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TELEVISION AD TARGETING AND ROI

MEASUREMENT
USING DATA MINING TECHNIQUES

ASSIGNMENT
Submitted By:

Bindhu Shree P S
Mohit Kanoria
Sajal Gupta
Shweta Sharma
Tejinderpal Kaur

SAP-Labs, Bengaluru

BIRLA INSTITUTE OF TECHNOLOGY AND SCIENCE


Pilani (Rajasthan) INDIA

June, 2017

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Abstract

We study the targeting of political advertising by presidential candidates on television. Targeting


strategies for television differ from targeting strategies for direct mail advertising or get out the
vote efforts because candidates cannot target voters individually. Instead, candidates must tar-
get television programs with viewers most like the desired target voters. Thus, for targeted ad-
vertising to have value, the audiences for television programs must differ in meaningful ways and
advertising must be effective. We develop and estimate a model of targeted advertising. We
study whether television shows segment potential voters sufficiently to allow for effective tar-
geting and we consider the effect of television advertisingwhether it persuades individuals to
vote for a candidate or mobilizes them to vote in general.

Our results suggest the function of television advertising is primarily to persuade. Moreover, we
find that there is sufficient variation in the distribution of viewer characteristics across television
programs to allow for effective targeting. The most effective targeting strategies therefore in-
volve both parties adopting similar strategies of advertising primarily on programs with audi-
ences containing many swing voters. Actual candidate behavior is largely consistent with this
strategy indicating that candidates seem to accurately believe that the function of television ad-
vertising is to persuade voters. Nonetheless, we are able to uncover specific ways in which can-
didates could improve their advertising by identifying particularly effective shows and by quanti-
fying the tradeoff between cost and effectiveness.

Real-time conversion tracking is the holy grail of TV advertisers. We show how to use thousands
of tiny areas available via commercial cable and satellite systems to create low cost tracking cells.
These areas are created as mirrors of a national campaign, and run in parallel with it. With
properly controlled areas, it is possible to calculate national effects due to TV using statistical
methods. We show performance of the method on a large-scale TV advertising campaign where
it was used successfully to maintain a real-time CPA target of $60 for 179 days.

Keywords: Television; ROI; Conversion Tracking.

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Purpose
Targeted advertising serves the purpose of placing advertisements before specific groups to
reach consumers who would be interested in the information. Advertisers aim to reach consum-
ers as efficiently as possible with the belief that it will result in a more effective campaign. By
targeting, advertisers can identify when and where the ad should be positioned to achieve max-
imum profits. This requires an understanding of how customers' minds work to determine the
best channel by which to communicate.

Behavioral advertising is the most common form of targeting used online. Internet cookies are
sent back and forth between an internet server and the browser, that allows a user to be identi-
fied or to track their progressions. Cookies provide detail on what pages a consumer visits, the
amount of time spent viewing each page, the links clicked on; and searches and interactions
made. From this information, the cookie issuer gathers an understanding of the user's browsing
tendencies and interests generating a profile. Analyzing the profile, advertisers can create de-
fined audience segments based upon users with similar returned similar information, hence pro-
files. Tailored advertising is then placed in front of the consumer based upon what organizations
working on behalf of the advertisers assume are the interests of the consumer. These advertise-
ments have been formatted to appear on pages and in front of users that it would most likely
appeal to be based on their profiles. For example, under behavioral targeting if a user is known
to have recently visited several automotive shopping and comparison sites based on the data
recorded by cookies stored on the user's computer, the user can then be served automotive re-
lated advertisements when visiting other sites. Behavioral advertising is reliant on data both
wittingly and unwittingly provided by users and is made up of two different forms: one involv-
ing the delivery of advertising based on assessment of user's web movements; the second in-
volving the examination of communication and information as it passes through the gateways
of internet service providers.

Demographic targeting was the first and most basic form of targeting used online. It involves
segmenting an audience into more specific groups using parameters such as gender, age, ethnic-
ity, annual income, parental status etc. All members in the group share the common trait. So,
when an advertiser wishes to run a campaign aimed at a specific group of people then that cam-
paign is intended only for the group that contains those traits at which the campaign is targeted.
Having finalized the advertiser's demographic target, a website or a website section is chosen as
a medium because a large proportion of the targeted audience utilizes that form of media.

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Introduction
Television has traditionally been viewed as a broadcast medium where advertising is placed to
reach as much of the population as possible. As the number of television channels has increased,
the concentration of viewers on the three major networks has decreased dramatically. Increas-
ingly specialized channels suggest that there is greater potential to target ads to specific groups.
While targeting political advertisements on television has received surprisingly little attention,
targeting through mail, phone, and internet has become a standard tool in modern political cam-
paigns. Yet the total expenditures spent on such direct targeting activities represents only a small
fraction of the expenditures spent on television advertising. For example, in the 2008 presidential
campaign, expenditures on direct targeting efforts were less than 10% of broadcast media ex-
penditures and broadcast media costs were the single largest expenditure category out of the
$1.3 billion campaign expenditures in 2008. Given such large expenditures and the decreasing
concentration of audiences, differences in how effectively campaigns target could potentially al-
ter the course of an election. The value of television advertising is increasingly dependent on the
ability to target effectively.

Consider that a candidate may target voters based on their likelihood of turning out to vote
and/or their likelihood of voting for that candidate. If advertising primarily persuades, then can-
didates should target swing voters who are likely to turn out. If advertising primarily mobilizes,
then candidates should target core supporters who have an intermediate likelihood of voting.
For candidates targeting strategies to be effective, candidates must believe (and behave) in ac-
cordance with the actual advertising effect. Effective strategies require more however. Because
television ads target program audiences, not individuals, programs must exist that are heavily
viewed by the targeted audience. Thus, evaluating campaign targeting strategies requires data
with information about voting choices and viewing habits as well as detailed information about
the individual (predictors of voting behavior).

Such information, however, is not available in a single dataset, creating a major barrier to study-
ing targeting. In this paper, we address this problem by using new data and a statistical technique
for linking multiple distinct datasets. Our approach uses multiple imputation to fuse information
about voting behavior from the National Annenberg Election Study (NAES), information on can-
didate strategies from the Wisconsin Advertising Project, and information on television program
viewership from the Simmons National Consumer Survey.

We apply this general approach to the 2004 election, focusing on the presidential race. In this
context, we study whether advertising effects support targeting for mobilization or persuasion,
whether television program audiences differ sufficiently to enable targeting, and how consistent
actual candidate behavior is with optimal targeting.

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The Simmons National Consumer Survey is central to our empirical strategy. This dataset contains
the viewership for television programs on which over 95% of the political ads were shown. This
viewership data includes information on all the key demographics as well as political ideology,
party identification, and voter registration. This data enables several critical aspects of our anal-
ysis. First, the shared variables with the NAES allows us to use a multiple imputation strategy to
link the datasets. Second, it allows us to incorporate advertising exposure into our estimation,
which has been shown to be important for correctly estimating the effect of advertising. With
this data, we identify much larger variation in the actual exposure to programs and advertising
than previous efforts. Third, the Simmons data is the key input to determining whether television
programs are sufficiently differentiated to enable targeting efforts on persuasion and mobiliza-
tion.

We also develop a new approach for estimating the effect of advertising. We first estimate a
model of individual exposure to television programs. The outputs of this model provide individual
level predictions for exposure to candidate advertising. We then estimate the effect of advertis-
ing exposure on voter turnout and candidate choice. Our estimator accounts for the endogeneity
of advertising by including fixed effects at the media market and election district levels. The iden-
tification of advertising effects comes from variation in individual exposure to ads within a media
market and is analogous to a differences-in-differences strategy. While other approaches for es-
timating advertising effects that account for endogeneity exist, our approach allows for individual
differences in advertising exposure within a media market, which is essential for our goal of stud-
ying the targeting of advertisements to viewers.

Our results indicate that television advertising is effective in persuading voters and ineffective in
mobilizing voters. Further, we find that the variation in television program audiences is sufficient
to allow for effective targeting for persuasion. Since our estimates indicate persuasion is the pri-
mary role of advertising, optimal targeting strategies involve both parties adopting similar strat-
egies of advertising. Specifically, both parties should advertise primarily on programs that have
many likely swing voters among their viewers. We find that actual candidate strategies are largely
consistent with this benchmark indicating that candidates seem to accurately believe that the
function of television advertising is to persuade voters. This suggests that gains from targeting
advertising are only likely to occur at a tactical level of selecting programs and not in the generic
strategy.

Nonetheless, such tactical gains could be large. We uncover several ways in which actual candi-
date strategies differ from our estimated best set of programs. We find that presidential candi-
dates spend little on dramas, news magazines, and cable news shows, even though advertising
on these shows would be particularly effective. This is partially explained by the fact that many
such shows air during prime timereaching a prime-time viewer is approximately three times
as expensive as reaching an early morning or daytime viewer. However, several cost-effective
daytime and early morning cable dramas, cable news shows, and news magazines exist, where
the candidates advertise little. We also find that candidates miss subtle differences between pro-
grams. While the candidates spend large amounts on news programs from all four major net-
works, spending on NBC news is much more cost-effective than spending on FOX news, due to
higher voter turnout among NBC news viewers. Together, these results suggest that the candi-
dates employ heuristics that match the generic strategy, but miss important opportunities.
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Design of the project
We are concerned about several potential endogeneity biases due to unobserved characteristics
in the district. The unobserved characteristics could be any unobserved tendency of the district
to more likely turnout or vote Republican. These characteristics might reflect some (known to
campaigns) tendency such as past higher (or lower) turnout or Republican voting. Further, this
could reflect other actions taken by the campaigns that we do not observe such as GOTV efforts.
They could also reflect actions taken by campaigns other than the Presidential campaignfor
example, visits by a gubernatorial candidate to a locality which spur favorable media coverage in
the media market.

These unobserved characteristics could lead to problematic biases in our estimates if they are
correlated with the observed advertising levels. If advertising is primarily persuasive, candidates
will target high turnout districts to capitalize on the higher turnout and collect the most votes
from the district. This will induce a positive correlation between advertising and turnout that will
bias our estimates of the mobilizing effect of advertising upward, if we do not control for the
characteristics that lead this district to be a high turnout district. With persuasive effects, another
source of bias may arise due to trade-offs between different campaign expenditures. Since GOTV
efforts mobilize voters, the incentive to spend on GOTV efforts increases as the portion of core
supporters increases. Hence, in districts with higher proportions of core supporters the relative
incentive to spend on television advertising is lower, which could bias our estimates of the per-
suasive effect of advertising downward.

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Alternatively, if the effect of advertising is primarily to mobilize, candidates will target districts
with large portions of core supporters to air more ads. This will induce an inverted U-shaped
relationship between Republican vote shares and advertising that could bias our estimates in
favor of finding evidence for persuasion effects. In both cases the endogeneity bias due to unob-
served characteristics will lead us precisely to the wrong conclusion if we do not account for
election district and media market level differences in the prior likelihood of turning out and vot-
ing for Republican candidates. If advertising in fact has a persuasive effect, we may find a mobi-
lization effect when none exists and may underestimate the strength of the persuasion effect. If
advertising in fact has a mobilization effect, we may find a persuasion effect when none exists.
For this reason, we include fixed effects in both the turnout and candidate choice equationsfor
units we construct by intersecting media markets and congressional districts. We include fixed
effects at the media market level to account for such factors as visits by the candidates (presi-
dential or other) which may spur more favorable media coverage within the media market. We
include fixed effects at the congressional district level to account for the prior voting behavior of
the district (which the candidates could use to target their ad buying) as well as the characteristics
of candidates running for other offices. The fixed effects at the congressional district level sub-
sume state fixed effects, and thus serve as controls for the characteristics of candidates for Gov-
ernor, Senate, and House, as well as for prior tendencies of these election districts to turnout or
vote Republican. By controlling for prior voting tendencies through the inclusion of fixed effects,
we are directly dealing with the most troubling source of potential endogeneity which comes
from candidates targeting television advertising based on the prior voting behavior of the elec-
toral district.

By including fixed effects, we identify advertising effects using individual level variation in adver-
tising exposure within the media market. Thus, our identification strategy builds on the new tel-
evision viewing data we bring to this problemwithout it, including such fixed effects would not
be possible. Our identification strategy is analogous to a differences-in-differences strategy,
where the differences are taken across media markets and across individuals. We have main ef-
fects for the demographic and political characteristics of individuals, fixed effects at the media
market and congressional district level, and advertising exposurewhich is computed as an in-
teraction of advertising in the district and the demographic and political variables that predict
viewing behavior.

Our identification strategy could fail if some campaign activity other than television advertising
were targeted at an aggregation level lower than the media market and congressional district. If
fact, we believe that this is likely to be the casehome visits can be targeted to census tracts,
precincts, or even households. While home visits are known to be effective in mobilizing voters,
home visits are primarily used to increase voter turnout and home visits may be ineffective in
persuading voters. If the function of home visits is to increase mobilization among targeted indi-
viduals, then this form of bias would work against our finding that television advertising has no
mobilization effect. Since the mobilization coefficient we estimate is statistically indistinguishable
from zero, we can dismiss the possibility that we will incorrectly find positive mobilization effects
due to omitted targeted GOTV effects. Alternative approaches for estimating advertising effects

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from observational data are similarly vulnerable to omitted campaign activities. Our approach is
in fact less vulnerable to this critique than much of the existing literature which is potentially
vulnerable to omitted campaign activities at the media market and congressional district levels.

There are 2,000 cable and broadcast areas available. Which should we select for local ad injec-
tion? The key objective for selecting good treatment areas is to find areas that match national
well enough so that they allow for accurate extrapolation to national. Ideally the local areas and
national are homogenous populations, and so ads displayed locally have the same effect as is
occurring nationally. To maximize the chances of homogeneity in the local areas to national, the
area needs to meet several criteria. Treatment Fitness Criteria Low Census Disparity from US Av-
erage: The mean absolute difference between the i-th US population census demographic, and
the demographic reading of a region needs to be as low as possible. A lower value indicates that
the area is not greatly different from the US average. Zip-code-level demographics are publicly
available from the US Census Bureau and these can be aggregated to the same level as the cable
and broadcast systems. In the formula below is a weight applied to each demographic.

Average Sales per capita: If a candidate area has sales per capita that are higher than the national
average, then it is possible that the area in question might have advertising elasticities which are
also different. To introduce fewer assumptions or differences into the design, we will therefore
favor areas which have sales per capita close to the national average. Q(d) = q(d) / TVHH(d) =
conversions per capita in area d. q(d) is the quantity of conversions generated in area d. TVHH(d)
are the number of TV Households in area d. TVHH(N) = 112,000,000 are the number of TV House-
holds nationally.

Matched Targeting: The targeting of the TV media via the local injection systems needs to match
the media being purchased nationally. Targeting is measured by the demographic viewership
match between media and the product demographics r(d) as discussed in Kitts (2013b).

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Low Volatility: If the treatment area is already subjected to high levels of noise, then the signal
we are trying to measure may not be detectible against the areas organic background noise. We
measure this as the variance of sales per capita per day in the area.

High Geographic dispersion from other experimental areas: It is important to avoid areas which
are too close together. Multiple test cells all in the same general geographic area increases the
threat that some unique factor in this region is influencing sales and elasticities. By spreading out
the test cells over a wider area, this threat can be reduced. In addition, increasing the dispersion
of tracking cells also even helps avoid spillover of TV broadcasts into neighboring areas, avoiding
contamination of other treatment cells. Let the set of possible geographic areas be G, and already
selected areas. We use the Great Circle method to find the closest already-selected treatment
area in Earth Surface distance kilometers, and report this as dispersion from previously selected
areas. In the definition below, latitude and longitude are both converted from Cartesian to radi-
ans; and is the Earth radius in kilometers.

Low Cost: Cheaper areas allow for more media to be run for the same price. Prices of areas are
available from companies which monitor the clearing price of all ad buys on TV. Smaller geo-
graphic areas tend to be less in demand and have lower prices, and so are favored for testing
over areas such as New York.

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Average Cable and Satellite penetration: Some areas of the country have lower numbers of cable
TVs. We try to avoid selecting areas with unusually low cable adoption rates.

Minimum Number of Insertible networks: Insertible networks are stations that


can have ads inserted to them. If the number of insertible networks becomes too low, then local
inventory may not be able to match national.

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Methodology and Tools
1. Tune-in usually refers to an advertisement for a television show. Advertisements for TV
shows represent a cost for the networks, and other advertisements supply their revenues. The
ads we focus on in this paper are of the first type.

2. The networks usually air 12 minutes of commercials during each hour of programming. In
1995, they used about 2 of these 12 minutes on tune-ins for their shows. Since advertising reve-
nues represent almost all of the networks revenues, and tune-ins represent most of their ad-
vertisement effort, we proxy the share of revenues spent on advertisements as 16% . We then
estimate their spending on advertising in dollars, using these numbers and data on networks
revenues.

3. Roberts and Samuelson (1988) use a different approach than ours to answer a similar ques-
tion in the context of the tobacco industry.

4. This is like the distinction between search goods and experience goods, although not
identical, since regular shows have features common to both types of goods. If there were no
informational content in advertising, then the effects of tune-ins should not differ across such
shows with different preexisting information stocks. Thus, the product variation in the data
provides us with a clear way to identify the informational value of advertising.

5. Our estimates of the effects of tune-ins may be biased, since networks generally target their
tune-ins for each show towards certain groups of individuals. For example, tune-ins for come-
dies are more often aired during other comedies, thus targeting individuals most likely to watch
comedies in the first place. If these unobserved differences in individual preferences are not
controlled for, the effects of tune-ins on viewership will be upward biased. We deal explicitly
with this endogeneity problem in the estimation below. To our knowledge, no other micro-level
study addresses this issue in any detail.

6. This is the first study focusing explicitly on the effects of tune-in advertisements on individ-
ual behavior.

7. There are two main advantages of examining the effects of advertising in the TV industry.
First, advertising is undertaken by firms using, in general, various instruments (price discounts,
promotions, etc.) and various media (television, billboards, magazines, etc.). These different
forms of advertising may be substitutes or complements in consumption.

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8: The marginal effectiveness of magazine ads may depend on the amount of advertising gen-
erated by other means, concurrently or in the past. To accurately estimate the marginal effec-
tiveness of a form of advertising or assess the relative efficacy of alternative forms of advertis-
ing, one would require data on the amount of advertising via other forms; this is usually difficult
to obtain. This issue is of less concern in the TV industry for two reasons: first, almost all adver-
tising by networks is in the form of tune-ins; second, the price of TV services is zero from an in-
dividuals standpoint. Hence, we do not need to consider issues arising from the existence of
multiple advertising inputs.

9. The targeting of advertising may be important in contexts of both repeat and nonrepeat
purchase, and hence is likely to be an issue of general concern.

10. Strictly, the advertising itself is not consumed; rather, ads may convey information that is
of value in marketing decisions.

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Bibliography

1. www.google.com
2. www.wikipedia.com

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