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Google Ads uses an auction to determine which ads to show on the Display Network and how much those ads will cost.
The Display Network ad auction is ranked among other advertisers’ ads based on Ad Rank, which is based on your bid and your Quality Score.
Quality Score for a Display ad is different from Quality Score for a Search ad. Basically, even though you’re not targeting specific keywords, Google still records the keywords that people are using when they search. You will receive a higher Quality Score on display for users who are searching for terms more congruent with your ads and landing pages. Unlike a Search ad however, you’re not bidding on keywords, you’re bidding on a user and so you’re not able to see what the keywords are.
Additionally, the Display Quality Score takes into account your ad’s historical Click Through Rate on a particular placement (the website hosting the ad). If the Click Through Rate was great on a website discussing kids pajamas but really poor on a website about fishing gear then your Quality Score will go up for kids pajamas websites and down for fishing gear websites. For general audience ads, this does tend to reward “click bait” type ads with a lower bid requirement due to the fact that these may get a higher CTR.
Your Quality Score will also take into consideration your landing page. Google attempts to show more ads for businesses that give a good website experience to users. Google wants users to trust them to show relevant ads so that those users click more often. Landing pages with prohibited or undesirable content will quickly be weeded out by Google and impressions for these ads will reduce or stop.
If you use audience targeting, there is a possibility that your ad will cost more than it would have otherwise because Google passes through any fees it incurs by third-party data providers. That said, in my opinion it is always better to use targeted audiences for Display unless you are paying per conversion, because a targeted audience is more likely to contain your ideal prospects and therefore is likely to lead to a better lifetime value than an untargeted audience.
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