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How To Increase Your Conversion From Online Advertising Using Retargeting And Segmentation

By Chris
14 Comments

A quick note from Yaro: I’d like to introduce you to a good friend of mine, Chris Dowsett. I’ve known Chris for over ten years. He’s a genius at statistical analysis and other things to do with numbers. We recently caught up when he was visiting Australia. He explained some of the work he was doing with online advertising and I was impressed. We decided it would be great to share some of his experiences with the EJ audience. This is his first article, enjoy!

There are countless stories about how online entrepreneurs and small businesses were able to use Internet advertising networks to compete with some of the world’s biggest brands. Internet advertising networks, like Google Adwords, gave us a form of online business democracy.

As the online advertising space has grown, so has the digital advertising options, including a new method known as retargeting.

What is Retargeting?

The idea behind retargeting is simple. Basically, you set up a tiered approach to your online advertising. You might start with a general ad for tier 1 and more specific ads for tiers 2 and 3. Tier 1 ads go out to a broad audience across general sites, like the NY Times or the Huffington Post. You do some targeting but tier 1 is largely a scattershot ad directed at your target audience.

Then your prospect clicks the ad and lands at your website or other desired click-thru destination. At this point, some people might leave the site and you’d never see them again. However, retargeting works by tagging visitors from the tier 1 ad. As the prospects go on surfing the internet, they start seeing your tier 2 ads and tier 3 ads, which are more targeted and potentially offer a more lucrative reason for coming back to your landing page.

Retargeting in Real Life

You’ve probably seen this when you put a product in a basket or a ‘wish list’ but didn’t go on to buy. Some retailers are sophisticated enough to send a follow-up email saying something like, “Hi, we noticed you saved the XY shirt but didn’t end up purchasing. Here’s an extra 10% off in case you’d still like to buy it.” Amazon is a good example of a company that utilizes retargeting.

The rationale is that you’ve done the hard work by getting someone to your website and they were on the edge of purchasing but left for a certain reason. Maybe a friendly reminder with an incentive will help.

The other benefit is that retargeting helps keep your brand top-of-mind – and being top-of-mind is big business with upcoming generations. TIME reports that Millennial’s are 52% more likely to make an impulse purchase compared to other generations with the winning businesses being those that occupy mind share.

Retargeting keeps your brand present in front of prospects that have shown interest in your business by serving ‘follow-up’ ads with an incentive to revisit your site. However, the promise of retargeting varies and you may be wasting money if you apply retargeting generally to your online advertising regime.

Retargeting In Action: A Case Study

I worked with an IT company to analyze their advertising data. They’d deployed a 3-tier retargeting project, advertising to their target across various news sites. However, the tier 2 ads and tier 3 ads weren’t attracting people after the initial visit to the landing page. With alluring offers for the tier 2 and tier 3 audiences, the company was confused why people weren’t returning and asked me to take a look at the data.

I found that only a small percentage of tier 1 clickers were engaging with the tier 2 ads and returning. Plus only a small portion of those would get to the tier 3 level.

What was the problem?

Looking at the data on those who clicked and engaged with the tier 2 and tier 3 ads, we noticed some consistent behaviors and demographic information. They clicked on the same pages; they looked for similar technologies and were interested in the same things.

Based on this segmentation, we realized that retargeting was highly engaging to a certain segment of people. With this information, we could improve the effectiveness and conversion rates of visitors by better targeting at the outset.

Here is how the results differed:

This chart shows a conversion rate of 3% at the outset of the retargeting campaign. After segmentation and targeting our ads more efficiently, the performance climbed to 16% – representing a 5x increase. This is a significant increase and has a huge impact on the return from advertising investment.

Imagine converting 5x more customers on your website?

The Importance of Retargeting To Entrepreneurs and Small Businesses

Online advertising is one way for entrepreneurs and small businesses to effectively compete against larger businesses and potentially grow to serve a global customer base. Retargeting offers a promising way to continue to target your audience even after they’ve left your website – but only when leveraged correctly with tools like enhanced segmentation.

Segmentation can be complicated. I’ve spent long periods working on some highly sophisticated segmentation analysis projects for clients. While you may not have access to statisticians as a small business owner, there are some basic segmentation tools that you can begin to use today.

Here are some ways to leverage better advertising returns through segmentation.

A Few Ideas To Get You Started

Segmentation can start from a few simple observations. Say, for example, you’re running your ads across the globe with a varied audience and you’re having some early success. You look at the new customers that your business is getting and here is what you see:

In this example, if you have 1,000 new customers from the campaign – you could create a Tier 1 segment which is females, aged 18 – 30 years old living in either Sydney, New York or London as this group represents about 720 of your new customers, or 72% overall.

This is the group that’s responding to your current advertising and turning into customers. Rather than targeting a wide variety of people from all ages and locations, you can now start to target this particular segment with your retargeting efforts. Your conversion rate will likely go up and so will the return on your advertising investment.

That doesn’t mean you can forget about the other potential customers out there like residents in Canada or males. It just means that your current advertising campaign isn’t resonating with them as much as this group of young females living in Sydney, New York or London.

The Overall Trendline

Web tracking tools like Google Analytics can start to help with this sort of information. Set up ‘campaigns’ in your Google Analytics dashboard to learn about how a particular advertising project is doing and what types of visitors are responding to your ads.

While segmentation can get really complicated and involve complex statistics, some basic segmentation work can vastly improve how your retargeting or broader digital advertising campaigns are working. Being aware of what types of customers are engaging with your ads can not only maximize your advertising return but also have a huge impact on your long term business returns. Good luck.

Chris

You can find me on Twitter @chrisdowsett for help with analytics, research numbers or understanding your market data better.

About Chris

Chris Dowsett (or Dows for short) is your friendly data analyst, statistician and numbers person. Originally from Australia, Chris works for an high tech company in Southern California. He's also studying a Doctorate in data value perception and data use among business leaders. Find Chris on Twitter - @chrisdowsett.

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14 Comments

  • Hey Chris, thanks for the contribution.

    I like your article, although it feels very much like a light introduction to this subject – I want to know more.

    I’m curious what ad platforms are you buying the ads from and how do they let you control the different tiered ads? And do you then connect these numbers with your google analytics to learn about the specific demographics like you talked about?

    Perhaps a video or more screen shots would help fill in the gaps, or maybe a part two article that takes us through an actual campaign to see everything in action would be good?

    Yaro

    • Chris

      Hi Yaro

      All great questions (and glad you like my first article). Google Analytics is always a good tool to have in your tool belt – particularly as you can set up ‘campaigns’ and other types of segmented tracking right from the analytics dashboard. What that means at a high level, for anyone who hasn’t played with the campaigns feature, is that you can insert an activity (say a promotion to a specific landing page like a giveaway or offer) as a ‘campaign’. The power of this is when you start running different campaigns (say, 2 different types of discount or maybe different wording for the same discount) and start comparing how the campaigns perform. All of a sudden, you’re in the midst of AB testing, segmentation and robust testing without the need for a lot of heavy stats.

      You can compare demographics, social influence, ad effectiveness and all sorts of goodies. Or, to keep things simple, find out very quickly which page is working better.

      That’s a really high level snapshot but I like your idea about a follow-up article to really get into this more.

      We use different ad platforms which are often linked with a retargeting service – one example is Turn. They retargeting with some pretty hefty algorithms but I’d always recommend going one step further, as mentioned above, and doing segmentation with ads to really focus on the market that’s responding to your products.

      Hope that helps. Happy to answer any and all data questions ….

      Chris

  • The internet has made it easy for businesses to split test and target customers. Optimization is necessary because after traffic, conversions are everything. A marginal 2-3% conversion change can make or break a business in many scenarios.

    I have been doing some targeting in my campaigns and the results have been great so far :)

    • Chris

      Great to hear, Deepak. Targeting can really have some positive results.

  • Wow this is the most important idea that i’ve read today. Thanks for the tutorial.

    I have good conversion but i think i’ll try this one, i hope my conversion will become great. And i agree to Yaro that i want to know more too.

    • Chris

      Thanks Gicara – glad it could help. I’ll try and do a follow-up post soon. Let me know how it all goes on conversion rates.

  • Great article, good !

    I will use this stuff to promote my solo ads and to have a high ctr and more earnings $$

  • Marketing segmentation is not as easy as it has been expressed. a small mistake in segmenting market to target will bring failure of marketing campaign. I would suggest that you should write more about segmentation in detail. some tools would be helpful.

    • Chris

      Hi Nick – marketing segmentation can definitely get very complex. Particularly when there are multiple audiences and different marketing engines. But there are definitely some steps smaller businesses and entrepreneur’s can take when there isn’t a research/stats department on call to improve their online advertising. I’ll definitely look to expand on this article soon – thanks for the comments.

  • A good article about retargeting and traffic segmentation. At business schools, we always hear people teaching “target your market, segment your clients and then create targeted products”.

    Unfortunately that is not applied in real life, where daily duties and more pressing matters take over strategic planning such as retargeting. When operating a small business or even a simple blog, someone should always think and imagine his ideal customer/reader and then try to create a product/content targeted to that customer.

    • Chris

      Great points Luca. Thinking about your customers is one way to start thinking about targeting and segmentation. It’s an important first step as a business plans out its marketing/advertising tools. Thanks for the comment.

  • This just goes to prove even further than I need to spend a bit of time fiddling about with my ads to try and see if I can improve my conversion rate. Sounds expensive though. :)

    • Chris

      Good luck fiddling with your ads, Dean – The trick is to do it in a targeted way using data and metrics to keep your costs down :)

  • Interesting article and just recently went through the same. There seem to be more and more Ad-tech companies coming out who look at not just the re-targeting bit but more higher up the marketing funnel. That way, they can ensure higher ROI than just re-targeting.

    Do you see this becoming standard across all display ad-networks going forward?

    Cheers,
    Sandeep Balaji

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