What is digital advertising and how does it work? A comprehensive guide

Digital advertising targets online audiences to promote products/services via platforms like search engines, social media, and websites, driving engagement and conversions.

Apr 8, 2024 - 11:49
Apr 8, 2024 - 11:54
What is digital advertising and how does it work? A comprehensive guide
Digital advertising

What is digital advertising?

Digital advertising involves promoting products or services online through various channels like websites and streaming platforms. It utilizes diverse media formats and supports different business objectives, from brand visibility to customer interaction and product launches. Unlike traditional advertising, digital ads are constantly evolving in terms of design, placement, and analytics.

Contrasts in digital and traditional advertising?

The main distinctions between digital advertising and traditional advertising revolve around their flexibility and precision.


Another significant disparity lies in the precision of digital advertising compared to traditional approaches. While traditional ads target broad audiences based on exposure, digital advertising employs various targeting methods to reach specific, interested audiences. For instance, advertisers can target individuals interested in specific activities, such as hiking, or retarget consumers who have shown interest in their products but haven't made a purchase. Additionally, digital ads can be scheduled to appear at specific times or exclude audiences who have already viewed the ad, enhancing precision and relevance to the target audience.


One notable distinction lies in the flexibility offered by digital advertising compared to traditional methods. Unlike the time-consuming process of producing and disseminating ads through traditional channels, digital ads can be launched swiftly. While traditional mediums require significant lead time for printing and distribution, digital ads can appear on websites almost instantly after creation. Additionally, digital advertising permits real-time adjustments even after a campaign has commenced, allowing for modifications in creative content, timing, frequency, targeting, and more. This agility enables in-flight optimization, facilitating adjustments based on campaign performance. Furthermore, digital advertising offers flexible budgeting options, catering to both large-scale campaigns and smaller businesses with limited budgets, thus providing scalability to match financial investments.

What makes digital advertising essential?

There are numerous reasons why digital advertising holds significant importance in any business's marketing strategy. Perhaps the most critical factor is the increasing amount of time consumers spend connected to the internet via various devices such as computers, smartphones, and smart home gadgets. The average American household has access to over 10 connected devices. Digital marketing enables businesses to engage with audiences wherever they are.

Consumers make purchasing decisions at any time of day and during various activities. Through digital ads, businesses can reach audiences while they are browsing for products online, streaming content, visiting websites, or using social media. Even if consumers do not make an immediate purchase, exposure to ads in these diverse contexts can help them recall the brand when they are ready to buy.

What types of digital advertising exist?

There are various formats of advertising in digital marketing. Here are some of the most prevalent:

Display advertising

Display ads are internet advertisements incorporating text and visual components like images or animations. They can be seen on websites, apps, and devices, often appearing within or beside website content.

Search advertising

Search ads, also known as search engine marketing (SEM), are displayed on search engine results pages (SERPs). Generally text-based, they appear either above or alongside organic search results.

Streaming media advertising

Commonly referred to as over-the-top (OTT) ads, these are a distinct form of video advertisement that emerges within streaming media content delivered over the Internet, bypassing traditional satellite or cable television services.

Online video advertising

Online video advertisements are promotional content presented in a video format. Out-stream video ads are akin to display ads, appearing on websites, apps, and devices. Conversely, in-stream video ads are showcased before, during, or after video content.

Social media advertising

Social media advertisements are featured within social media platforms like Twitter or LinkedIn.

Audio advertising

Within the realm of digital advertising, audio advertisements refer to ads that are played before, during, or after online audio content, such as streaming music or podcasts.

How do digital advertising work?

The functioning of digital ads is multifaceted, varying depending on the specific format chosen. From straightforward ad types requiring minimal effort to more intricate ones demanding advanced tools, digital ads cater to diverse needs and budgets, offering various pricing models and targeting options.

Cost structure of digital advertising

The pricing of digital ads is contingent upon the chosen format. Common models include cost-per-click (CPC) or pay-per-click (PPC), where advertisers pay per click received, and cost-per-mille (CPM), where payment is based on a thousand impressions. Other models involve payment per desired action, such as signing up for an email list or downloading an eBook, with pricing tailored to the ad's intended outcome.

Targeting capabilities in digital advertising

Digital advertising offers extensive targeting options, allowing advertisers to pinpoint specific audiences more precisely than traditional methods. Search ads are directed at specific search terms, while shopping signals can match ads with audiences based on their purchasing behavior or interests. This refined matching capability ensures that ads reach relevant audiences, maximizing ad effectiveness and optimizing marketing budgets.

Deployment of digital ads

Digital ads can be published through different methods tailored to each ad type. Direct purchase of advertising space from publishers is common for specific ad formats like Sponsored Brands and Sponsored Products on platforms like Amazon. Alternatively, programmatic advertising enables automated buying and selling of ad inventory via demand-side platforms (DSPs) for buyers and supply-side platforms (SSPs) for publishers.

Analyzing digital advertising performance

Digital advertising campaigns can be evaluated using a variety of engagement and performance metrics. Engagement metrics include:

  • Clicks: The number of times your ad is clicked.
  • Impressions: The number of times your ad appears.
  • Click-through rate (CTR): The percentage of impressions that result in a click.
  • Reach: The number of viewers who are shown your ad.
  • Video completion rate: The percentage of viewers who watch your entire video ad.

Performance metrics that measure the results of your campaign include:

  • Conversion rate: The number of times customers perform a desired action after viewing your ad.
  • Ad-attributed sales: Purchases that can be directly traced back to your ad.
  • Return on ad spend (ROAS): The revenue generated by your ad campaign relative to the budget spent.
  • Return on investment (ROI): The net profit earned from your ad campaign relative to the budget spent.
  • Advertising cost of sales (ACOS): The ratio of ad spend to ad-attributed sales.
  • New-to-brand sales: The number of purchases made by customers who had never previously bought from you.

Tips and best practices for digital advertising

Crafting a successful digital advertising strategy may seem intricate, but adhering to some fundamental best practices can set you on the right path:

Target the right audience

Utilize the precision of digital advertising targeting to connect with relevant audiences who are more likely to engage with your ad.

Test and optimize

Customize various elements of your digital ads, including copy, visuals, audience segments, and budget allocation. Continuous testing and optimization are key to maximizing campaign performance.

Embrace authenticity

As digital advertising evolves, authenticity becomes increasingly vital. In an era of discerning online audiences, ensure your messaging, visuals, and targeting resonate authentically to genuinely engage your audience.

Track performance

Digital ads offer real-time performance tracking, allowing you to monitor your campaign's effectiveness. Stay informed about what works and what doesn't to optimize your ad spend efficiently.

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