What is Cohort-Based Advertising?

by Kedet | April 5, 2021


Why is there talk of shifting towards Cohort-Based Advertising? What does it even mean? Find out below.

User privacy has been top-of-mind in the current digital age we’re in, resulting in a shift to a cookie-less internet in the near future.

But what about advertisers? Cookies have been the ideal tool for us to collect user behavioral data and serve granularly targeted ads to them. So there’s no doubt the announcement of Google removing third-party cookies caused quite a panic.

In this blog, we’ll talk about the proposed changes by Google, LinkedIn, and many other advertising platforms and share what we know so far about Cohort-Based Advertising.

Here’s a quick outline of what we’ll cover in our blog:

NEW VERSUS OLD

Cohort-Based Advertising
& Third-Party Cookies

Cohort-Based Advertising will be the new norm for audience targeting in a cookie-less advertising world. Here’s a quick breakdown of cohort-based advertising and third-party cookies to see how they differ.

Cohort-Based Advertising

  • Cohort-based advertising target anonymized groups of people who share common interests and online behavior
  • The assigning of cohorts is all done within Google Chrome’s browser
  • User information is stored locally

Third-Party Cookies

  • Cookies track specific individuals and their online activity
  • Set by a third-party server (ad tech) with a code placed on a web domain by the domain owner
  • Third-party cookies are accessible on any website that loads the third-party server’s code

PREDICTIONS

What Cohort-Based Marketing Might Look Like in the Future

A cohort stands for a group of users that fall under common criteria. For example, cohorts could be:

  • “Every user who bought adidas brand shoes” 
  • “Every user who made a purchase on the website in January 2021”
  • “Every consumer acquired from an Instagram ad”

In the article, “The Future Of Digital Marketing Will Be Cohort-Driven, Not ROAS-Driven,” Alexandra Greifeld, rejects the concept that “any customer is a good customer.” 

Instead, she defines the “best” customers are ones who have a high average spend on their first transaction and become returning customers within 6 to 12 months. By honing in on consumers that fall under this category, you’ll be able to forecast future sales, and it might even save you money from needing fewer product markdowns or promo events.

Being able to group consumers based on their interests or purchase behavior — does seem like a reliable way to predict how new campaigns would perform! What do you think?

PROPOSED API

Google’s Federated Learning of Cohorts (FLoC)

In our previous blog, “Google Privacy Sandbox: Explained,” we discussed the different solutions Google has proposed thus far, and one of them was called the “Federated Learning of Cohorts (FLoC). 

People shouldn’t have to accept being tracked across the web in order to get the benefits of relevant advertising. And advertisers don’t need to track individual consumers across the web to get the performance benefits of digital advertising.

— David Temkin, Director of Product Management at Google

The function of FLoC is to replace the cookie that tracks individual behavior with an API built into the browser instead. Individual user data is anonymized and Google Chrome will group users based on their browsing habits, including common interests or behavior. These groups will share the same Cohort ID, to which both websites and advertisers will have access and visibility. Google’s proposal suggests that an average cohort should have at least a few thousand users.

Google has already started running different tests with FLoCs, experimenting with different algorithms, user clusters, and tried a variety of cohort assignments, definitions, and sizes. Then they compared the data with other Google and publicly available data, and the results look optimistic!

For example, the test FLoCs generated a 350% improvement in recall and a 70% improvement in precision over randomly assigned users to cohorts.

Our tests of FLoC to reach in-market and affinity Google Audiences show that advertisers can expect to see at least 95% of the conversions per dollar spent when compared to cookie-based advertising.

Note that everything is still in the experimental phase, and nothing has been set in stone regarding any internet standards, so there still might be updates along the way.

PROPOSED API

Google’s First Locally-Executed Decision Over Groups Experiment (FLEDGE)

First Locally-Executed Decision over Groups Experiment (FLEDGE) is another API Google had proposed to add to their privacy protection efforts.

Its function is to retarget by facilitating interest group-based advertising. It works by containing ad auction decisions in the browser (instead of the ad server) and limits user data that is transferred around bid streams and ad systems. Ad bids and targeting decisions will happen at the browser and device levels instead of individual profile data, protecting user privacy.

Google’s document on FLEDGE points out that other businesses such as third-party ad tech companies or ad publishers could create unique audience segments and sell them to marketers in the near future.

TO-DO LIST

How to Prepare For Cohort-Based Advertising

With this shift to cohort-based advertising, there will be chances that ad processes will be affected, leading to inefficiencies.

As your trusted advertising agency, War Room will keep you updated and informed of any significant changes. Our Campaigns Team will get familiarized with the latest best practices and update our workflow. Your Account Manager will provide multiple touchpoints with you and prepare to hit the ground running when the changes happen.

User information is now like hotcakes. Start baking yourself some by collecting your own audience data!

Whether it be implementing Google Tag Manager on your website to track specific user actions or creating whitepapers for lead generation to build email lists. These are easy, actionable ways to keep an eye on your website performance and engage with your audience. That’s proprietary first-party data and potential sales for your brand.

Editor’s Note: We will continue to update this page as Google releases more information about Cohort-Based Advertising.

WHAT’S GONNA HAPPEN?

What Does Cohort-Based Advertising Mean for Marketers

Marketers rejoice! We shouldn’t mourn the loss of cookies for too long.

Basically, instead of granularly targeting a specific individual, we will be serving an audience segment of people who share similar online behavior. Audience targeting won’t be like looking for a needle in a haystack. More data will be collected as we run more ad campaigns, and these segments will be polished and become even more accurate!

It will be a learning curve and will take time to adapt to, but we feel optimistic.

Change can be scary, but it can also be good.

Know that you are not in it alone.

Together as an industry, we will work together to innovate new solutions to move forward in the new age of advertising and audience targeting.

We see this as a necessary and total restart of digital advertising which will offer a more meaningful and engaging experience with a brand throughout the customer journey.

— John Lee, President of Merkury and Chief Product and Data Officer at Merkle

Ad tech and marketers are collaborating to make sure advertising can flourish and co-exist with solid controls for user privacy. 

Get ready to say hello to the new chapter of digital advertising.

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