How Effective is Targeted Advertising?

10 Pages Posted: 3 Apr 2013

Date Written: March 31, 2012


Advertisers are demanding more accurate estimates of the impact of targeted advertisements, yet no study proposes an appropriate methodology to analyze the effectiveness of a targeted advertising campaign, and there is a dearth of empirical evidence on the effectiveness of targeted advertising as a whole. The targeted population is more likely to convert from advertising so the response lift between the targeted and untargeted group to the advertising is likely an overestimate of the impact of targeted advertising. We propose a difference-in-differences estimator to account for this selection bias by decomposing the impact of targeting into selection bias and treatment effects components. Using several large-scale online advertising campaigns, we test the effectiveness of targeted advertising on brand-related searches and clickthrough rates. We find that the treatment effect on the targeted group is about twice as large for brand-related searches, but naively estimating this effect without taking into account selection bias leads to an overestimation of the lift from targeting on brand-related searches by almost 1,000%.

Keywords: Experimentation, Measurement, Economics, Targeted Advertising

Suggested Citation

Farahat, Ayman and Bailey, Michael, How Effective is Targeted Advertising? (March 31, 2012). Available at SSRN: or

Ayman Farahat (Contact Author)

Yahoo! ( email )

701 First Avenue
Sunnyvale, CA 94089
United States

Michael Bailey

Facebook ( email )

1601 S. California Ave.
Palo Alto, CA 94304
United States

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