from advertising to the more responsive group in terms of sales generated (or equivalent) must *in some cases* be greater per dollar spent than advertising to everyone.

The truth of (II) depends on:
(IIa) The relative size of the more and less responsive groups. The more responsive group must be big enough.
(IIb) The cost of identifying and advertising to the more responsive group. This must be cheap enough.
(IIc) The impact of targeted vs non-targeted messages. Targeted messages must be impactful enough.

Whether the responsive group is big enough, responsive enough, and the messages impactful enough will vary from case to case, but it’s hard to support a claim that there are *no* examples of targeted advertising where they are.

In fact, I don’t think Sharp would disagree with either (I) or (II). Indeed, he implies in *How Brands Grow 2* that targeting heavy category buyers delivers a higher ROI, before making the point that “focusing on ROI can prevent a brand from benefiting from scale and earning larger, more secure profits.” (p. 37). He notes that targeting heavy category buyers might be a good place to start one’s marketing efforts, but that it is not a sustainable strategy:

“‘Fish where the fish are’ can be a sound maxim. You might as well start where many fish are pooling together – particularly when the ocean is huge. But to grow you need to reach all sorts of category buyers – light as well as heavy.” [Romaniuk & Sharp (2016) p.35]

Ironically, Ritson makes a similar point in one of his attacks on Sharp:

“Smaller companies, for example, without the resources or scale of a Mars would do well to start by taking a smaller, segmented bite of the marketing apple and gradually building their presence.” [Ritson (2016b)]

So it seems that Sharp is not denying that you can can get a better short-term response per dollar spent on a given advertising campaign by targeting, for example, heavy category buyers.

We’ve established that Sharp probably believes claim (1), and that it is probably true. There’s ample evidence that Sharp denies claim (2):

“If you want to be a big brand, you … need to attract light category buyers as well.’ [Romaniuk & Sharp (2016) p. 36-37]

“for maintenance or growth, a brand’s marketing has to somehow, at least over time, reach all the buyers in a brand’s category” [Sharp (2010) p.53]

In other words, targeting only your most responsive customers doesn’t work in the long run: according to Sharp, targeted advertising cannot grow the brand more quickly than advertising to the whole market. I haven’t seen any of Sharp’s critics argue directly against this claim. Indeed, if a brand’s objective is to grow as big as it can grow, then, if the market exhibits NBD-Dirichlet-like properties, as in most cases it will, more and more of its sales must come from these lighter category buyers. If advertising doesn’t reach them, then the brand can only grow through word of mouth or its visibility ‘on the street’, and in a crowded market in which other brands are advertising, relying on that alone seems unwise.

So the ‘debate’ about targeting between Sharp and his critics seems to be based on a conflation of two claims that Sharp is supposed to deny. One is a claim about the value of targeting in generating a return in the short term; the other is a claim about the value of targeting in generating growth over the long term. Once they have been separated, there appears to be no debate at all, since Sharp doesn’t deny the first, and his critics don’t overtly support the second.

Whatever Sharp’s critics have said about the second claim, is Sharp right to deny it? [1] Is there no circumstance in which targeted advertising can grow a brand more quickly per unit spend than advertising to the whole market? The principal target of Sharp’s criticism are the marketers who believe they can grow their brand by focusing on their most loyal customers. Brands can only grow, Sharp says, if they target the less loyal customers – such as the lighter category buyers – and hence increase their penetration. But if this is so, then is it not possible that targeting precisely those light buyers might be a more efficient and hence cost-effective approach to growing the brand than broadcasting to the whole market? Advertising to people who are going to buy you anyway won’t help increase your penetration numbers. Whether or not such a targeted approach is in fact more cost-effective will depend on the actual cost of targeted vs broadcast advertising, and the relative impact of targeted vs broadcast messages – but as long as there is a possibility that advertising targeted at light buyers can be more efficient than broadcast in increasing penetration we are compelled to agree with (2).

If (2) is true, the question for marketers then becomes the much more interesting (and challenging) question: for which categories, and for which brands, and under which assumptions about the relative cost and impact of targeted vs broadcast advertising, does it make sense to include targeted advertising into the mix in order to grow the brand? If targeted advertising is sometimes useful for growing a brand, how do we figure out when it is useful?

These are hard questions, impractical to answer through experiment or market testing. A more fruitful approach would be to build models of individual categories, parameterised using real market data, that capture both the Ehrenbergian dynamics of the market and the effects of broadcast and targeted advertising in shifting those markets. But that is a topic for another post.

Footnotes

[1] It’s fairly clear that he does deny it. For example, “Marketing science clearly states we need to reach all categories of buyers – the value of targeting smaller segments is actually far less effective” [Sharp (2017)]

References

Sharp, B (2010) *How Brands Grow*. OUP.

Romaniuk, J and Sharp, B (2016) *How Brands Grow Part 2*. OUP.

Sharp, B (2017) AANA: The Science Behind How Brands Grow. https://www.marketingscience.info/aana-the-science-behind-how-brands-grow/

Ritson, M (2016a) Those who bash segmentation and targeting are talking nonsense. *Marketing Week*. (https://www.marketingweek.com/2016/11/10/mark-ritson-bash-segmentation-and-targeting/)

Ritson, M (2016b) Ditching targeting for mass marketing is going back to the dark ages. *Marketing Week*. (https://www.marketingweek.com/2016/04/12/mark-ritson-ditching-targeting-for-mass-marketing-is-going-back-to-the-dark-ages/)

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