Understanding the Cost-Per-Engagement Ad Model

by Sebastian Tonkin, May 29, 2012, 8:51 AM

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The Interactive Advertising Bureau just introduced a new program to certify digital media salespeople.  This comes as little surprise, considering how many acronyms you have to master to be able to sell an ad online.  CPM, CPC, CPA and now. CPE?   Do we really need another acronym in the online ad game?  

CPE stands for cost-per-engagement.  The term was trademarked in 2006 by an online solution provider looking to bring more accountability to brand units.  These days, it’s being used by a subset of publishers looking to differentiate themselves along one important dimension: engagement.  

As the litany of user actions that marketers care about has grown from simple clicks to include Facebook likes, shares, mouse-overs, poll responses, white paper downloads and dozens more, CPE has started to take root in the marketplace as a new – and necessary – measure of ROI in digital advertising.

Every online marketer that has run a display campaign is aware that the average CTR for banner ads has been falling steadily for years, a phenomenon labeled banner blindness.  Adding fuel to the anti-display ad fire is Comscore’s recent vCE Charter Study, which found that roughly one-third of display ad impressions served in 2011 never had a chance to be seen in the first place!  

Confronted with stats like these, advertisers have begun to wonder whether their display ads are actually doing anything to move their business goals forward.  This is especially true for advertisers that need to move the needle on brand attributes, like awareness, favorability and purchase intent.  

Some publishers may be in a better position to deliver on these engagement-based objectives than others.  One group is online video networks, which have the full power of video and audio on hand to grab users’ attention.  Many video networks have begun offering cost-per-view pricing, which is a subset of CPE pricing.

Another group includes value-exchange networks and publishers.  Through the value- exchange model, users are offered something of value in exchange for their attention, allowing these networks to consistently deliver on engagement-based goals.  

Users are offered things like virtual currency, premium content and free WiFi access in exchange for watching a video, completing a survey or taking some other engagement-based action that’s valued by the advertiser.  

When paired with strong audience targeting, this model can be extremely powerful in comparison to traditional banner ads.  Even better, advertisers pay only when users engage, taking a sizeable chunk of risk out of the buying process.

What do you need to pay attention to when confronted with a CPE model:

1. Understand what you’re paying for

What does the engagement action include?  Is it clear to the user what’s going on?  How is the action measured?  Make sure you’re clear about what you’re buying (and what you’re not).

2. Be sure you have the right audience

Paying for engagement offers less risk that people will ignore your ads, but if they’re targeted at the wrong audience, this won’t make any difference to your bottom line.

3. Know if the engagement action adds value

 If you’re a brand marketer looking to influence perception, make sure the action you’re paying for actually alters perception.  Also, make sure there’s a measurement framework in place to capture brand impact, view-throughs,or other measures of effectiveness relevant to your brand.

As long as advertisers are targeting users higher up in the marketing funnel, they’re going to need to pay attention to who is engaging with their ads.  CPE pricing is an important step toward differentiating those ad offerings that can deliver higher engagement with the target audience from those that can’t.

It’s probably not going to replace CPM as the dominant display metric anytime soon, but con’t expect it to fade away either -- at least not as long as advertisers remain concerned about whether anyone is actually seeing their ads.

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