Programmatic Buying 101: The Cost Efficiencies

Up until a couple years ago, buying and selling digital ad inventory was transacted through traditional insertion orders and person-to-person negotiations. Now, the prevalence of programmatic advertising has completely changed the way publishers and advertisers buy and sell ads. In fact, programmatic is poised to make up 73% of all US display ad spend in 2017, increasing to $27.47 billion from $22.10 billion in 2016.

In simplest terms, programmatic is defined as the automated process of purchasing and selling ad inventory. Programmatic revolutionizes media buying, providing serious advantages over the traditional segment-based buying. Automation, access to increased ad inventory and enhanced targeting abilities have facilitated more cost efficient means to reaching the most relevant audience.

Programmatic Is Automated

Just over 15 years ago, agencies and advertisers only had the opportunity to choose from a few partners, such as MSN or AOL, in order to execute digital ads. Now, the ecosystem has countless layers of complexities on both the marketer and publisher sides. This process has become democratized, and it’s now more about strategically defining audiences for the most optimal targeting opportunities.

Before illustrating the opportunities and efficiencies of either, let’s begin by defining direct versus programmatic. Direct publisher buys involve a request for proposal (RFP), human negotiation and manual insertion orders with each individual publisher. On the other end of the spectrum, programmatic leverages software to buy digital ads in real time, which can increase targeted audience reach by 30%.

In today’s digital landscape, the majority of advertisers have access to almost all of the same inventory, which in turn increases competition. Direct and programmatic ad buys offer different advantages, but programmatic advertising introduces unparalleled targeting capabilities at the most efficient price.

Automated technology drastically improves efficiency of the whole campaign process from inception to execution. This means that advertisers can gather and analyze data in real time, which ultimately helps develop insights that can be used to optimize campaign performance.

Increased Access to Inventory Decreases Price

There has been a paradigm shift in access to ad inventory as more and more publishers opt into programmatic ad networks to sell premium advertising. As larger segments of the market adopt programmatic, prices for inventory decrease with more availability for buyers. Programmatic transactions and strategies will continue to grow over the next couple years, bringing more efficient and scalable ways to purchase premium inventory.

Programmatic inventory has been regarded (or at least associated) as only being limited to remnant inventory, but this isn’t necessarily true. Remnant inventory is defined as ad space on a publisher’s site that hasn’t been able to sell, so it historically is given a lower cost. Contrary, premium inventory is ad space on a publisher’s site that is deemed high quality, and subsequently more expensive. The reality is that some publishers might only sell their inventory through programmatic channels, since smaller or niche publishers might not have the dedicated sales team and manpower to execute direct buys with advertisers. Even so, ad platforms such as Rubicon Project, implement smart technology to combat a buyer’s exposure to lower quality inventory.

Programmatic Has Enhanced Targeting Opportunities

Programmatic has quickly become known for its granular targeting opportunities that allow advertisers to reach their target audience in real time. Users can be hyper-targeted in several different ways, including:

• Audience: demographics, or who your users are
• Behaviors: what actions your users have taken
• Context: the subject or topic of the online content users are consuming
• Intent: keywords your users have searched or products viewed
• Location: where your users are, based on mobile device GPS
• Beacons: granularly target as finite as an aisle in a grocery store

With programmatic, advertisers are buying where their target audience actually is rather than buying direct to site. For example, instead of directly buying from ESPN.com and assuming your target audience is consuming that content, advertisers can programmatically purchase ads based on where their identified target audience is. This minimizes the amount of media wasted, which enhances a campaign’s performance and maximizes budget.

One of the benefits of programmatic is that publishers can now access data that they wouldn’t have with traditional ad buying. Advertisers can implement a combination of first, second and third party data in order to maximize opportunity, optimize for precision and increase scale. For example, your brand can combine its first party data with publisher first party data to granularly target the audience you’re after.

The result of automation, increased access to ad inventory and enhanced targeting? Lower cost and increased efficiency.

The Cost of Inventory: Programmatic versus Direct

Programmatic ads are typically the fraction of the cost of a direct buy, and offer unprecedented levels of targeting that were historically unavailable. These ads are either sold on a CPM (cost per thousand impressions), CPC (cost per click), CPA (cost per action) or CTC (click through conversions) basis. However, the majority of programmatic ads are sold using the CPM model.

A CPM can vastly range depending on the list quality and degrees of targeting, so it goes without saying that better targeting and higher quality will succor the more expensive price tag. Furthermore, price is also determined by industry, device, format and placement on a page/publisher. On average, programmatic CPM’s are within the $0.50 to $2 range, versus the average $10 CPM of a direct buy.

In terms of cost efficiency, programmatic actually helps advertisers and brands extend the boundaries of limited ad budgets 10 to 20 times farther– which is conducive for small to medium-sized marketers!

How Programmatic Inventory is Sold

Inventory can be purchased on a reserved (guaranteed to show) or unreserved (contingent upon excess inventory available to satisfy a request) basis. Pricing can can be:

1) Fixed: set rates, impressions or budgets

2) Auction: the price is determined by the highest bidder

In Conclusion

While programmatic advertising isn’t a proverbial bed of roses, it does secure lower CPMs and more targeted placement in real time. According to a recent Boston Consultant Group report, “On average, the results of BCG’s test-and-control methodology across five brands reveal that advanced techniques garnered a 32% decrease in cost-per-action (CPA), as much as a 200% improvement in action rates for clicks and view-throughs and up to a 70% reduction in cost-per-click (CPC) and cost-per-view (CPV).”

Programmatic advertising seeks to make digital advertising more efficient by leveraging real-time data in order to reach consumers with the most relevant message at the best time. At a higher level, employing programmatic is an expensive feat if a brand was to attempt execution in-house, since all the necessary platforms and technology integrations are pricey. While outsourcing programmatic isn’t right for every client, allocating resources to skilled agencies or partners with the intellectual capital and knowledge, such as Katana, might be the right approach to execute programmatic buys.