What it means
Tailored advertising draws on data such as browsing history, purchase records, location and the content someone has engaged with. That data is used to choose who sees an advert, which product is shown and what message is used.
The same campaign can therefore look quite different to two customers, even though both are seeing it on the same day. Digital platforms made this practical at scale.
Online adverts can be bought and adjusted in real time, and results can be tracked down to the click and the sale. This is why tailored advertising is closely linked to online display and social media marketing.
From a finance angle, the attraction is efficiency. If adverts reach people who are more likely to buy, the cost of acquiring each customer falls and the return on the spend rises.
Marketing budgets are therefore often judged on return on ad spend and cost per acquisition. There are limits and costs.
Tailoring requires data, which has to be collected and used in line with privacy law and customer consent. Poorly handled data can lead to fines and reputational damage that outweigh any marketing gain.
The other nuance is that tailored campaigns need testing. A tailored advert can fail just as a generic one can, so businesses compare groups that saw the tailored version with groups that did not.
Only then can they say how much of the sales uplift was really due to the tailoring. For finance teams, tailored advertising also changes how budgets are reviewed.
Spend is no longer one lump sum for brand awareness but a set of small experiments, each with its own cost, result and decision to continue or stop.
In practice
Real-world examples.
Example
An online clothing retailer emails customers who viewed a winter coat but did not buy it, offering a small discount on that coat. The message converts at a far higher rate than its general newsletter. The marketing team reports the result as a lower cost per sale.
Example
A software company shows different adverts to small business owners and to large company finance directors. The first stresses low monthly price, and the second stresses audit controls and integrations. Sales leads from each group are tracked separately to see which message works.
Example
A local gym targets adverts at people living within two miles of a new branch, offering a free trial week. Within a month it measures how many trial members signed up for paid plans. The campaign is stopped in areas where signup is poor.
Formula
Calculation
Return on ad spend = revenue attributed to the advert / advertising cost
Cost per acquisition = advertising cost / number of new customers
A business spends $20,000 on a tailored campaign and generates $90,000 of sales from 600 new customers. Return on ad spend = 90,000 / 20,000 = 4.5, so each dollar of advertising produced $4.50 of revenue. Cost per acquisition = 20,000 / 600 = $33.33 per customer. A generic campaign of the same size that produced $50,000 of sales from 400 customers had a return of 2.5 and a cost per acquisition of $50.00.Case study
Seen in the real world.
Fernhill Outfitters is an illustrative, fictional online seller of outdoor equipment. It had spent $60,000 a quarter on broad adverts that reached a wide audience, producing sales of $180,000, a return on ad spend of 3.0.
The marketing director moved half the budget to tailored adverts shown to people who had browsed hiking gear in the previous month. The tailored half produced $150,000 of sales from $30,000 of spend, a return of 5.0, while the broad half produced $85,000 from $30,000, a return of about 2.8.
The illustrative finding was that the tailored group included many people who would probably have bought anyway. A controlled test later showed that about two thirds of the apparent uplift was genuine, which was still enough to justify the shift.
Watch out
Common mistakes.
- Counting every sale from a tailored advert as caused by the advert, when some of those customers would have bought without seeing it.
- Collecting customer data without clear consent, which can lead to regulatory penalties.
- Tailoring so narrowly that the audience becomes too small to produce reliable results or enough sales.
Questions
People also ask.
Is tailored advertising the same as targeted advertising?
The terms are used almost interchangeably, though tailored often stresses customising the message, while targeted stresses choosing the audience.
How is the success of tailored advertising measured?
The usual measures are return on ad spend, cost per acquisition and conversion rate, ideally compared with a control group.
Does tailored advertising cost more?
The cost per advert can be higher, but the cost per customer is often lower because fewer adverts are wasted.
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