Targeted Advertising in Magazine Markets

This paper examines the scope and value of targeted advertising in the German magazine industry. We use data on reader characteristics at individual media, in contrast to previous work that has needed to infer this information from aggregate data. Our results show a strong relationship between subscriber characteristics and advertising prices. Advertisers clearly value more homogenous groups of readers, measured according to income, gender and age. Our results explain recent trends of declining advertising expenditures in print media, in favor of increasing online advertising. We distinguish between the effects of the mean and the variance of readersʼ characteristics on advertising prices. For example, female readers may, on average, be more valuable to advertisers than male readers, but a subscriber base that is 100% male may command higher advertising rates than one that is read equally by men and women. This gives rise to the possibility of non-monotonic relationships between readersʼ characteristics and advertising value. We measure the importance of targeted advertising by determining whether demographically homogenous readers are more valuable to advertisers than diverse audiences. While this paper is related to many existing studies, there has been little research examining the specific question that we do. The existing research on targeted advertising has been mostly theoretical. Moreover, most prior studies have assumed that firms can directly target consumers, and do not incorporate the role or importance of the media in this process. We believe that this is an important omission as, in reality, the vast majority of advertising is placed through media, rather than delivered directly to consumers

Chandra, Ambarish and Ulrich Kaiser (2010), Targeted Advertising in Magazine Markets, ZEW Discussion Paper No. 10-063, Mannheim.