How Valuable is Local Search? Depends on Where You’re Targeting….

As we move into an age where personal computing is dominated by mobile devices, there has been a push across the advertising industry for hyper-local advertisements. Targeting consumers with ads tailored to their locale increases the relevance of advertising, focusing on markets that pertain to the environment around the user.

However, when it comes to local advertising, not all locations are created equal. The value of locally targeted ads depends heavily on who is searching for what — and where.

Frequency & Efficacy Of Local Ads

To gauge the value of locally targeted advertisements in different markets, Chitika Insights conducted a research study into the frequency and efficacy of local ads. Using a sample of hundreds of millions of ad impressions over the course of a week, we studied the prevalence of local ads.

We looked at which metro areas had the highest rates of local Web traffic, taking into account population. Additionally, we looked not just at the frequency of local advertising but at its performance, evaluating cities based on the click-through rate (CTR) of their local ads to gauge which metro areas had the highest interest in local advertising.

Taking a sample of impressions from the Chitika advertising network over the week of May 5, 2013, we first took a ratio of local impressions to impressions overall, to figure out the share of local impressions for various cities. This study looked at which metro areas – out of the top thousand cities in the United States by population – had the highest share of local traffic, subsequently analyzing the top fifty cities in the US by prevalence of local advertisements.

Though we were initially expecting a correlation between the size of a city and its inclusion in our list of top cities for locally targeted advertisements, what we found was quite different.

The top twenty-five cities on the list were a scattered mix of locales and exhibited a wide range of local search share. The city on the list with the highest share of local advertisements, Federal Way, WA (near Seattle and Redmond, WA), held a significant lead in terms of local share — a full 55.60% of its traffic came from local advertising.

The drop-off after that was steep. Texas claimed the next three cities; El Paso, Dallas and Houston comprised three out of the top five cities for local traffic, with a respective 38.77%, 34.28%, and 32.30% local share.

After the steep initial drop-off in local share from the top cities, the decline in local share was slow. Sixty-six percent (66%) of these cities hovered between 20-30% local traffic, with a tail down into the 10% range at the lower edge of the set.

When analyzing data of this sort, there can be little to tell us why these patterns emerge notwithstanding external data sources. Where local traffic seems to congregate is a strange mix of locales.

The cities that led the way in high search shares did not follow a clearly definable pattern when it came to their size. Despite initial expectations, a larger population size showed no significant correlation with a higher share of local search traffic – indeed, many of the cities high on the list had smaller populations, while cities like New York (#47) and Chicago (#34) were further down in the top fifty.

While these numbers tell us something about who is viewing local traffic, they tell little about the actual performance of that traffic. A city may have a high frequency of local traffic, but if the users are not engaging with the advertisements, it may not serve as an effective placement.

Investing In Local Campaigns

In an effort to gauge how well local ads perform, we also looked at the CTR for local advertising in various cities. Here, too, we found similar results: not only did our data set show no significant correlation between city population and CTR, but there was no significant correlation found between the share of local traffic and a city’s local CTR.

For advertisers seeking to increase their local traffic, focusing on markets with a strong proportion of local traffic can be a sensible move. Balancing the amount with the quality of traffic can maximize the ROI of advertising and marketing efforts.

In this, a judicious evaluation of many metrics – the size of a city, its culture, city environment, the likelihood that its internet users will be performing local searches, the CTR and overall performance of the local advertisements that do get shown – are crucial to having a comprehensive picture of the value of advertising locally.

Advertisers and marketers would do well to incorporate multiple data sources and values into their evaluation process before making the decision to invest in local campaigns.