Targeted advertising on social media: how does it impact your spending?

As more and more aspects of our lives move online, and we continue to navigate the digital landscape, it’s become increasingly important to understand the mechanics and implications of targeted advertising. Whether we want it to or not, targeted advertising on social media has an impact on what we buy, subtly nudging our preferences, and sometimes affecting our budgeting without us even realizing.

But how does social media advertising work, and is your phone listening to you when it shows you an ad for a product you were just talking about? Let’s take a look at everything you need to know about targeted advertising in the digital age.

Targeted advertising on social media refers to the practice of delivering highly tailored (or targeted) advertisements to specific groups of users based on factors such as their interests, demographics, online behaviors, and interactions. It’s a strategic approach that uses data and algorithms to break down audiences into various segments, allowing advertisers to tailor their messages to resonate more effectively with particular subsets of users.

While targeted advertisements have been around for some time now, they weren’t always this prevalent. In fact, it was around 2013 when spending on internet advertising overtook TV for the largest ad spend in Canada. Social networks like Meta, TikTok, and YouTube all collect user data when you sign up for an account. This includes things such as your age, location, interests, behaviours, pages you follow, posts you like, and websites you visit. Depending on your smartphone location settings, they may even be able to collect information on the types of stores you visit.

This wealth of information enables social media platforms to create detailed profiles of their users, which advertisers can utilize to reach their intended audience more precisely. In many of the terms and policies of these websites and apps, you agree to them using your personal information to show you more of what you like.

With access to this data, businesses pay social platforms to deliver sponsored ads that are more likely to be relevant and engaging to specific users, increasing the chances of conversion or desired actions, such as making a purchase, signing up for a service, or simply engaging with the content.

If you’ve ever had a conversation with someone, only to see an advertisement for the exact item or service you were discussing when you open the Instagram app, you might have asked yourself: “Is my phone listening to me?”

In short, yes. In the same way that your browser knows your search history, so too does your phone. If you’ve enabled your phone’s voice assistant — Siri — it’s basically always on standby waiting for your next command. Plus, any app that has permission to use your microphone could be listening. That’s why some social users even playfully take advantage of the opportunity to influence their partner’s social media ads for their own benefit.

While targeted advertising can be beneficial for both users and advertisers by providing relevant content, it also raises concerns about privacy, manipulation, and the potential for creating filter bubbles — limiting users’ exposure to diverse perspectives.

Much of this data collection often occurs without clear understanding from users. Additionally, there have been cases where user data has been compromised or leaked, as a result of privacy breaches. Such breaches can expose sensitive personal information risking identity theft, financial fraud, or other malicious activities.

Like social media platforms, you essentially give consent to your phone to listen to you when you accept terms and conditions of software updates or app downloads. That doesn’t mean that all eavesdropping done by your device is done above board. There are also spyware and malware programs that might be tapping into your private conversations without your permission.

This is why it’s important to understand how to control your device’s privacy settings and how particular apps use your data. Be sure to review microphone permissions for each app, as well as permissions for how they use your personal data if you’re concerned about privacy.

Social media ads can be targeted to specific demographics. This could look like a soft drink advertisement featuring extreme sports, rock concerts, and other youth-oriented activities designed to target teens of specific ethnicities. Or, it could look like Dove’s #ShowUs campaign, targeted at women. In-app ads can then show up in your feed because your phone knows you fit the target demographic.

Other examples might include a company that sells baby products targeting users who recently announced a pregnancy on social media, or a local restaurant that targets users within a specific radius with ads promoting a weekend special or discount.

From personal experience, I’ve also noticed that in the day or two following an in-person trip to Sephora to restock my skincare, I’ll have more ads for the beauty store in my feed.

Social media platforms harvest vast amounts of data to allow advertisers to target users with incredible precision. It’s only logical these targeting messages would have a noticeable impact on consumers.

“When users see ads that align with their interests, lifestyles, and online behaviour, the likelihood of them considering a purchase increases,” says David O’Leary, CFA charterholder and WealthRocket’s personal finance expert. “The visual and interactive nature of social media also means that ads can be more engaging and persuasive than those found in traditional media. Social media influencers often play a role in shaping purchase intentions by endorsing products or services to their followers.”

Taking things a step further, a study in the Journal of Consumer Research suggests those who are behaviourally targeted are more likely to make a purchase and associate themselves with a social label, which can perpetuate similar purchases based on an agreeable perception of their own identity — reflected back to them through social media ads.

But how might this identity factor impact a social media user’s willingness to spend?

According to askpolly, an AI-powered public opinion research tool created by researchers out of the University of Ottawa, 88% of Canadians engaging on this topic feel that targeted advertising on social media affects their spending.

Over time, agreement with this statement spiked in July 2023. While there is no sure reason why, it could have to do with seasonality.

“It could be seasonal, as July is a time when many are on vacation and may spend more time on social media, leading to increased exposure to ads,” says O’Leary. “July is also often a big month for sales like Amazon’s Prime Day or back-to-school promotions, which could lead to more aggressive advertising campaigns. A change in the algorithms of social media platforms at that time could have also led to users being exposed to more or particularly persuasive ads.”

The askpolly data show that 94% of Canadians engaging on targeted social media ads feel that they result in impulse purchases.

Many in this group feel that credit cards and platforms like Instagram and Facebook are often blamed for enabling impulsive purchases based solely on these ads. Some also feel that, “Twitter ads are like the checkout queue of the platform, tempting users to make impulse purchases.”

But why do social media ads inspire such impulsivity?

O’Leary says social media affects impulse buying in a few different ways. The ease of click-through purchasing options reduce the time between desire and purchase, making it easier to buy on impulse. 

“Social media platforms are designed to capitalize on the impulsive behaviour of users by presenting products that not only match their interests but also create a sense of urgency through things like limited-time offers and limited stock alerts,” he says. “The integration of e-commerce into social media platforms, with features like in-app purchases, further facilitates impulse buying.”

Targeted social media advertising comes with both advantages and drawbacks. On one hand, you could be served an advertisement for a product that is truly relevant to your needs. On the other, you could be swayed into spending money you otherwise shouldn’t or wouldn’t have. Striking a balance between personalized advertising and respecting user privacy is an ongoing challenge for social media platforms and advertisers.

When it comes to which platform may be most influential in terms of sheer volume, Facebook (which owns Instagram) reigns supreme. However, advertisers can target different demographics based on platform use. The number of people a business wants to reach, along with their age, gender, etc., can determine which platform is most influential.

According to a study by Leger DGTL, these are the top ten social media and messaging apps Canadian internet users have an account with:

Perhaps, the bigger the audience, the more influence an ad might have. But if a business is specifically trying to reach those 16 to 34, they may choose to advertise on Instagram, as that’s their preferred platform. Similarly, if a product is targeted towards women, a business may influence more women on Pinterest, Snapchat, or TikTok, as the user base on these apps is predominantly female.

While different platforms have different reach, they’re all quite effective in terms of targeting a specific audience. However, 41.3% of Canadians aged 16 to 64 use some sort of ad blocking technology to protect themselves from this sort of targeted advertising.

The good news is you aren’t helpless when it comes to protecting yourself from the influence of social media advertising. Staying safe from online persuasion involves a combination of proactive measures and mindful habits. O’Leary offers the following advice: 

• Awareness and education: Understanding how targeted ads work and the psychological triggers they set off can help people recognize when their interest in a product is organic versus when they’re being manipulated.
• Ad customization and blocking: Most social media platforms allow users to customize their ad experience or block certain ads. Taking control of ad preferences or setting up ad blockers can reduce the number of tempting ads that appear.
• Budgeting: Setting a strict budget for discretionary spending can help people think twice before making a purchase. Using budgeting apps that alert you when you’re nearing your spending limit is another method.
• Credit management: To avoid overspending, individuals can use credit cards sparingly and monitor their credit card activity regularly. Setting up alerts for every transaction can make people more conscious of their spending.
• Digital detoxes: Periodically taking breaks from social media can reduce exposure to targeted ads and the subsequent temptation to make impulse purchases.
• Mindful consumption: Encouraging a habit of mindful consumption, where one reflects on whether they truly need or value the item in the long term, can help mitigate the effect of targeted ads. One good tactic is to save any ads that make you want to buy something and only allow yourself to purchase something after you’ve waited for a cooling off period (e.g. three days) to pass. If you’re still interested in a product, you can go ahead and purchase it.

Polly creates an independent sample of 75,3177 people from Twitter, Reddit, and TikTok in Canada over the past two years (September 2021 to September 2023). Responses are collected within a 90% confidence interval and 5% margin of error. See our askpolly dashboard for more on this poll.