Commentary

The Need For Diversified Pricing Models: Why CPM Is Not Enough

The rise of programmatic has led to improvements in reach and efficiency within the digital ad space, but it’s also had some notable side effects, including the growing tendency for marketers to oversimplify their media buys.

When strategizing an ad buy, marketers should consider diversifying their pricing models in a way that accommodates a greater portion of the sales funnel. 

Although programmatic allows for variety in pricing, the vast majority of buys today are made on a strict CPM basis. And that makes sense, given programmatic’s superpowers in driving reach and top-of-funnel awareness. 

Yes, awareness is vital, and impressions are wonderful. But CPM is not enough on its own. Marketers also need to incorporate more-diversified models into their media buys more frequently: cost-per-engagement (CPE), cost-per-click (CPC), cost-per-interaction (CPI), etc.

Why Actions Matter

When marketers rely too heavily on CPMs, they risk neglecting the ultimate goal of their efforts: to engage and convert consumers. By diversifying media strategies to include CPE, CPC and other models, they can better align their buys to their KPIs. 

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Mass awareness is typically among the goals of a campaign, and buys based on CPM can certainly deliver there. But as a consumer moves further down the funnel, additional impressions tend to become less meaningful. What does become meaningful are brand interactions with prospects, be it a coupon download or time spent engaging with a rich media unit. 

Furthermore, brands today are investing significant resources in creating immersive ad units, including augmented reality experiences, 360-degree video units and more. 

Out of respect for the consumer, many of these units are designed to be user-initiated, meaning consumers must take an action to launch the experience. Mere impressions of these units have little value to an advertiser. So doesn’t it make sense to only pay when an impression leads to a willful consumer engagement? 

The Myriad Applications of Engagement

The pricing model a brand chooses should be based on the ad unit and the intended audience action. Sometimes, a simple click (CPC) is sufficient if it means consumers are signifying that they want to visit your site or a store locator. 

When it comes to an interactive ad experience, like units featuring augmented reality or a mini-game, the measure of engagement should reflect time spent in-unit with the brand and its messaging. Other engagement measures include entering an email address or phone number into an ad unit to have further communication from the brand. In short, any action that promotes a secondary touchpoint with a brand can translate nicely to a non-CPM model. 

Finally, it’s worth noting that alternate pricing models aren’t applicable only to performance marketing campaigns. These models can and should have a prominent role in branding and awareness campaigns as well. This is particularly true when it comes to products that require a high degree of education prior to purchase. Creating engaging units that fuel such education is a smart way to promote complicated products, and such ad units prove particularly effective when purchased on a CPE basis. 

Marketers who want to connect meaningfully with prospects in this increasingly customer-centric world need to be focusing more on engagement. While CPM buys can, and will, continue to play a role in achieving awareness at scale, thoughtful incorporation of alternate models into the marketing mix will help marketers better achieve their varied KPIs.

4 comments about "The Need For Diversified Pricing Models: Why CPM Is Not Enough".
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  1. Ed Papazian from Media Dynamics Inc, September 14, 2018 at 1:18 p.m.

    Catherine, how does a programmatic buying system determine the reach of a digital media buy that involves the use of many different websites?

  2. Scott Krauss from LiveIntent, September 14, 2018 at 2 p.m.

    Engagement is another completely meaningless data point. Marketers need to drive sales. They need to invest in strategies that drive sales....period. Engagement or no engagement, doesn't matter, what drives business outcomes.

    We seriously need to stop trying to talk about different pricing and measurement models and skip all the way to the entire point of marketing....to make money. I could careless if my ads get 0 engagment yet deliver revenue growth.

  3. Peter Rosenwald from Consult Partners replied, September 14, 2018 at 3:39 p.m.

    I'm on your side Scott - at least partly. The only ultimate metric is the bottom line.

    That said, if we don't know the costs of the steps to get there and how they relate to one another, we can't make improvements in the steps that will lead to an improved bottom line. 

    I remember a client bragging about how much money he was saving using low wage students to make appointments for high-value person-to-person salespeople. What he had failed to understand was that the more appointments, the more sales and every extra appointment had far more value than the hourly savings on the students. Without the costs of the steps in the funnel, we might never have discovered and corrected this.

    Using CPM as the key basis for media choice? If you can't satisfactorily answer the question: cost per thousand for what? - CPMs are near useless.

  4. Tom Kagy from Asian Media Group Inc, September 17, 2018 at 5:51 p.m.

    Roy's musings on the "reality" of the Asian American market begs interesting questions:

    Is the African American market a thing?  After all, African Americans are made up of people from a big assortment of African and Caribbean lands like Nigeria, Congo, Ethipia, Niger and Haiti, many of whom speak their original languages and don't necessarily identify with other nationalities who are deemed African American.

    Is the Hispanic market a thing?  After all those lumped into this category come from over a dozen different countries like Mexico, Cuba, Brazil, Guatemala, Honduras, El Salvador, Columbia, Spain, Argentina, Dominican Republic, Cuba, etc -- many of whom speak languages and dialects that differ from one another and some of whom don't identify with one another.

    If it's a cultural fallacy to assume that Asian Americans are a distinctive ethnic segment, the same fallacy would apply to African Americans and Hispanic Americans and White Americans, for that matter.

    On the other hand, I suspect most Asian Americans would admit they sit up and take notice when they see other Asian faces in the media.  After all we all share the unpleasant experience of being deemed "foreign" and being ignored or misrepresented in the geneal media.  

    Some non-Asians may be troubled by according the Asian American segment the same dignity and respect as the African American and Hispanic segments.  The identification that we Asian Americans feel with one another no less than that felt by members of America's other ethnic groups, and perhaps more than some given our constant need to remind everyone that we too are an important force in America's social and economic life.

    Are there nuances in targeting Asian Americans?  Of course, as there are with any population of 20+ million people.  But the knowhow to do so certainly exists, as I can attest after 30 years in the business.

    So rather than asking whether Asian American market is a thing, perhaps the better question for marketers might be what's the most cost-effective way to target the fastest-growing, most affluent and best-educated of America's consumer segments.

    This is especially true now that demographers are publicly recognizing what we Asian Americans have known for a decade: in absolute numbers -- not only percentage terms -- we've been growing faster than the Hispanic population since 2010. In 8 of the top 10 US metro areas, we Asian Americans comprise virtually the entire growth factor.

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