All That a Marketer Has to Know About Programmatic Advertising

Written by: Aapi von Creutlein

You might have heard about programmatic, a buzzword that conquers the online advertising discussion. In the United States, spend on programmatic advertising has increased 39,7% from last year, representing 67% (22 billion dollars) of the total spend on digital display advertising. Markets in northern Europe are now experiencing a similar trend.

Despite the increasing spend on programmatic advertising, many marketing and brand managers are left confused about what it is, and how it affects their brands (Belsky, 2014; Bidon, 2014). The ones leading the discussion about programmatic advertising are agencies and technology providers, which is why the talk is too technical. If your job is to build a brand, you might want to concentrate on the value that this new technology injects into your promotional strategy instead.

This post aims to provide marketing and brand managers with an understanding of the new era of online media buying. Thus, it offers a solid basis for discussing programmatic advertising with in-house media buyers or an agency. First, let´s look at how online advertising has evolved to its current state.

 

From Fixed Placements to Programmatic Advertising

The first form of online advertising was fixed placements: an advertiser paid for having their ad visible on a certain site for a fixed time period. As the number of internet users and page loads grew, site owners – also known as publishers– realized that a new pricing model is needed. They started to sell advertising space based on how many times an ad is shown. (Gonzálvez & Mochón, 2016).

However, publishers did not always manage to sell their available advertising space completely. The problem of what to do with the remaining inventory was eventually solved with selling the leftover to another company. These companies, called ad networks, bought inventory from several publishers, packaged and sold it to the advertisers. (Gonzálvez & Mochón, 2016).

To this point, media buyers selected the sites on which advertising space was bought based mainly on their content and an overall site visitor profile. This mass media approach lead to problems: too many impressions were wasted on people with zero interest in those ads. At the same time the internet continued to expand rapidly, which eventually fragmented the media landscape completely. It was no longer possible for buyers to negotiate with each site or ad network separately (Rayport, 2015). In addition, because many ad networks bought extra inventory from the same publishers, advertisers started having difficulties to control campaign frequency. Seeing the same, irrelevant ads all the time annoyed many users. On top of all this, ad blockers started to gain popularity (Shewan, 2015).

Figure 1: The Evolution of Online Ad Selling in 3 Stages (Xaxis, 2014)

Figure 1: The Evolution of Online Ad Selling in 3 Stages (Xaxis, 2014)

The solution to these problems was programmatic advertising: a combination of behavioral targeting and automated buying. (Bidon, 2014) Behavioral targeting is based on collecting data on how an individual user behaves online. This data is then used to create profiles of what that user is interested, in order to show ads based on those interests. (McDonald & Cranor, 2010; Gonzálvez & Mochón, 2016).

Traditionally, media buying happens between publisher sales representative and an advertiser or its trustee. However, in a programmatic purchase the parties trust machines to complete the sale on their behalves (Gonzálvez & Mochón, 2016).

How Does Programmatic Advertising Work?

The landscape of technology providers and solutions is incredibly fragmented, so let´s not go too much in detail here. The automatic buying process basically consists of supply and demand sides platforms, SSPs and DSPs. They are the computer programs that negotiate and give value to each ad impression separately. This constant buying and selling takes place on digital marketplaces called ad exchanges.

A website sees an opportunity to show an ad, when a user enters the site. The users behavioral profile discussed earlier defines which advertisers are interested in showing an ad for him. These advertisers participate in an auction and the winner’s ad will show to the user. All this happens while the page loads. (IAB, 2014). Each ad impression has a different price, depending on the competitive situation. (Li & Guan, 2014) Watch this video about the technical process for better understanding.

The data that defines a user’s behavioral profile can originate from different sources. Advertisers can gather their own data from sources like website or CRM system. Own data is the highest quality data an advertiser can ever get, and it is free. Publishers and third party providers also offer their data to advertisers, but it usually adds to the costs. (Chang, 2016; Grether, 2016) Still, they are worth trying as a part of a programmatic campaign along with own data to deliver better results.

All data storage and processing takes place in a data management platform, a DMP. DMPs crush massive amounts of information in real time, restructure the data and create audience segments for advertising. (Chang, 2016). Once enough users have visited your site, the DMP has an overall picture of how people interested in your brand behave online. Based on this information, the DMP can target your ad to other internet users with a similar profile, even if they have never heard of your brand. However, it is likely that they will be interested. (Hayter, 2013) This concept, known as lookalike-modeling, is perhaps the most important feature of programmatic advertising.

Figure 2: Reach your audience better with lookalike-m­odeling (Microad.in, 2014)

Figure 2: Reach your audience better with lookalike-m­odeling (Microad.in, 2014)

Real-time data processing offers an opportunity to surprise your target audience. All you need is a good idea on how to use the data. For example, Hilton created a campaign that showed geo-targeted ads near airports whose flights had been cancelled. This is a textbook example of advertising: right product to a right person in a right situation. Did you know that there is a category called Creative Data in the Cannes Lions contest? Go earn that trophy for your brand with a creative programmatic campaign!

More Benefits of Programmatic Advertising

As discussed earlier, buying many publishers and ad networks simultaneously made advertising frequency difficult to control. Precise frequency control is important, because too little advertising can be ineffective while too much repetition wastes impressions and can annoy the user (Broussaurd, 2000). In addition, advertising frequency affects ad recognition and recall (Schmidt & Eisend, 2015). Technology behind programmatic, however, makes universal frequency capping across publishers possible (Shebbeare, 2013). Precise frequency control results in both cost reduction and better user experience.

Every campaign should have an objective, and key performance indicators that determine campaign performance (Kaushik, n.d.). Success of traditionally bought campaigns can only be evaluated afterwards. The learnings are then taken to the next campaign, hoping it to deliver better results. Programmatic is different: the campaign can be optimized towards its goals while it is running. Flosi, Fulgoni & Vollman (2013) found this in-flight optimization to increase ROI significantly.

For example, programmatic offers a solution to viewability problems. On average, 55% of the display ads are not viewable (Ghose & Todri-Adamopoulos, 2016). This means, that the majority of the ads appear in the bottom of the page, or somewhere else where the user cannot see them. Still, publishers count and bill those impressions from you. By using the reporting tools in the DSP, media buyers can identify sites with low viewability rates and exclude them from the campaign. Other examples of optimization techniques include adjusting bidding strategies based on device, daypart or location (Cole, 2015).

Dynamic creative optimization is one of the latest innovations that the technology enables. It means that instead of seeing the same banner, each user receives a personalized version of ad message, image and call-to-action. The final creatives users see are based on their behavioral profile. More relevant ads and better user experience affect sales too. (Calvert, 2016; Goodwin, 2015; Lennon, 2016)

5 Things Marketers Should Ask from Their Agency About Programmatic Advertising

With the basic knowledge about programmatic advertising, you can take the conversation with your online advertising buyer to the next level. Here are the most important topics about programmatic advertising that every advertiser should include in the discussion with the people who actually buy their ads.

1. Is Brand Safety Active in My Campaigns?

When a DPS buys from multiple sources at the same time, the risk of an ad showing with risky content increases. Reputable marketers should avoid sites with adult content, hate, violence, drugs or malicious software at all costs. In addition, you may not want your ad to show in every context. (Abraham, Hunter, Vollman, 2012). For example, a luxury cruise ad next to a news article about a fatal ship wreck is not ideal. Most DSPs provide a way to automatically prevent the ads showing in sites that could be harmful from a branding perspective. Just make sure that it is switched on and configured in the right way for your brand.

2. What Data Powers My Campaigns?

As mentioned earlier, data affects both costs and results. Therefore, it is important to know, whether your campaigns use own, publisher or third party data. In addition, you want to know whether the buyer actively and systematically tests different data sources and their combinations.

3. What Am I Paying for?

Programmatic advertising consists of several moving parts, which has resulted in many approaches to pricing (Bruell, 2015). First, find out what the price you are paying to an agency consists of. Does it include media cost, data and working hours or just one of them? In addition, ask how many hours are actually spent on your campaigns. Second, you want to know about your agency’s competitive position. What kind of negotiation power do they have with the publishers? Which data partners and technology providers they prefer? Finally, you should not forget the human factor (Bidon, 2014). Ask about the team’s background, qualifications and skills because they affect the campaign performance and your brands development.

4. How Do You Buy for My Brand?

Get to know the four general types of programmatic transactions and their differences: automated guarantee, unreserved fixed rate, invitation-only and open auction (IAB, n.d.). Ask your buyer which type does he prefer, because it affects the environment where your ads show. As a rule of thumb, trustworthy premium publishers are often a better environment for a premium brand than sites on open ad exchanges. The latter also contain a higher risk of fraud (Fulgoni, 2016). You also want your buyer to tell you, how he optimizes your campaigns and how often.

Figure 3: The four different types of programmatic transactions (IAB, 2013)

Figure 3: The four different types of programmatic transactions (IAB, 2013)

5. Do You Work with Other Parties in My Campaign Process?

The people in charge of buying your ads are not necessarily the same who manage your site, design the creatives or gather insights from web analytics. To make sure your campaigns improve, you need a functioning process between everyone involved. You as an advertiser pay money to each party. Thus, it is your job to make sure that they work together for a common goal: growing your business. Do not assume that they do so by default. They don’t.

A situation where the data gathering from a website does not work and creatives do not improve between campaigns is far too common with programmatic. Luckily, these problems are easy to tackle with some communication. For example, a monthly or weekly call for the agencies is always a good idea. You don’t even have to participate every time – just make sure you facilitate them with an opportunity to brainstorm together.

Programmatic Advertising Is Not the Ultimate Key

As a conclusion, programmatic advertising can improve many things in your online advertising approach. It enables cost reduction, makes user experience better and unlocks new creative possibilities. In fact, programmatic advertising is at the heart of marketing: it merges data and creativity seamlessly. However, keep in mind that it is only a solution to smarter online advertising buying. It is not a magic potion that fixes fundamental issues in your marketing strategy – words that begin with the letter P should still remain the core of it.

What do you think of programmatic advertising? Please leave your thoughts in the comment section below!

 

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