February 6, 2013, 1:25 PM

Facebook tests a new targeting tool

‘Lookalike Audiences’ targets shoppers who look like marketers’ existing customers.

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Facebook Inc. is testing a tool called “Lookalike Audiences” that enables direct marketers to target shoppers who are a lot like their existing customers.

The tool builds on the Custom Audience feature Facebook launched last August that let advertisers target customers based on information that shoppers have shared with the marketer off of Facebook, such as their e-mail addresses, phone numbers and, for game and application developers, their user names.

That means a retailer, for instance, could use consumers’ e-mail addresses that it gathered from sign-ups to its e-mail newsletter to place a Facebook ad asking them to Like its page.

Here’s how it works: When Sue’s Swimwear uploads its e-mail database to Facebook, the retailer encrypts the information creating what cryptographers call a “hash” of the addresses. Facebook, meanwhile, creates hashes of the e-mail addresses of its users. When the hashes that Sue’s Swimwear submits match those in Facebook’s files, Facebook creates what it calls a customer cluster. When a retailer uses Lookalike Audiences, Facebook’s algorithms analyze the retailer’s cluster and produce another audience segment that shares similar characteristics, such as their age range, location and interests. Sue’s Swimwear can then create a Facebook ad and target it to the Lookalike Audience.

“The assumption is that if you know that you have a group of customers who want to hear from your business, Facebook can find people similar to those customers,” says a Facebook spokeswoman.

The social network says its hashing technology protects consumers’ personal information and no personally identifiable information is shared with advertisers.

Facebook is still testing Lookalike Audiences and, for now, the tool is available only to U.S. marketers using the social network’s Power Editor ad management tool, the spokeswoman says. Power Editor aims to streamline the process of creating and managing multiple advertising ad campaigns on the social network by allowing marketers to change settings, targeting, bids, budgets and creative elements across ads, campaigns and even accounts.

The social network has been testing Lookalike Audiences since September, the spokeswoman says, and early results have been promising. She says an undisclosed online retailer had a 56% lower cost per acquisition than traditional targeting options using the tool. Similarly, an undisclosed online travel site spent 70% less per acquisition.

Neither Custom Audience or Lookalike Audiences are standalone ad products. Rather, they are targeting tools that can be used with many of the social network’s ad units, such as Offers or Promoted Posts.

Custom Audience—and presumably now Lookalike Audiences—offers a way for Facebook to make the ads it presents consumers more relevant to users, Facebook CEO Mark Zuckerberg said in a conference call with analysts last week. “There’s a big opportunity in front of us to make every ad that we’re showing a lot better,” he said. “The biggest ways we’re going to do this are by improving targeting and relevance so we can show everyone content that they care more about and by designing better ad products that aren’t just about links and text and images.”

Facebook faces challenges though, as a new report finds that 61% of Facebook users have taken a voluntary break from using the site at one time or another and 27% plan to spend less time on the site this year.

However, the report, “Coming and Going on Facebook,” from Pew Research Center’s Internet & American Life Project, also found that 8% of adults who do not currently use Facebook are interested in becoming users of the social network in the future. Those consumers will have a lot of company. Facebook says that it had 1.06 billion active users as of Dec. 31. It had 680 million users who viewed the site at least once on a mobile device in December and 618 million who viewed it at least once on a desktop computer. 

With that large user base, many retailers are using the social network to drive traffic to their sites. That’s why the Social Media 300, a comprehensive analysis of e-retailers’ social commerce strategies, based its rankings of retailers’ social skills on the percentage of web site traffic that merchants receive from social networks. That referral traffic is increasingly valuable, according to the guide. For instance, the guide's top 50 sites in terms of referral traffic from Facebook derive an average of 9.3% of their overall site traffic from the social network.

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