The price companies pay for ad space on TV shows depends on the number of people who watch the show. This is supposed to tell them how many “ad exposures” they are getting. When the commercials start, many of us will change the channel. Or you can hit the fast-forward button. Or we can pull out our phones. Or… anything.
Harikesh Nair, professor of marketing at Stanford Graduate School of Business, says that viewers are not passive. “Traditionally, advertising was seen as a form of communication with an audience. It’s more like a transaction. People can decide whether or not to “consume” an advertisement.
Previously, there was no way for marketers to see their choices. Digital technology is changing this. Companies can target advertisements to specific individuals online based on their search history and browsing habits. They can also see how long you watched a video or how quickly you scrolled by their banner.
Now, these same capabilities will be available in your living room. Often, today’s TVs are connected to the internet. This lets you watch “whatever you want, whenever you want” to quote service providers. There’s one catch, though: your watching is also being monitored. The system will take note when you click away from a Verizon ad.
This information will change the way big brands advertise on television. How can companies integrate household advertising viewing data into their marketing strategy?
Nair and his colleagues Pedro Gardete, a Stanford GSB Professor, and Anna Tuchman, a Northwestern University Kellogg School of Management professor, pose this question in, Ad viewing and product purchase are complexly related. The researchers could model new strategies using some of the latest data. Bottom line: Targeting consumers less likely to ignore an advertisement is more profitable than a blanket approach.
What about the consumers? Although it can be creepy knowing that your late-night remote clicks are being recorded, the study found that viewers could benefit from such targeting when ads are shifted to those who value them more. Or dislike them less.
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Gardete claims that this only works when firms can predict who is more likely or less likely than others to watch an ad. But, very little research has been done in this area. Why do some people ignore an advertisement? Why do people skip an ad but watch another one? What determines an individual’s choice of ads? “These are questions that no one has ever asked before.”
Researchers realized that the key was understanding that viewing advertising is a decision. You can’t permanently close your eyes and avoid highway billboards, but you certainly can in electronic media. This is especially true with the advent of technologies that block ads. The old saying goes: You can expose the horse to advertising, but you cannot make it watch.
After seeing them once, it’s free to skip those commercials. It would be best if you liked the commercials you watch.
It can be helpful information about a product but rarely is it. Nair says that “in the vast majority” of ads, it’s beautiful young people doing incredible things.
Why do we watch ads
They thought that advertising — or good advertising in any case — could be a complementary good. This means that watching the ad can increase your enjoyment of a product and vice versa.
It’s an association. Nair says that the memory of the advertisement enhances the Pepsi experience. The fact that you are a Pepsi fan may give you some satisfaction and validation as you watch the ad: Hey! These are my people.
Gardete says that Gary Becker, Kevin Murphy, and others suggested this theory years ago, but no test existed. Researchers used a data set to track household purchases within a significant product group and each household’s viewing of television ads in this category down to a fraction of an advertisement before the viewer clicked away. The data includes more than 100,000 household purchases and 1.4 million ad impressions over one and a half years.
Researchers crunched numbers and found that people are more likely to purchase a product after seeing an advertisement. It also worked the other way around: People were likelier to watch an ad if they had recently bought the brand. Gardener said this result was less intuitive, but it supported the idea of complementary ads and products: If you consume more of one, you want to finish more of the other.
Data Mining
This is a powerful insight for marketers. It offers a way to interpret the type of data marketers will soon have: people who skip commercials for a particular brand are less likely to purchase it anyway. So why would they pay to expose themselves to these households?
It also means that previous purchases can be used to predict future ad viewing behavior. It’s not the whole story. Nair says that “whether you watch an advertisement also depends on personal traits that cannot be observed.” You might like to watch Matthew McConaughey sitting in a car. He says, “But there is one piece of information which can be used.”
Does it work? The researchers created a model using their data and then simulated different ad campaigns in a world with such data. They found that targeting households based on their ad preferences increased profits in each case.
Nair explains that you indirectly target people likely to buy by serving ads to those with a low tendency to skip them. This means more advertising bang for your buck. Ad viewing is, in essence, a rough proxy of product demand.
This world isn’t far away. The majority of TV ads are still targeted at shows using broad demographics. As TVs are “addressable devices” with unique IP addresses, just like computers, television advertising will become more similar to online advertising. Different ads can be shown to other viewers.
For example, Nielsen Catalina Solutions has already begun combining data from loyalty cards and household TV viewing. One can imagine a future where the sale of advertising spots will be based on a system similar to the TrueView ads on YouTube. Viewers can click ahead for 5 seconds, and advertisers only pay for those who do not click away.
Advertising: A Positive View
We have always discussed advertising in terms of the choices made by the advertisers — or the “supply side” as we like to call it — because this is what we can observe. The airing of a TV advertisement is useless if no one watches it. As in any exchange, the demand must be there.
It is up to companies to make ads that people will want to see repeatedly. Ad-skipping statistics may encourage advertisers to create better, more entertaining, or, at the very least, less irritating ads by focusing on this demand side.
Nair: “We all complain that we live in a world with much advertising. “But it might not be as bad as what we think.” Our advertising approach is more positive by acknowledging the agency of viewers.
It’s not as if TV ads give you accurate information to help you make better decisions at the supermarket. They can improve the quality of the products that you purchase.
