Arbitrage In Real Time DSP Display Advertising

Demand Side Platforms (DSPs) enable you to bid for individual ad impressions in real-time auctions across multiple ad exchanges. Instead of buying impressions in bulk from hand picked sites, you can use behavioral targeting data collected from cookies and data exchanges that determine the value of the impression and place a bid accordingly. This allows you to focus on the individuals that meet your advertising criteria rather than focusing on running ads across a site that meets your criteria.

There are opportunities for manipulation and arbitrage from the middle men in these transactions with display inventory. This is due to the large gaps in what advertisers are willing to bid and the fact that there is more inventory than there are advertisers looking for placements.

Take the following scenario for example:
An impression shows up for bid. It has the following attributes:

  1. Female
  2. 24 years old
  3. $60,000 income
  4. Orlando DMA
  5. Has kids
  6. Apparel Shopper
  7. Health club member
  8. Impression is 300×250 pixels
  9. Site category is entertainment

Four advertisers participate in the auction:
Advertiser 1: Pampers bids $1 because they want to sell her diapers as she fits in their new mom demographic.

Advertiser 2: Piperlime bids $10 because they know she has purchased from their site before and was recently at their site looking at clothes and she fits in their typical young female demographic.

Advertiser 3: 24 Hour Fitness bids $5 promoting their time sensitive campaign to promote their new gym in her local Orlando neighborhood.

The agency acting as the middleman handling these bids from the advertisers and deciding which one will get the placement have their own margin constraint and internal auction. There’s no reason that an agency using a DSP couldn’t withhold bids from its stable of advertisers so that only the top bid available for any advertiser for each impression would be placed. They want to take home the biggest markup on the media as possible. So if the publisher asks $4 for the impression then the agency will choose to place the Piperlime ad because they stand to make the most profit – the difference between $4 and $10, even if the 24 Hour Fitness ad is more relevant.

At the end of the day the advertiser may not care because the decisions of the agency are ultimately held to the goals of the advertiser, and if those goals are met who cares how much the agency takes? The problem is they are leaving volume and potentially higher quality placements/users on the table because the placement doesn’t meet the margin constraint that the agency has in place. Ask for this level of transparency from your real time bidding DSP agency and you likely won’t get it because they don’t want you to know how much they are serving their own interests before yours.

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Optimize Keywords With Top Vs Side Report

An ad that is shown in the top position usually has a much higher click through rate than an ad shown on the side. If you could get your highest performing keywords in the top position more often it can pay big dividends in volume and revenue.
How do you identify those keywords that aren’t showing up in the top position as often as they could and bid them to the top spot accordingly?

1. Download a keyword report for the last 30 days with the the Segment Top vs Side.

2. Create a pivot table with the data from the report and then build the pivot table like this.

This will allow you to see each keyword’s top and side metrics on one row.

3. Copy the new filtered table over into a new worksheet so you can add new columns and filters.

4. Make a new column Percent Of Conversions Top which takes the Total Sum Conversions divided by the Sum Of Impressions for Google Search: Top.

5. Make another new column Percent Of Impressions Top which takes the Total Sum Impressions divided by the Sum Of Impressions for Google Search: Top.

6. Now if you filter your new column Percent Of Conversions Top for greater than 50% and your Percent Of Impressions Top for less than 50% you’ll see the keywords that get more than 50% of their conversions from the top position but get less than 50% of their impressions from the top position.

7. Now if you take the difference between the Sum of Avg. CPC Top and Sum of Avg. CPC Other you will get the difference in (estimated) bid increase to get more of those impressions from the side to the top.

In the below screenshot the first keyword has 82% of its conversions coming from the top but only 28% of impressions coming from the top, and the difference between the average CPC of top and side is only $.07. So with a small bid increase this keyword could improve considerably.

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PPC Diminishing Returns

Paid search is subject to the law of diminishing marginal returns where the last dollar spent has a lower ROI than the first dollar spent because the most cost-effective keywords are always purchased first.

There are two constraints at work here: budget and search volume. With a limited budget you will bid on the highest returning ROI keywords first. When you have a high impression share on those keywords and more budget, you’ll start expanding into different keywords – inevitably you start bidding on keywords that have lower ROI. Revenue goes up but ROI goes down.

The challenge is to decide which is more important – more revenue or or more margin dollars. You can’t have both.

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In Between Brand Advertising and Direct Response Advertising

There have been two main points of view with marketing a new product: Elevate The Brand vs. Sell The Product or Go To Market vs. Go To Customer.

Elevating the brand is the sexy side of marketing. These are TV commercials, YouTube homepage takeovers and big interactive social engagement plays. All of these initiatives are centered around the kinds of things they teach in marketing classes in college – market segmentation, product differentiation and value propositions.

Selling the product is about waiting until someone is ready to buy instead of persuading them to buy. This is the direct response type of advertising where every dollar spent is expected to bring in an anticipated return – paid search, display remarketing, email and affiliate marketing.

I think there is place neglected by brand building and direct response that is often overlooked in between both strategies.

In Between Brand Advertising and Direct Response Advertising

Big brands ignore his middle opportunity because all they know (TV and print) is what they’ve been doing for decades. And the people focused on selling the product don’t tread in the middle opportunity because they are tied to really efficient return goals.

This middle ground is based on broader and more generic search terms, display advertising with layers of inferred and expressed data, content and social marketing based on micro-conversions, etc.

This middle ground is more measurable than brand building but also more costly than a lot of direct response advertising. Its conducive to a/b testing and optimization but less sexy. It’s more targeted and relevant but casts a smaller net. Ad Agencies don’t want to touch it because its not showy enough and can be easily pulled apart with data. Direct marketers don’t go there because it brings down their remarkable ROIs.

Yet I think this is place where a disruptive brands can win.

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Online Marketing Growing Pains

For years direct response marketing online via paid search, seo, email, affiliate and comparison shopping engines have been very efficient and predictable. But we are currently in a transitional time for online marketing where these modes of advertising are not as efficient or predictable as they used to be. There are two changes that are causing a shift.
First is the attribution problem caused by the increasing amount of sources that a person uses before they purchase which dilutes direct response profits. According to a study by Google, people use more than 10 sources of information to arrive at a purchasing decision. And this trend is only going to increase. What does this mean for direct response mediums online?: the constant feeling that you aren’t getting full credit for your spend, but you’re not quite sure what level of credit you should be taking.
Second, mobile costs and click-throughs continue to grow but the return on investment isn’t growing with it. Customers are using mobile devices in droves but  but advertisers are not yet convinced that they are as effective as desktop ads.
From The New York Times: “People click on ads on smartphones more often than they do on desktop computers, 5.1 percent compared with 2.4 percent of the time, according to Marin Software, which makes technology for advertisers to use to buy ads on Google, Bing, Facebook and other sites.
That is because ads take up more space on cellphone screens and are more likely to answer the kinds of immediate questions asked on mobile devices, like “Where is a bar near the ballpark?” said Gagan Kanwar, director of research and partnerships at Marin.
People make purchases after clicking on ads 4 percent of the time on desktops and just 2 percent of the time on phones, so mobile ads are worth less, he said.”
Online marketing budgets are made with specific returns in revenue in mind which is very different from traditional tv, radio and print advertising where the main objective is to build the brand and occupy more mindshare of the customer. When online marketing direct revenues go down, spend goes down with them – if it’s not providing the return than stop spending – a different mentality than traditional advertising. Even though those marketing dollars may still be driving sales, its harder to measure the return because of mobile and attribution problems.
I don’t think this funk we’re in is here to stay however. Technology will catch up to the customer again and allow the kind of tracking necessary to prove results. Once we start using our phones to make purchases, a lot of the attribution problems with mobile will be solved. A purchase with a phone will close the loop on the user who saw an ad on that same phone. Customer Relations Management technology will improve so that unique identifiers will be assigned to a user so all their actions across devices and programs will be identified.

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Balancing Paid Search Volume And Profit

Quality Score, CTR, conversion rate, – all are a means to an end. The end for all paid search is profit. If you know what your costs of good sold is and what your cost per conversion is, then add them together minus your revenue and you can determine what your profit is. The trick is figuring out what the optimal balance is between volume and cost per conversion.

The more willing you are to have a higher cost per conversion the more volume you will do and the more profit you will make. But at some point there is a diminishing return where the extra cost per conversion is not made up with the addition conversions it brings.

Below is a graph showing where the sweet spot is – where cost per conversion allows the optimal amount of volume.

Balancing Paid Search Volume And Profit

If only paid search were as easy as deciding how much volume you want along with your desired cost per conversion. Unfortunately you can’t control how many people search using your keyword and of those how many click on your ad, but you can have this model in mind and constantly tweak bids in an effort to find the sweet spot.

Download the xlsx file I used to make the graph

 

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Online Marketing Attribution Is Not Getting Easier

“Only half of advertising works, but the trouble is knowing which half.” Online marketing has long been heralded as the cure for knowing which half is wasted because it’s so much more trackable. But I don’t think the problem of accurately attributing marketing spend to increased revenue will ever be fully solved.

sources of research

People use more than 10 sources of information to arrive at a purchasing decision according to a study by Google. With that many sources of information you can forget about ever being able to quantify every interaction let alone rank the importance of one interaction over another. Compound that with multiple computers (shopping at work, buying at home), multiple devices (searching on mobile, buying on tablet), online and offline (shopping online buying in store) and it’s a big mess.  Even if you were able to capture every source there are the seasonal outliers that change customer behavior that your advertising is not responsible for such as seasonal differences, changes in product price, changes in what competitors are doing, and constant finicky consumer taste.

There is no shortage of tools to help you see a portion of the path that a customer uses so that you can quantify the total value of a keyword  as an introducer, influencer and closer but all of those labels need to be taken with a big grain of salt.

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Same Keyword Sales

Retail stores have an important metric called “same store sales” which measures the percentage of change in revenue for stores that have been open for more than a year. This statistic allows you to determine what portion of new sales have come from sales growth and what portion from the opening of new stores. Although new stores are good, eventually there is a saturation point where more stores won’t be sufficient and growth will rely on growth of existing stores.

I think paid search should have a similar metric. Is the account growing because you are getting more efficient or are you just adding more keywords? New keywords are good but what money are you leaving on the table due to less than optimal use of current keywords because you’re too focused on constantly adding more? On the other hand, are you adding new keywords so infrequently that the potential for growth is limited?

Download two months of your account and do conditional formatting to highlight duplicates, then filter the keywords to see total revenue from new keywords month over month compared to same keywords.

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Self-Obsessed Social Media Marketing

Is anyone else ever annoyed with these self-obsessive tendencies of brands on social media: retweeting every positive mention about themselves, uploading every product image on their site to Pinterest and Instagram and posting nothing but product updates to Facebook?

There is more to social media than trying to remind people that you exist. Instead of doing nothing but talk about yourself, find some content that aligns with your brand purpose and give people something they would want to share.

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Self Expression Through Curation

People are already loyal to the purposes they believe in; when a company’s purpose aligns with ours they give us a way to manifest our purpose. They give us an emblem or symbol for telling the world who we are and what we believe in.

Now that everyone is a publisher of content via Facebook, Twitter and Pinterest we all have mediums to express ourselves and our purposes, through the content we curate. Brands interested in having their followers re-share the content they post need to think in terms of whether or not re-sharing it will allow their followers to express their personal purpose.

I think most people are realizing that what they share says something about themselves that other people, mostly strangers, will use to judge them. Liking something on Facebook to get a coupon says something that that person might not want to be said about themselves. People curate content for their own personal brand just like big brands do and are just as concerned with being “off-brand”.

I think self expression through curation is one more important filter to consider in deciding what a brand should post.

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