A new study reveals that it’s not a viewer’s income or the likelihood of them purchasing a particular product that determines how much it costs to reach them; rather, it depends on the extent of its activity on the platform where an advertisement will be transmitted.
According to this work carried out by researchers at the Stanford Graduate School of Business, recently published in American Economic Reviewadvertisers working in the television industry consider men aged 18 to 34 to be the most sought-after audience.
In fact, they will spend up to three times more to reach the latter, compared to women and older adults. Online, it’s the opposite. In fact, on platforms like Instagram and TikTok, older audiences can cost more to reach.
These differences may seem strange. After all, the purchasing power of young men is no greater than that of older adults. Shouldn’t advertisers, in the digital world, rather target young people who are more active on the web? But that’s not how things work, say the study’s authors, Ali Yurukoglu, Matthew Gentzkow and Frank Yang.
“In the world of advertising, it’s not just about demand; it’s a question of supply,” says Mr. Yurukoglu. “What is sold are the eyes of consumers. The data shows that there are fewer of these young eyes, on the TV side, because fewer young people are watching TV. And older people are less present online. »
The authors of the study, along with Jessie M. Shapiro of Harvard, thus adapted an existing economic model linked to competition in advertising markets, and tested it by injecting data on advertising.
This model explains about a third of the money TV and digital advertisers pay to reach members of various groups.
“Since so much of the economy is now fueled by advertising, it is really important to know how important – and why – different consumers are to advertisers, since this has a very big impact on the kind of products and content that are produced,” says Mr. Gentzkow.
According to him, it is the notion of rarity which helps to explain the price difference. The researchers’ model helps to better understand why, for example, a 30-second ad during the Super Bowl costs $7 million. The companies pay this astronomical sum because among the more than 100 million people watching American football, there are many people who rarely watch television.
“These are quite rare eyes,” emphasizes Mr. Urukoglu. “And the Super Bowl is your way to reach them.” »
Rising prices to reach fewer people
The issue of the scarcity of potential consumers also explains why, according to researchers, advertising revenues on the TV side remained largely stable between 2014 and 2019, even as more and more people “cut the cord” to switch to services online broadcasting.
Television networks could charge higher prices precisely because they had fewer viewers. Advertising prices have thus been inflated due to competition to attract fewer eyes.
Mr. Yurukoglu and his colleagues used their economic model to estimate what would happen to ad rates on Netflix after it launched a new plan that included ads in 2022.
The model predicted that this would decrease advertising rates by about 1.5% for the five largest TV networks, as viewers would begin to see advertising in more places. And for networks whose customer base is most similar to that of Netflix, the decline would be even more marked.
Still according to the researchers, the impact of their work could particularly be felt among the managers of television channels who would consider acquiring or merging with a competitor.
