Pay For Performance Still Rules

I’ve written before about the use of the online medium as both a direct response vehicle and a means to generate brand awareness. I’ve even suggested (my DR/DM associates will gasp!) that the medium can accomplish some form of branding.

Discussions have circulated about how to preserve the integrity of publisher cost-per-thousand impressions (CPMs) by extolling the virtues of branding potential within the medium. Maybe we can label what we pay something other than “cost per thousand,” and this will help fuel advertising speculation within the medium again? Perhaps demonstrating purchase intent will get advertisers excited? How about the Buying Power Index? Or let’s just start calling online advertising assets “interactive marketing units” instead of banners or ads.

Looking for ROI

All of these things are really quite interesting. But isn’t CPM already a sort of artificial label? Isn’t getting enthusiastic over purchase intent really just putting cachet in a random and anonymous user’s saying “maybe”? Isn’t the Buying Power Index just another way of representing income demographics?

Really, folks, deconstructing the terms of advertising isn’t going to get us anywhere. It might make for a good conference topic, or it might make you look smart in a meeting with a rep. It could even get a raised eyebrow from an interested potential client during a business pitch. But, at the end of the day, clients still really want the same old thing: return on investment (ROI).

Yep, that’s right, kids, whether we like it or not, the ones paying the bills really just want ROI in the most tangible of ways. They want to know what the dollar-in/dollar-out relationship is between their advertising and marketing efforts and the resulting income from that activity. If they spend X, they want to know Y — how many customers or newsletter registrations they can get, or how many sales are made. At the end of the day (wow, haven’t heard that one in a while!), the client wants very tangible ROI.

So, what does this mean? Hasn’t this always been the case?

Yes, it has. But we in the industry have been obfuscating this prime directive with talk about the fuzzy, intangible, and ephemeral elements of advertising that media has always tried to hide behind whenever someone tried to poke through the pesky membrane of “reach and frequency” or “ad effectiveness.”

With the use of interesting, interchangeable, and — at times — completely made-up words, we’ve tried to distract advertisers from what they really want but what we have not always adequately delivered: results.

Things like PR puff pieces from companies touting their latest “research” into how potential customers thought advertiser X “was the coolest” after they saw a banner is really just the industry saying, “Hey, look, your shoe is untied!” and then running away when the customer looks down.

Pay-for-Performance Models

What clients really want — and what mine have certainly kept asking for — are pay-for-performance (PFP) pricing models. I am not here to advocate that this is the be-all, end-all of how online advertising should be traded. I have stated before that the way online media currency is exchanged needs to be changed. But we all have to face the fact that most clients with goals to move their products want to see the online ad space do just that. And if CPM pricing can’t accomplish this efficiently enough for them, PFP models are where clients are going to go.

These can take different forms. The most common is, of course, cost per click (CPC). Given the overabundance of inventory out there, as long as we are selling impressions (which I HATE!), let’s dump that inventory onto the CPC market. It’s just sitting there wasting away, so what the heck?

Cost per acquisition is certainly less common, but it’s getting there. More and more media vendors are willing to explore this option provided the conditions are right (read: high out of pocket or a big-name advertiser like Procter & Gamble). The problem with this is that sustainable volume may not be possible when fixing your acquisition cost. I call it the Heisenberg’s Uncertainty Principle of PFP advertising: I can fix the cost but have indeterminate volume, or I can guarantee a volume but have indeterminate costs, but I can’t have both. Be that as it may, clients are still asking for it.

Finally, there’s revenue sharing, which is usually part of some larger deal. This is when the advertiser with something to sell gives a percentage of that sale to the media property on which the advertising generating that sale is run. This is the backbone of most affiliate marketing deals.

And that’s really it. Simple to say, hard to do. The business is just not ready for this on a large scale. But we better watch it, because we live in a capitalist, free-market society, and someone is going provide clients with what they want.

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