Retailers shift their ad spending from TV, radio and print ads to digital ads.
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The tool enables private-sale site OpenSky, for example, to reach shoppers who haven't bought from the site in past 30 days. When a consumer signs up as an OpenSky member, she is required to share her e-mail address and her interests to help the retailer tailor its messages to her. The retailer leverages that information to target those members with Facebook display ads, which are also called marketplace or domain ads.
Here's how the tool works: OpenSky uploads its e-mail list using Facebook's Power Editor ad management tool. The retailer scrambles its subscribers' e-mail addresses, creating what cryptographers call a "hash" that can't be decoded to recreate the individual addresses; Facebook does the same with user e-mail addresses. Roughly 60% of OpenSky's hashes matched Facebook accounts. OpenSky can target that matched group with ads, or focus on particular segments, like shoppers in Miami.
In the first two months using the tool, the targeted ads had a 30% higher conversion rate—a consumer clicked on the ad and made a purchase—than the retailer's other Facebook ads. Moreover, 70% of the shoppers who made purchases had signed up to receive OpenSky's e-mails but never made a purchase.
The ads offer a way for OpenSky to market to members who no longer open the retailer's e-mail messages, Adam Fawer, vice president of marketing and development at OpenSky, says.
Facebook last month launched Lookalike Audiences, a tool that works with Custom Audiences and lets a marketer target ads at shoppers with similar characteristics to its existing customers. Facebook's algorithms analyze the retailer's customer base and return an audience segment that shares similar characteristics, such as their location and interests. The retailer can then create a Facebook ad and target it to the Lookalike Audience.
Retargeting on social
Another way marketers are leveraging consumers' engagement on Facebook is via the real-time ad bidding system Facebook Exchange, which launched in September. Facebook Exchange enables ad brokers, using cookies on consumers' computers, to target consumers on Facebook with display ads based on their off-Facebook browsing. For instance, GameFly.com has targeted shoppers who visited GameFly.com but did not sign up for its video game subscription service with an ad on Facebook encouraging them to purchase a subscription.
Working with Convertro Inc., a vendor that places a pixel on consumers' computers to track a shopper's web activity before and after seeing an ad, GameFly Inc. has found that while consumers rarely click on the ads, the ads work—eventually, Steve Hartmann, the retailer's vice president of marketing, says. By examining what shoppers do after being exposed to customer-acquisition-focused Facebook ads, the retailer found that the ads influence those who've seen them to subscribe, even if those shoppers don't always click directly from Facebook to sign up. Hartmann says GameFly's cost per acquisition is now between $8 and $15 for the Facebook ads.
Facebook is only beginning to figure out how to make the ads it presents consumers more relevant, Facebook CEO Mark Zuckerberg recently told analysts. "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."
If Facebook and Twitter can figure out more ways to coax their users to click, more ad dollars will flow to social media.
The 'best of' social media ads
Throughout last year Facebook rolled out many new ad formats, and Twitter fine-tuned its ad targeting, including offering retailers a way to reach consumers on mobile devices. Here are some of the most useful ad formats for e-retailers, according to Facebook and Twitter executives.
Domain ad: The display ad format appears on the right-hand side of the screen on desktop computers. The ads, which may link off Facebook, help retailers gain brand awareness.
Linked page post: Similar to a domain ad in that the ad features a photo and link, but it appears in the news feed. That enables mobile users to see the ads.
Log-out screen: Consumers see a single advertiser's ad when logging out of the social network.
Mobile app install: A mobile Facebook ad format that encourages a user to download a retailer's app. When a consumer clicks on the ad it takes him to the iTunes or Google Play app store.
Offers: Advertisers use this to create promotions that appear in consumers' news feeds. Facebook requires businesses using Offers to buy ads that increase the prominence of the Offers.
Photo page post: An ad format that appears in Facebook users' news feeds that features a photograph with text. The photos can help a retailer market a particular product or use lifestyle images to market the brand.
Promoted Account: An ad that suggests a consumer follow an advertiser on Twitter.
Promoted Tweet: A Twitter ad that increases the prominence of an advertiser's post.
Promoted Trend: A format that enables an advertiser to pay to promote a particular trending topic. For instance, Target Corp. could pay to have #targetbullseye appear in Twitter's trending topics.