The Impact of Age Range on Facebook Ad Auction Price Tags
In class we have discussed the valuation of advertising spots and how these impact the market clearing price. However, how these get priced is significantly more nuanced than it may appear. Facebook takes many factors into account in order to appropriately price their auctions and maximize their profit. This article investigates the effect of the age range selected during ad targeting on its ad auction market.
Bid data were sampled on Facebook’s “ads application programming interface” were looked at from the five day period from July 9 through Aug. 12, 2014. Although not perfectly representative or longitudinal, the study and results can still be generalized. From the data, cost per action, cost per thousand impressions, and cost per click were recorded. Average bid cost was calculated by taking the average of the median cost per click by user count over time.
Age groups were separated into three categories: Millennials, Gen-Xers, and Baby Boomers. Millennials, ages 15-31, are the least likely to interact with ads but are the largest demographic. Therefore, they have a large click per action and slightly above average click per thousand impressions. This leads to highly competitive advertisers against this demographic. Gen-Xers, ages 32-50, have a relatively low CPA but this demographic spends more money and positively reacts to ads. This group is very competitive, although the platform presents a high potential for advertisers Baby boomers, ages 51+, make up the last group. They have small user counts but because of this, have a very low cost per thousand instances. Therefore, it is possible to use high-volume impression purchasing.
As a result, advertisers must test different bid types to achieve the highest return on investment. For example, if Baby boomers are valuable to the company, targeting only them is hugely more efficient than the Millennials who face a significantly more saturated market.
While the article mainly gives perspective on how to best use the system Facebook has created, the insight into Facebook’s pricing plan shows the difficulty in properly setting prices and also valuations on advertising slots. The takeaway here is that in actuality, the constructing of the problems we do in class are a simplified view on the real life markets. However, the theory is still used extensively and gives great insight into the mechanics of the background of many web operations like advertisement.
Impact of Age on Facebook Bid Costs
http://www.adweek.com/socialtimes/socialcode-age-facebook-ad-auction/616560