The Impact of Algorithms on Digital Advertising

The Impact of Algorithms on Digital Advertising

You’ve no doubt heard a lot about algorithms, but you might’ve missed just how important they’ve become in the field of digital advertising. With the major technological advances of the last few decades, algorithms have enabled digital ads to accurately target both generic and unique consumer-groups with considerable accuracy.

Taking into account user-provided data, purchasing trends and behavioral patterns, digital platforms are able to deliver ads to consumers with the highest purchase potential. However, every retail media platform collects data differently, so it’s important to have a rough idea of your target audience and the type of data that identifies them when planning to launch a digital ad campaign. 

In this article, we’ll walk you through the impacts of digital advertising algorithms on the industry, and provide insider tips on how to choose the best platform for your brand.

silhouette photo of person holding smartphone

The Internet is Chock Full of Data

Whether they realize it or not, it is web users themselves who provide the information that allows websites and apps to display incredibly personalized ads. This data is collected by digital platforms to create a uniquely personalized experience, whether it be:

  • Gender
  • Age
  • Favorite places to visit
  • Favorite film
  • Salary approximation 

The information that these platforms collect is primarily determined by the markets they are operating in. For example, retail media sites such as Amazon, Mercado Libre and Walmart collect:

  • Search trends
  • Previous purchasing data
  • Average purchasing prices

Alternatively, sites like Pinterest seek out different data sets to help brands build campaigns on their advertising platform. Although consumers come to Pinterest for inspiration or for help planning the milestones or events in their lives, rather than to make a purchase, the data collected then helps brands make their presence known during this developmental phase in the customer journey.

Everything is Connected: The Power of Digital Footprints

Digital platforms also collect behavioral data by tracking trends and usage patterns to build consumer composites or archetypes. These archetypes allow digital advertisers like us to map out the kinds of products and services consumers are interested in. This is done by analyzing digital footprints.

If you’re reading this, you have a digital footprint. All internet users have footprints that consist of information about them and the websites they interact with. This includes interactions such as:

  • Social media likes
  • Google searches
  • Files downloaded
  • Products purchased

Thanks to this footprint, digital platforms can create advertisements that are so personalized it can seem as if they read your mind, or were the product of someone listening in on you. The reality is far less mysterious, everything is based on the data consumers have provided to websites, consciously or unconsciously. Location information, social media footprint, behaviors, and other data are used by advertising platform algorithms to create, sometimes unnervingly, accurate and personalized experiences. 

The Baader-Meinhof Phenomenon

Chances are you’ve been served an ad for a product right after having a conversation with a friend about that same item. Likewise, you’ve probably received an ad for an item you considered purchasing a few days earlier. These coincidences aren’t always the product of algorithmic manipulation. It could very likely be thanks to the Baader-Meinhof phenomenon.

Psychology tells us that once your attention is fixed on something, you can suddenly start to notice that thing in random places and significantly more often than before. For example, a friend recommends a great pair of headphones, and a few hours later, you get served an ad for that exact headphone when you’re watching YouTube.

This doesn’t mean that a platform was eavesdropping; rather, the Baader-Meinhof phenomenon shows that we can trick ourselves into thinking that the seemingly new information is appearing more frequently than usual. The reality is that you were likely served that headphone ad before on YouTube, but now because you’ve received a personal recommendation for the product, you more easily recognized and thought about the advertisement.

The Right Digital Platform for Your Brand 

Now that you have a better understanding of how algorithms work in digital advertising, it’s time to apply these findings to your brand’s marketing strategy.

As mentioned earlier, every platform collects different data from users. At Macarta, we recommend crafting a distinct advertising strategy on retail media platforms such as Amazon or Walmart, as well as Mercado Libre if you’re looking to expand into the rapidly expanding Latin American markets. These spaces are great for brands, as consumers have already logged on with a purchase intention and are actively searching for products. 

Once that strategy is developed, you can complement the approach using other platforms, such as Pinterest Ads. There, consumers generally know what they want, but need that little spark of inspiration to find the perfect match, i.e., your product.

Whichever path you choose, it’s important to remember that we are here to help. Macarta is a global full-service marketplace agency specializing in retail media to drive growth and sustained success for our brand partners. Reach out to us here, and let’s get started!

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