The Three P’s of Online Advertising

Remember the four P’s from Marketing 101 (product, price, promotion, and place)? Don’t feel bad if you didn’t; I had to look them up, too! If you’re a marketing professional making the transition to the dot-com world, then you’re probably beginning to learn on your own that the rules are a little different.

With a strong proportion of advertisers having such short time horizons, online media buyers are beginning to realize that they have to use what I call the three P’s of online marketing: pay per performance.

This is not to say that the days where the advertiser has zero room for experimentation are completely over. It’s that people are less willing to part with their ad dollars when those dollars are spent on placements less proven to convert. (Financing is now a lot harder to obtain than it was a year ago.)

More and more, advertisers are looking for publishers who are willing to provide something other than targeted exposure. Buyers continue looking for cost-per-action or cost-per-acquisition (CPA) deals, where we pay only when a desired action results from ad efforts.

A CPA deal occurs when the advertiser pays only when a visitor to the publisher’s site(s) performs a desired action. Such actions can be a click (CPC: cost-per-click), a download, a registration, an application, a sale, etc. CPA deals are great because dollars get spent only when the desired action is performed. Consequently, there is a lot of value to be found here.

I recently read a report stating that the average CPM being paid across the web was somewhere in the low $30 range. I can’t remember the last time I paid this much for a placement. Think about it realistically in terms of the cost per visitor, with an industry average click-through rate of below 0.4 percent, a $30.00 CPM would have an average cost per visitor of $7.50. Compared to a CPC deal that costs anywhere between 20 cents and 50 cents, it almost seems like a no-brainer to go for CPC.

So who is paying these absurd CPM prices, and why? Very often, the answer lies in the quality of the site’s traffic.

A site whose ad sales are represented by a CPC ad network will usually earn less money from its traffic, usually 10 to 15 cents per click that occurs. At the other extreme is the web site represented by a CPM network that likely makes a few dollars per thousand ad impressions it serves. Following this logic, why would anyone choose to be paid on the CPC basis when he or she can make more?

A site usually registers on a CPC basis when one of two factors applies to it: It may be a second-tier site (in terms of quality), or its traffic does not meet minimum requirements, usually around 250,000 page views per month.

When we see referral logs resulting from some of the CPC placements, it is not too uncommon to see some pretty quirky URLs there, usually when you start asking what the heck your ads are doing on a site like when you are selling office supplies online. (No offense, Britney Spears, but tweens are just not the target audience we had hoped for.) Furthermore, is your true audience surfing around on these sites, or are they hanging out on, or Yahoo Finance?

You have to be a lot more careful where your ads are being placed when dealing with CPC networks than when dealing with some of the bigger CPM networks like DoubleClick. But as you can see, there is a fine line to draw between cost per visitor and the quality of the visitor being brought in.

To take this idea one step further, in a true cost-per-action agreement, the big problem occurs with delivery. This is not to lower the value of a publisher offering a $3 CPA (where the “A” is a sale), but, realistically, how many of these actions can a site deliver?

Say you’ve allotted a one-month budget of $5,000 to such a deal, and at the end of the month, the publisher has delivered four sales. What happened to the other $4,988? At this pace, the budget should run out in about 34 years, long after your company has gone under. It is essential that when paying per performance, buyers ensure delivery within a reasonable period of time.

There is a lot of debate surrounding these issues, along with the fact that there is a substantial branding value to ad exposures that do not generate immediate responses. Think about it this way: Is the $0.20 visitor as valuable as the $7.50 visitor? As always, the true value of each placement is known only once we analyze the ROI stats and optimize conversions.

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