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Paying only for results makes sense in tight economy--and ANY economy

Marketing group Econsultancy just released a report stating that business-to-business advertisers are planning a significant increase in spending on performance-based online ads this year.

Specifically, about 78% of advertisers are planning to spend more on CPA (cost-per-action/acquisition) and 67% plan to spend more on cost-per-lead (CPL) ads. A smaller percentage (less than half) plan to spend more on cost-per-click (CPC) ads. By contrast, less than 30% of advertisers report a planned increase in online display advertising spending.

What I see here is a smart trend among online advertisers that should have begun long before the recession. CPA, CPL and, to some extent, CPC ads are forms of advertising in which the advertiser only pays for results. The advertiser pays only for people who respond to the ad, as opposed to display advertising for which the advertiser pays every time their ad is displayed.

In a tight economy, it makes sense to only pay for results that you can track. With this kind of advertising, you know exactly what your advertising dollar is giving you, so you can do more with a tighter budget. With display advertising, on the other hand, advertisers are left crossing their fingers and hoping they get enough responses to pay for the advertising.

But does performance-based advertising make sense only during a recession? Hardly. Whatever the economy is, advertisers should insist on performance-based advertising whenever possible. Especially in online advertising, where tracking response is simple and easy, view-based display advertising doesn't even make sense, except possibly for those advertisers trying to drive traffic to a brick & mortar store. Why would you pay for advertising with mystery results if you can buy advertising that guarantees results for every dollar spent? Performance-based advertising gives the advertiser more control and better results for every dollar spent.

Responsible media groups, who genuinely have their advertisers' interests at heart are moving more and more toward performance-based advertising opportunities. This is a good thing. As this trend continues, the media groups and advertising consultants will become more proficient at fine-tuning advertising to drive results, which will mean media groups can charge more, but advertisers will also get more bang for their buck.

This is a lesson that broadcast media needs to learn as well. Up till now, most broadcast and cable media have charged for air time regardless of how effective the advertiser's ad is. This means each advertiser is on his or her own to figure out what kind of ads get results. When traditional media finally starts offering performance-based advertising, as I think they must eventually do to compete with online advertising, those media groups will finally start paying attention to what gets results for advertisers and how to track those results. And then they'll help their advertisers fine tune ads for better results.

This would be a win-win situation for both media and advertisers. Media groups can charge more for each minute of air time and attract more advertisers who used to view traditional media as risky. Meanwhile, advertisers are guaranteed results for the money they spend.

Here's a link to the news story where I learned of this report:

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posted by John E Fike @ 10:41 AM, ,