Considerations About Performance-Based Advertising Models

More than a hundred years ago, the founder of Walmart famously lamented: “I know that half of my advertising dollars are wasted, I just don’t know which half!”. Today, we finally have a marketing model that is making accountable advertising possible, and it is appropriately known as “performance-based advertising”! It is the holy grail of marketing: you advertise your product or service, but only pay when a measurable user action of some sort – resulting from that advertising – occurs.

Historically, the first performance-based pricing model was cost per click (CPC). In this model, advertisers would pay only when a visitor clicks on their ads. This pricing model still dominates paid search advertising, but its status is increasingly being challenged by cost per action (CPA) performance-based pricing model. In this model, the advertiser is charged when a specific action, such as an email list sign-up, download or purchase takes place.

Cost per action pricing model reduces the risk of paying for fraudulent clicks, shifting the risk on the publisher who needs to provide responsive visitors. It is easy to guess that advertisers prefer this pricing model over paying for clicks. Publishers are, on the other hand, understandably worried about the advertisers’ potential loss of incentive for converting their visitors into customers, possibly using this model solely to generate brand awareness – at the publishers’ expense.

Other pricing models include: cost per thousand (CPM), cost per impression (CPI), and cost per lead (CPL). Within CPA, CPO signifies cost per order.

For performance-based advertising to work, everything needs to be tracked, measured and analyzed. That makes it possible to put a price on any given advertisement on its performance basis, and create profit-driven advertising campaigns. Because of its effectiveness, performance-based advertising is spreading into other media too (mobile media, IPTV, even print).

There are still some issues that may arise from this advertising model. It has been observed that performance-based pricing mechanisms may induce companies to distort the prices of their goods in order to maximize profits. Since it is the user’s data that is being measured, there is a potential issue with the user’s loss of privacy. best iptv

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