Look-alike modeling is a marketing strategy used to expand advertiser reach by identifying larger audience segments that share characteristics with a target group. This document discusses demographic segmentation, indexed purchase likelihood, cost, and return on marketing investment (ROMI) associated with different audience segments. It concludes that while targeting smaller, more defined segments can improve marketing effectiveness, it may also incur higher costs, necessitating a balance between cost and effectiveness.

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Look-alike modeling
How to dial in your customers
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Look-Alike Models are used to build larger audiences from smaller audience
segments to create reach for advertisers. They reflect similar characteristics
to a benchmark set of characteristics the original audience segment
represents, such as in-market kitchen-appliance shoppers.
Look-Alike Modeling
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Look-Alike Models are used to build larger audiences from smaller audience
segments to create reach for advertisers. They reflect similar characteristics
to a benchmark set of characteristics the original audience segment
represents, such as in-market kitchen-appliance shoppers.
Look-Alike Modeling
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Generally, the higher the
marketer's tolerance for
loosening the model, the
larger the segment can
become.

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Let’s say that a certain demographic is
more likely to purchase than another. For
example a household with income over
$100,000 per year, own their own home
and have children. Let’s say that they are
50% more likely to purchase than the
average.
This segment would index at 150%.
Demographic Segmentation
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Let’s say there is another group of single
males living in apartments and they are
33% less likely to purchase than the
average.
This segment would index at 67%.
Demographic Segmentation
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Let’s say that a certain demographic is
more likely to purchase than another. For
example a household with income over
$100,000 per year, own their own home
and have children. Let’s say that they are
50% more likely to purchase than the
average.
This segment would index at 150%.

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Index: +150%
Index: +67%
Demographic Segmentation
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Let’s say there is another group of single
males living in apartments and they are
33% less likely to purchase than the
average.
This segment would index at 67%.
Let’s say that a certain demographic is
more likely to purchase than another. For
example a household with income over
$100,000 per year, own their own home
and have children. Let’s say that they are
50% more likely to purchase than the
average.
This segment would index at 150%.

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No segmentation (Base):
Let’s say the total market size is 10,000,000. To reach
these 10,000,000 at 75cents per piece costs $7.5M. Let’s
say we sell a product for $275 each.
If the average response rate is 1%, then it would cost
$7.5M for 100,000 conversions. ROMI = $275 * 100,000 /
$7.5M = 3.7
The Math
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Revenue (Base):
$275 per unit
* 100,000 units
= $27,500,000
Costs
$0.75 per piece
* 10,000,000 units
= $7,500,000
ROMI (Revenue ÷ Cost)
$27,500,000
$7,500,000
= 3.7

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No Segmentation (Base):
Let’s say the total market size is 10,000,000. To reach
these 10,000,000 at 75cents per piece costs $7.5M. Let’s
say we sell a product for $275 each.
If the average response rate is 1%, then it would cost
$7.5M for 100,000 conversions. ROMI = $275 * 100,000 /
$7.5M = 3.7
Example 1
If the size of the household group were 33% of the total or
3,300,000, then the cost to reach these would be $2.5M,
with a conversion of 1.5% or 49,500. ROMI = $275 *
49,500 / $2.5M = 5.4
The Math
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Revenue (Base):
$275 per unit
* 100,000 units
= $27,500,000
Costs
$0.75 per piece
* 10,000,000 units
= $7,500,000
ROMI
$27,500,000
$7,500,000
= 3.7
Revenue (Ex.1):
$275 per unit
* 49,500 units
= $13,612,500
Costs
$0.75 per piece
* 3,300,000 units
= $2,500,000
ROMI
$13,612,500
$2,500,000
= 5.4

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No Segmentation (Base):
Let’s say the total market size is 10,000,000. To reach
these 10,000,000 at 75cents per piece costs $7.5M. Let’s
say we sell a product for $275 each.
If the average response rate is 1%, then it would cost
$7.5M for 100,000 conversions. ROMI = $275 * 100,000 /
$7.5M = 3.7
Example 1
If the size of the household group were 33% of the total or
3,300,000, then the cost to reach these would be
$2.5M, with a conversion of 1.5% or 49,500. ROMI = $275
* 49,500 / $2.5M = 5.4
Example 2
If the size of the solo apartment group were the other 67%
of the total or 6,700,000, then the cost to reach these
would be $5M, with a conversion of 0.67% or 44,890.
ROMI = $275 * 44,890 / $5M = 2.5
The Math
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Revenue (Base):
$275 per unit
* 100,000 units
= $27,500,000
Costs
$0.75 per piece
* 10,000,000 units
= $7,500,000
ROMI
$27,500,000
$7,500,000
= 3.7
Revenue (Ex.1):
$275 per unit
* 49,500 units
= $13,612,500
Costs
$0.75 per piece
* 3,300,000 units
= $2,500,000
ROMI
$13,612,500
$2,500,000
= 5.4
Revenue (Ex.2):
$275 per unit
* 44,890 units
= $12,344,750
Costs
$0.75 per piece
* 6,700,000 units
= $5,000,000
ROMI
$13,612,500
$2,500,000
= 2.5

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No Segmentation (Base):
Let’s say the total market size is 10,000,000. To reach
these 10,000,000 at 75cents per piece costs $7.5M. Let’s
say we sell a product for $275 each.
If the average response rate is 1%, then it would cost
$7.5M for 100,000 conversions. ROMI = $275 * 100,000 /
$7.5M = 3.7
Example 1
If the size of the household group were 33% of the total or
3,300,000, then the cost to reach these would be
$2.5M, with a conversion of 1.5% or 49,500. ROMI = $275
* 49,500 / $2.5M = 5.4
Example 2
If the size of the solo apartment group were the other 67%
of the total or 6,700,000, then the cost to reach these
would be $5M, with a conversion of 0.67% or 44,890.
ROMI = $275 * 44,890 / $5M = 2.5
The Math
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Revenue (Base):
$275 per unit
* 100,000 units
= $27,500,000
Costs
$0.75 per piece
* 10,000,000 units
= $7,500,000
ROMI
$27,500,000
$7,500,000
= 3.7
Revenue (Ex.1):
$275 per unit
* 49,500 units
= $13,612,500
Costs
$0.75 per piece
* 3,300,000 units
= $2,500,000
ROMI
$13,612,500
$2,500,000
= 5.4
Revenue (Ex.2):
$275 per unit
* 44,890 units
= $12,344,750
Costs
$0.75 per piece
* 6,700,000 units
= $5,000,000
ROMI
$13,612,500
$2,500,000
= 2.5
Targeting marketing investments away from underperforming
segments and towards better performing segments can
significantly improve marketing effectiveness

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Index: +225%
Hypothesis #1
But a sub-segment within the male apartment dwellers could be
very lucrative
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Index: +225%
Hypothesis #2
Index: +275%
Demographics and behavioral micro-segment
Hypothesis #1
But a sub-segment within the male apartment dwellers could be
very lucrative
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Demographics and behavioral and mass media micro-segment
Hypothesis #3
Index: +275%
325%
Further micro-segmentation
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Demographics and behavioral and mass media micro-segment
Demographics and behavioral and mass media and seasonality micro-segment
Hypothesis #3
Index: +275%
325%
Hypothesis #4
Index: +275%
325%
395%%
Further micro-segmentation
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Hypothesis #1:
Let’s say the total market size is 3,300,000. To reach these
3,300,000 at 75cents per piece costs $2.48M. Let’s say we
sell a product for $275 each.
If the average response rate is 2.25%, then it would cost
$2.475M for 74,250 conversions. ROMI = $275 * 74,250 /
$2.475M = 8.25
The Math
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Revenue Hypothesis 1:
$275 per unit
* 74,250 units
= $20,418,750
Costs
$0.75 per piece
* 3,300,000 units
= $2,475,000
ROMI (Revenue ÷ Cost)
$20,418,750
$2,475,000
= 8.25

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Hypothesis #2
If the size of the household group were 17.5% of the total
or 1,750,000, then the cost to reach these would be
$1.3M, with a conversion of 2.75% or 48,125. ROMI =
$275 * 48,125 / $1.3M = 10.1
Revenue Hypothesis 2:
$275 per unit
* 48,125 units
= $13,234,375
Costs
$0.75 per piece
* 1,750,000 units
= $1,312,500
ROMI
$13,234,375
$1,312,500
= 10.1
The Math

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The Math
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Hypothesis #2
If the size of the household group were 17.5% of the total
or 1,750,000, then the cost to reach these would be
$1.3M, with a conversion of 2.75% or 48,125. ROMI =
$275 * 48,125 / $1.3M = 10.1
Hypothesis #3
If the size of the household group were 10% of the total or
1,000,000, then the cost to reach these would be $0.75M,
with a conversion of 3.25% or 32,500. ROMI = $275 *
32,500 / $0.75M = 11.9
Revenue Hypothesis 2:
$275 per unit
* 48,125 units
= $13,234,375
Costs
$0.75 per piece
* 1,750,000 units
= $1,312,500
ROMI
$13,234,375
$1,312,500
= 10.1
Revenue Hypothesis 3:
$275 per unit
* 32,500 units
= $8,937,500
Costs
$0.75 per piece
* 1,000,000 units
= $750,000
ROMI
$8,937,500
$750,000
= 11.9

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The Math
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Hypothesis #2
If the size of the household group were 17.5% of the total
or 1,750,000, then the cost to reach these would be
$1.3M, with a conversion of 2.75% or 48,125. ROMI =
$275 * 48,125 / $1.3M = 10.1
Hypothesis #3
If the size of the household group were 10% of the total or
1,000,000, then the cost to reach these would be
$0.75M, with a conversion of 3.25% or 32,500. ROMI =
$275 * 32,500 / $0.75M = 11.9
Hypothesis #4
If the size of the household group were 7.5% of the total or
75,000, then the cost to reach these would be
$56,250, with a conversion of 3.95% or 2,963. ROMI =
$275 * 2,963 / $56,250 = 14.5
Revenue Hypothesis 2:
$275 per unit
* 48,125 units
= $13,234,375
Costs
$0.75 per piece
* 1,750,000 units
= $1,312,500
ROMI
$13,234,375
$1,312,500
= 10.1
Revenue Hypothesis 3:
$275 per unit
* 32,500 units
= $8,937,500
Costs
$0.75 per piece
* 1,000,000 units
= $750,000
ROMI
$8,937,500
$750,000
= 11.9Revenue Hypothesis 4:
$275 per unit
* 2,963 units
= $814,825
Costs
$0.75 per piece
* 75,000 units
= $56,250
ROMI
$814,825
$56,250
= 14.5

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The Math
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Hypothesis #2
If the size of the household group were 17.5% of the total
or 1,750,000, then the cost to reach these would be
$1.3M, with a conversion of 2.75% or 48,125. ROMI =
$275 * 48,125 / $1.3M = 10.1
Hypothesis #3
If the size of the household group were 10% of the total or
1,000,000, then the cost to reach these would be $0.75M,
with a conversion of 3.25% or 32,500. ROMI = $275 *
32,500 / $0.75M = 11.9
Hypothesis #4
If the size of the household group were 7.5% of the total or
75,000, then the cost to reach these would be $56,250,
with a conversion of 3.95% or 2,963. ROMI = $275 * 2,963
/ $56,250 = 14.5
Revenue Hypothesis 2:
$275 per unit
* 48,125 units
= $13,234,375
Costs
$0.75 per piece
* 1,750,000 units
= $1,312,500
ROMI
$13,234,375
$1,312,500
= 10.1
Revenue Hypothesis 3:
$275 per unit
* 32,500 units
= $8,937,500
Costs
$0.75 per piece
* 1,000,000 units
= $750,000
ROMI
$8,937,500
$750,000
= 11.9Revenue Hypothesis 4:
$275 per unit
* 2,963 units
= $814,825
Costs
$0.75 per piece
* 75,000 units
= $56,250
ROMI
$814,825
$56,250
= 14.5
Targeting marketing investments away from underperforming
segments and towards better performing segments can
significantly improve marketing effectiveness

20. ProRelevant Marketing Solutions20
Facebook will now begin to offer this same
capability for their fan pages and advertising.
This will yield a significantly higher targeting
opportunity, improved marketing ROI and better
response. There will be much less marketing
wastage in Facebook

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The conclusion generally: the increase in marketing effectiveness is
significant.
Based on the best hypotheses, the ‘budget’ can be spent much more
effectively.
In this case we improved the ROMI from 5.4 to 14.3
There is however a cost to look alike modeling. The analytics and potentially
now from Facebook, the cost of targeting these micro-segments will be higher
than targeting the overall segments. The marketer simply has to weigh the
incremental cost of look alike modeling against the incremental response and
effectiveness
The marketer than tests/simulates different hypotheses against the data to
determine best and most effective micro-targeting campaign investments.
The best campaigns are chosen, best to worst until the budget is fully
allocated.
Look-Alike Modeling Conclusion
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Marketing@ProRelevant.com
Guy R. Powell
Pres. ProRelevant
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Guy R. Powell
Thank you