Personalized Advertising - How It Works and How to Do It (2023)

If you’ve ever received a promotional email that addresses you by name or have seen an online ad that’s been tailored specifically to your interests, you’ve experienced modern personalized marketing and advertising firsthand.

A game changer since its introduction in the mid-90s, personalized advertising refers to the practice of creating and delivering advertisements to specific individuals or groups based on their unique characteristics, preferences, and behaviors.

Personalized marketing has been around just as long. It functions in a very similar way to personalized advertising, but the goal is to employ it for marketing purposes, such as that promotional email mentioned in the first paragraph.

Leveraging technology such as data analysis and artificial intelligence (AI), this approach analyzes and utilizes consumer data to deliver advertisements that are tailored to the needs, interests, and preferences of individuals within a target audience.

Personalized Advertising in Today’s Market

In the current advertising landscape, personalized advertising has become the go-to method for maximizing the customer experience. It offers a unique and proven opportunity for businesses to reach their target audience more effectively and improve the return on investment for their advertising efforts.

The proliferation of digital technology and the Internet has made it easier for companies to collect, analyze, and use consumer data to create targeted advertisements. Simultaneously, consumers are becoming increasingly savvy and selective about the advertisements they see. As a result, they’re more likely to engage with advertisements that are relevant to their needs and interests.

In addition, personalized advertising has been shown to be markedly more effective than non-personalized advertising (generic advertising that is intended to cast a broad net vs the precision that personalization brings), with substantially higher engagement rates and conversion rates, making it a more cost-effective solution for businesses.

How Data Fuels Personalized Advertising

Information is a critical component of personalized advertising, enabling advertisers to create more relevant, impactful, and engaging ads and target them to the right audiences. The more information an advertiser has access to, the better their chances for personalization success.

Primary information collection vehicles include:

  • Web analytics: Web analytics involves tracking and analyzing data related to website traffic, including the number of visitors, their demographics, location, and behavior on the site. That data can be used to create targeted ads based on the interests and behaviors of the target audience.

  • Customer data platforms (CDPs): CDPs are systems that collect, store, and manage customer data from multiple sources, and can include information from a customer's online and offline interactions with a brand, such as website activity, purchase history, and email engagement.

  • Third-party data providers: Third-party data providers collect and sell data about consumers from various sources, such as online and offline transactions, social media activity, and more. Advertisers can purchase this data to create targeted ads based on the interests and behaviors of their target audience.

  • Surveys and forms: Advertisers can collect data by asking consumers to fill out surveys or forms that gather information about their interests, demographics, and behaviors.

  • Social media platforms: Social media platforms collect data about their users, including their interests, behaviors, and demographics. However, those companies do not typically sell that information to third parties, nor make it available in any non-anonymized way. Snapchat is among the platforms following that practice.

The Role of AI (Artificial Intelligence) in Personalized Advertising

The advent of AI is obviously making a giant splash in every realm it touches, and advertising is definitely no exception. In the context of personalized advertising, AI allows for the creation and implementation of sophisticated, targeted ad campaigns that are otherwise either unattainable or resource-draining.

With the use of AI, large corporations can analyze large amounts of data on consumer behavior and preferences and then use that information to create customized ads that are more likely to resonate with their target audience. AI can also be used to optimize ad delivery in real-time, ensuring that ads are being shown to the most relevant audiences at the most opportune times; this is how the ad delivery systems of many social media platforms, including Snapchat, operate.

AI can also be used to personalize the user experience on websites and mobile applications by providing customer-specific product recommendations or by personalizing the interface of a business’s website to match user interests.

What’s more, AI can analyze the performance of ads and make predictions about which ads are likely to be most successful in the future, which can help businesses to make more informed decisions about their ad budgets and strategies.

Personalized Advertising Benefits in a (Big) Nutshell

  1. Increased engagement and conversion rates: By tailoring ads to specific demographics, interests, and behaviors, businesses can more effectively reach their target audience and increase the likelihood that their ads will be seen and acted upon.

  2. Higher return on investment (ROI): Personalized advertising can lead to higher ROI for businesses as it allows them to target the right audience with the right message.

  3. Improved customer relationships: Businesses can build stronger relationships with their customers by showing that the brand is paying attention to their individual needs and preferences.

  4. Increased customer loyalty: By providing personalized experiences, businesses can solidify customer loyalty and repeat business.

  5. Increased efficiency: Through AI, businesses can analyze large amounts of data on consumer behavior and preferences, and then use that information to create customized ads that are more likely to resonate with members of their target audience.

  6. Real-time optimization: AI can also be used to optimize ad delivery in real-time, ensuring that ads are being shown to the most relevant audiences at the most opportune times.

  7. Predictive analytics: AI can analyze the performance of ads and make predictions about which ads are likely to be most successful in the future, which can help businesses make more informed decisions about their ad budgets and strategies.

  8. Better targeting: Personalized advertising allows businesses to reach their target audience more effectively than traditional advertising methods.

  9. Better user experience: Personalizing the user experience on websites and mobile applications reinforces a brand’s interest in and commitment to its customers, which in turn builds trust and loyalty.

Challenges Facing Personalized Advertising Efforts

Despite its benefits, personalization is not without its own bevy of issues and obstacles, all of which need to be considered and/or addressed as businesses adopt the advertising practice. Those include:

  • Privacy concerns: Personalized advertising relies on the collection and use of consumer data, which can raise concerns about privacy among consumers. Advertisers must comply with data privacy laws and regulations, such as the General Data Protection Regulation (GDPR) in the European Union and the California Consumer Privacy Act (CCPA) in the United States. These laws require that consumer data be collected and used in a manner that is transparent and compliant with consumer privacy rights.

  • Data accuracy: Personalization depends on accurate data, but data is often incomplete, inconsistent, or inaccurate, and can lead to ineffective or irrelevant ads. Businesses are expected to ensure that the consumer data they collect and use is accurate, up-to-date, and relevant to the intended purpose. This includes regularly verifying and updating consumer data, and allowing consumers to review and correct their personal information as well.

  • Data security: The data collected for personalized advertising should be protected from breaches and unauthorized access, both of which are significant concerns for businesses and consumers alike. Consumer data has to be secure and protected from unauthorized access, use, or disclosure. This includes implementing appropriate security measures, such as encryption and secure storage practices, to prevent data breaches.

  • Consumer consent: Advertisers are required to obtain consent from consumers before collecting, using, or sharing their personal information for personalized advertising purposes. This includes providing clear and concise information about the purpose of the data collection, how the data will be used, and who will have access to the data. Failure to do so can have catastrophic legal consequences, for good reason.

  • Ad-blocking: With the increasing popularity of ad-blockers, it’s becoming more difficult for businesses to reach their target audience through online ads.

  • Ad fatigue: Showing the same ads to the same users over and over again can and will lead to ad fatigue, where users tune out, ignore the ads altogether, or proactively speak out against an advertiser publicly as a result.

  • Ad relevance: Personalized advertising can be seen as invasive, meddling, or presumptuous, especially if the relevance is not well understood by the user.

  • Ethical concerns and discrimination: Personalized advertising raises ethical concerns about manipulation, bias, and discrimination. Advertisers’ practices cannot discriminate against consumers based on their race, ethnicity, gender, sexual orientation, religion, or other prohibited factors. Algorithms and models used for personalization must be free from bias and discriminatory outcomes.

  • Regulation: Personalized advertising is subject to a variety of regulations, such as GDPR, CCPA, and HIPAA. Businesses need to ensure they are complying with all relevant legal stipulations and obligations at all times.

A Targeting Primer for Personalized Advertising

Targeting in advertising refers to the process of identifying and reaching specific audiences with relevant ads. That, in turn, involves segmenting the population based on certain criteria such as demographics, behaviors, interests, and location, and then delivering ads to those segments. 

The types of targeting typically available, which can often be mixed and matched when creating an ad, include:

  • Demographic targeting: Segmentation based on characteristics such as age, gender, income, education, and occupation — for example, women aged 18-35 who make over $50,000 a year, or men aged 18-35 who have a college degree.

  • Behavioral targeting: Segmentation based on consumer behavior, such as browsing history, purchase history, and search queries — for example, people who have recently searched for furniture or bought a new car.

  • Geographic targeting: Segmentation based on location, such as city, state, country, or region — for example, people living in New York City or Portugal.

  • Interest targeting: Segmentation based on interests, such as sports, music, or travel — for example, people who follow football or regularly go camping.

  • Lookalike targeting: Creating a target audience by looking for people who have similar characteristics as a group of people you already know. This can be done by using data from website visitors or from your customer relationship management (CRM) system as the source for the lookalike audience.

  • Retargeting: Tracking people who have previously visited a website or interacted with a brand before and then showing them that brand’s ads as they browse other websites.

Each of the above targeting types has its own set of benefits and challenges. Selecting the right mix of those options for your business depends on the goals or objectives of your campaign and the characteristics of your audience.

And remember: to avoid having their personalized ads come across as invasive, businesses should always be transparent about how they are collecting and using personal data, and provide options for users to opt-out or control their data preferences. Being clear and honest with customers inevitably increases the positive perception and acceptance of the targeted ads.

Personalized Advertising Formats

As practical extensions of targeting and the most common conveyances in the online advertising world, different digital ad formats each present their own unique benefits:

  • Display ads: Display ads are graphical advertisements that are displayed on websites and mobile apps. Personalized display ads can be created based on the user's behavior and preferences, such as their browsing history, search terms, or purchase history. The benefits of personalized display ads include increased relevance, higher click-through rates, and improved conversion rates.

  • Email marketing: Personalized email marketing involves sending targeted and relevant messages to specific subscribers based on their preferences and behaviors. Personalized emails can be created based on the subscriber's demographics, purchase history, email engagement, or website activity. Benefits of personalized email marketing include increased open rates, click-through rates, and conversions, as well as improved customer engagement and loyalty.

  • Video ads: Personalized video ads can be created based on the user's interests, behaviors, and preferences. For instance, a personalized video ad for a clothing retailer could show different products to different users based on their past purchases or browsing history. Personalized video ads can help increase the relevance and engagement of the ad, leading to higher conversion rates.

  • Social media ads: Personalized social media ads can be created based on a user's behavior and interests on social media platforms. A personalized social media ad could show different products to different users based on their interests, past purchases, or browsing history. Personalized social media ads can help increase the relevance and impact of the ad, leading to higher engagement and conversions.

Creating a Personalized Ad for Your Business

When you’re prepared to launch your first personalized ad, follow these 8 steps:

  1. Define your target audience: Identify the demographics, interests, behaviors, and pain points of your ideal customers to help you create an ad that’s more likely to resonate with them.

  2. Collect information: Pull from your website traffic, user behavior, and conversion rates. That data can be used to create targeted ads that are more likely to be successful.

  3. Create a compelling message: Use the data you've collected to create a message that speaks directly to your target audience's needs, interests, and motivations. Make sure to highlight the benefits of your product or service, and use persuasive language and a CTA that will motivate them to take action.

  4. Choose the right format: For maximum impact, decide on the format of your ad — whether it be video, display, native, social media, etc. — based on your audience and message.

  5. Optimize and Test: Use A/B testing and optimization tools to test different versions of your ad and determine which one performs the best. Many social media platforms, including Snapchat, offer A/B testing tools for their ads.

  6. Use Personalization: As we’ve made abundantly clear, personalized ads are more likely to be noticed and acted upon. Use personalization software or AI-based platforms, such as Snapchat’s Shopping Lenses, to optimize your creative for higher performance.

  7. Track and Measure: Use available tools such as Snapchat’s Ads Manager to track the performance of your ad and measure the success in terms of click-through rate, conversion rate, and ROI.

  8. Continuously improve: Use performance data and feedback to make continuous improvements to your ad and optimize for better results over time.

As mentioned earlier, it's also critically important to comply with the laws and regulations related to data privacy and data protection, as well as making sure you get the user's consent before using their data for personalizing ads.

Best Practices for Personalized Advertising

When planning and finessing your strategy and ads, use the following checklist to ensure that your ad personalization efforts are as successful as possible, as well as ethically sound:

  • Be transparent: Be upfront with consumers about how their data is being collected and used, and provide them with control over their data preferences.

  • Be respectful of privacy: Respect consumers' privacy and give them the option to opt-out of personalized advertising.

  • Use high-quality information: Use accurate, up-to-date data to ensure that your personalized ads are reaching the right audience.

  • Test and optimize: Continuously test and optimize your personalized ads to improve their performance.

  • Personalize the user experience: Personalize the user experience on websites and mobile applications. This can be done by providing personalized product recommendations or by personalizing the interface of the website to match the user's interests.

  • Be consistent: Be consistent in the way you personalize ads across different channels to ensure a seamless experience for the user.

  • Use multiple data sources: Use multiple data sources to create a holistic view of the user and their interests.

  • Be aware of the regulations: Stay up-to-date on the regulations that pertain to personalized advertising, such as the General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA), and ensure that you are compliant with all relevant laws.

  • Don't overdo it: Avoid showing the same ads to the same users over and over again, as it can lead to ad fatigue.

  • Be ethical: Be mindful of ethical considerations when creating personalized ads, and avoid creating ads that could be seen as manipulative, biased or discriminatory.

Personalized Advertising’s Future

The future of personalization in advertising is expected to be more refined, data-driven, and context-aware, continuing to improve on effectiveness and ROI through efficiencies and more accommodating processes.

With the unstoppable advancement of technology, in particular artificial intelligence and machine learning, advertisers can count on personalization becoming even more sophisticated, delivering increasingly relevant and impactful advertisements to consumers. While that fact might seem daunting — even ominous — you can benefit from personalization’s maturation by staying abreast of its evolution.

One of the major trends that will help define the future of personalized advertising is real-time personalization: the use of data and algorithms to create advertisements on-the-fly based on the specific context and behavior of the target audience. This will allow businesses to deliver truly personalized advertisements in real-time, further increasing the relevance and effectiveness of their advertising efforts.

Another growing trend: multichannel and omnichannel personalization. As consumers move seamlessly between different devices and platforms, businesses will need to be able to deliver consistent, relevant advertisements across all channels, including desktop, mobile, and social media. This will require a deeper understanding of the consumer journey and the use of sophisticated data analysis and tracking tools to deliver truly comprehensive personalization.

Privacy and data security concerns are likely to become even more prominent in the future of personalization, too. As consumers become increasingly aware of how their data is being used, businesses will need to step up as well. That means maintaining and/or increasing transparency about data collection and data management practices in parallel with consumer expectations to ensure compliance with privacy laws and regulations.

Lastly, as the move to AR and VR continues to accelerate and mature, brands will need to understand and embrace the technology in order to remain competitive. That eventuality will play out (and already is) in the form of digital ecosystems that will suggest and provide known as well as fully novel ways of engaging customers. Brands will need to figure out how to personalize experiences across the customer journey by investing in customer data and analytics, and to be prepared to create, collect, manipulate, and interact with new types of data, from visual to voice and beyond.

Using Snapchat to Maximize the Effectiveness of Personalized Advertising

Along with demographic and interest targeting, you can use these features and capabilities to create personalized ads that are more likely to resonate specifically with Snapchat's users, thereby increasing the effectiveness of your Snapchat presence, helping to grow your business:

  • Geofilters: Overlays that users can add to their photos and videos. This feature can be leveraged to create personalized ads that are relevant to the user's location.

  • Lenses: Interactive filters that users can add to their photos and videos. Use this feature to create personalized ads that are interactive and engaging for the user.

  • Snapchat Stories: Snapchat stories allow advertisers to create a series of photos and videos that are strung together to tell a story. Use Stories to create personalized ads that are more engaging and effective than traditional ads.

  • Snapchat Ads: Use our platform to automate your ad campaigns.

  • Custom Audiences: Snapchat lets you create custom audience segments based on their own data, and target them with personalized ads.

Launch your personalized ad campaign on Snapchat today.