Performance-based advertising

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Performance Marketing, also known as pay for performance advertising, is a form of advertising in which the purchaser pays only when there are measurable results. Its objective is to drive a specific action, and advertisers only pay when that action, such as an acquisition or sale, is completed. [1]

Contents

Performance-based advertising is becoming more common with the spread of electronic media, notably the Internet, where it is possible to measure user actions resulting from advertisement.[ citation needed ] Performance marketing is different from Brand Marketing which focuses on awareness, consideration, and opinions among target consumers.[ citation needed ]

Performance marketing is an integral part of an overall marketing strategy, and its effectiveness can be influenced by other promotional methods such as branding, media advertising, guerrilla marketing, and more.[ citation needed ] To assess the overall effectiveness of marketing activities, marketers analyze these influences further using tools like Brand Lift or similar metrics.[ citation needed ]

Pricing models

There are four common pricing models used in the online performance advertising market.

CPM (cost-per-mille, or cost-per-thousand) Pricing models charge advertisers for impressions, i.e. the number of times people view an advertisement. Display advertising is commonly sold on a CPM pricing model. The problem with CPM advertising is that advertisers are charged even if the target audience does not click on the advertisement.

CPC (cost-per-click) Advertising overcomes this problem by charging advertisers only when the consumer clicks on the advertisement. However, due to increased competition, search keywords have become very expensive. A 2007 Doubleclick Performics Search trends Report shows that there were nearly six times as many keywords with a cost per click (CPC) of more than $1 in January 2007 than the prior year. The cost per keyword increased by 33% and the cost per click rose by as much as 55%.

In recent times, there has been a rapid increase in online lead generation – banner and direct response advertising that works off a CPL pricing model. In a cost-per-lead pricing model, advertisers pay only for qualified leads – irrespective of the clicks or impressions that went into generating the lead. CPL advertising is also commonly referred to as online lead generation.

Cost per lead (CPL) pricing models are the most advertiser-friendly. In 2007, an IBM research study [2] found that two-thirds of senior marketers expect 20 percent of ad revenue to move away from impression-based sales, in favor of action-based models, within three years. CPL models allow advertisers to pay only for qualified leads as opposed to clicks or impressions and are at the pinnacle of the online advertising ROI hierarchy.

In CPA advertising, or Cost Per Acquisition, advertisers pay for a specific action such as a credit card transaction (also called CPO, cost-per-order).

Advertisers need to be careful when choosing between CPL and CPA pricing models.

In CPL campaigns, advertisers pay for an interested lead – i.e. the contact information of a person interested in the advertiser's product or service. CPL campaigns are suitable for brand marketers and direct response marketers looking to engage consumers at multiple touch-points – by building a newsletter list, community site, reward program or member acquisition program.

In CPA campaigns, the advertiser typically pays for a completed sale involving a credit card transaction. CPA is all about 'now' – it focuses on driving consumers to buy at that exact moment. If a visitor to the website doesn't buy anything, there's no easy way to re-market to them.

There are other important differentiators:

  1. CPL campaigns are advertiser-centric. The advertiser remains in control of their brand, selecting trusted and contextually relevant publishers to run their offers. On the other hand, CPA and affiliate marketing campaigns are publisher-centric. Advertisers cede control over where their brand will appear, as publishers browse offers and pick which to run on their websites. Advertisers generally do not know where their offer is running.
  2. CPL campaigns are usually high volume and lightweight. In CPL campaigns, consumers submit only basic contact information. The transaction can be as simple as an email address. On the other hand, CPA campaigns are usually low-volume and complex. Typically, the consumer has to submit a credit card and other detailed information.

CPL advertising is more appropriate for advertisers looking to deploy acquisition campaigns by re-marketing to end consumers through e-newsletters, community sites, reward programs, loyalty programs, and other engagement vehicles.

Metrics

Various types of measurable action may be used in charging for performance-based advertising:

Some Internet sites are markets, bringing together buyers and sellers. eBay is a prominent example of a market operating on an auction basis. Other market sites let the vendors set their price. In either model, the market mediates sales and takes a commission – a defined percentage of the sale value. The market is motivated to give a more prominent position to vendors who achieve high sales value. Markets may be seen as a form of performance-based advertising.

The use of mobile coupons also enables a whole new world of metrics within identifying campaign effect. Several providers of mobile coupon technology make it possible to provide unique coupons or barcodes to each person and at the same time identify the person downloading it. This makes it possible to follow these individuals during the whole process from downloading to when and where the coupons are redeemed.

See also

Related Research Articles

Affiliate marketing is a marketing arrangement in which affiliates receive a commission for each visit, signup or sale they generate for a merchant. This arrangement allows businesses to outsource part of the sales process. It is a form of performance-based marketing where the commission acts as an incentive for the affiliate; this commission is usually a percentage of the price of the product being sold, but can also be a flat rate per referral.

Cost per impression (CPI) and cost per thousand impressions (CPM) are terms used in traditional advertising media selection, as well as online advertising and marketing related to web traffic. They refer to the cost of traditional advertising or internet marketing or email advertising campaigns, where advertisers pay each time an ad is displayed. CPI is the cost or expense incurred for each potential customer who views the advertisement(s), while CPM refers to the cost or expense incurred for every thousand potential customers who view the advertisement(s). CPM is an initialism for cost per mille, with mille being Latin for thousand.

Pay-per-click (PPC) is an internet advertising model used to drive traffic to websites, in which an advertiser pays a publisher when the ad is clicked.

An online advertising network or ad network is a company that connects advertisers to websites that want to host advertisements. The key function of an ad network is an aggregation of ad supply from publishers and matching it with the advertiser's demand. The phrase "ad network" by itself is media-neutral in the sense that there can be a "Television Ad Network" or a "Print Ad Network", but is increasingly used to mean "online ad network" as the effect of aggregation of publisher ad space and sale to advertisers is most commonly seen in the online space. The fundamental difference between traditional media ad networks and online ad networks is that online ad networks use a central ad server to deliver advertisements to consumers, which enables targeting, tracking and reporting of impressions in ways not possible with analog media alternatives.

Cost per action (CPA), also sometimes misconstrued in marketing environments as cost per acquisition, is an online advertising measurement and pricing model referring to a specified action, for example, a sale, click, or form submit.

Online advertising, also known as online marketing, Internet advertising, digital advertising or web advertising, is a form of marketing and advertising that uses the Internet to promote products and services to audiences and platform users. Online advertising includes email marketing, search engine marketing (SEM), social media marketing, many types of display advertising, and mobile advertising. Advertisements are increasingly being delivered via automated software systems operating across multiple websites, media services and platforms, known as programmatic advertising.

Cost per mille (CPM), also called cost per thousand (CPT), is a commonly-used measurement in advertising. It is the cost an advertiser pays for one thousand views or impressions of an advertisement. Radio, television, newspaper, magazine, out-of-home advertising, and online advertising can be purchased on the basis of exposing the ad to one thousand viewers or listeners. It is used in marketing as a benchmarking metric to calculate the relative cost of an advertising campaign or an ad message in a given medium.

Click-through rate (CTR) is the ratio of clicks on a specific link to the number of times a page, email, or advertisement is shown. It is commonly used to measure the success of an online advertising campaign for a particular website, as well as the effectiveness of email campaigns.

Search engine marketing (SEM) is a form of Internet marketing that involves the promotion of websites by increasing their visibility in search engine results pages (SERPs) primarily through paid advertising. SEM may incorporate search engine optimization (SEO), which adjusts or rewrites website content and site architecture to achieve a higher ranking in search engine results pages to enhance pay per click (PPC) listings and increase the Call to action (CTA) on the website.

Value Per Action (VPA) refers to an online marketing business model similar to the Cost Per Action (CPA) model. While Cost Per Action provides a low risk arrangement in which the seller only pays an advertising fee when a consumer takes action Value Per Action extends that model to add revenue sharing with the consumer.

Keyword advertising is a form of online advertising in which an advertiser pays to have an advertisement appear in the results listing when a person uses a particular phrase to search the Web, typically by employing a search engine. The particular phrase is composed of one or more key terms that are linked to one or more advertisements. The most common form or keyword advertising, focused on payment methods, is pay per click (PPC), with other forms being cost per action (CPA) or cost per mille (CPM).

In Internet marketing, search advertising is a method of placing online advertisements on web pages that show results from search engine queries. Through the same search-engine advertising services, ads can also be placed on Web pages with other published content.

Cost per lead, often abbreviated as CPL, is an online advertising pricing model, where the advertiser pays for an explicit sign-up from a consumer interested in the advertiser's offer. It is also commonly called online lead generation.

Website monetization is the process of converting existing traffic being sent to a particular website into revenue. The most popular ways of monetizing a website are by implementing pay per click (PPC) and cost per impression (CPI/CPM) advertising. Various ad networks facilitate a webmaster in placing advertisements on pages of the website to benefit from the traffic the site is experiencing.

Behavioral retargeting is a form of online targeted advertising by which online advertising is targeted to consumers based on their previous internet behaviour. Retargeting tags online users by including a pixel within the target webpage or email, which sets a cookie in the user's browser. Once the cookie is set, the advertiser is able to show ads to that user elsewhere on the internet via an ad exchange.

Pay-per-sale or PPS is an online advertisement pricing system where the publisher or website owner is paid on the basis of the number of sales that are directly generated by an advertisement. It is a variant of the CPA model, where the advertiser pays the publisher and/or website owner in proportion to the number of actions committed by the readers or visitors to the website.

When a mobile consumer requests content in the form of, for example, e-vouchers, audio files or video clips, the advertiser is charged a nominal sum by the platform that supports the marketing campaign. Each request is defined as an "activity". The platform's pricing charges a cost-per-activity. The amount payable by the advertiser is a function of the number of requests for content from the consumer, multiplied by the agreed cost/activity. This pricing model was created by Mobilitrix, a mobile solutions company based in Cape Town, South Africa. The advertiser only pays when a potential consumer accesses information or content as prompted by static media. Alternatives include the pay per click, also known as the cost per click model.

Affiliate Tracking Software is used to track the referral, endorsement or recommendation made by one person or company to buy products or services from another person or company. Tracking is necessary to manage and reward or compensate the participants of an affiliate marketing group of participants or affiliate networks.

An impression is when an ad is fetched from its source, and is countable. Whether the ad is clicked is not taken into account. Each time an ad is fetched, it is counted as one impression.

In marketing, attribution, also known as multi-touch attribution, is the identification of a set of user actions that contribute to a desired outcome, and then the assignment of a value to each of these events. Marketing attribution provides a level of understanding of what combination of events in what particular order influence individuals to engage in a desired behavior, typically referred to as a conversion.

References

  1. ↑ Chase, Jason (2013-12-19). "Defining the Next Generation of Performance Marketing". IAB. Retrieved 2024-01-09.
  2. ↑ "IBM Predicts the End of Advertising as We Know It". www-03.ibm.com. 2007-11-08. Archived from the original on January 16, 2008. Retrieved 2021-04-09.
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