How To Survive In A First-Price, GDPR World

Data-Driven Thinking” is written by members of the media community and contains fresh ideas on the digital revolution in media.

Today’s column is written by Jay Friedman, chief operating officer at Goodway Group.

Imagine it’s 2016, and a marketer is programmatically targeting EU consumers with behavioral data and buying those impressions on a second-price auction. When the marketer gets the consumer they want, they’ll pay one penny more than the second-highest bidder.

Now imagine it’s early 2019. The same marketer wants to run the same campaign, but instead of knowing the exact user they want to bid on, they’re bidding on a roughly modeled user. Not only is the user modeled, but the full bid that is put forth will be the price that is accepted in a first-price auction environment. Suddenly, the marketer is faced with less targeting accuracy and likely higher costs.

In today’s behaviorally targeted, second-price world, buyers bid high amounts for their perfect audiences and pay a penny more than what the rest of the market would bear. With the General Data Protection Regulation (GDPR) taking effect across the EU on May 25, not only are those audiences going to disappear, leaving bidding more blind, scattered and inaccurate, but now, as exchanges increasingly shift to first-price auctions, buyers will also need to carefully control their bids for accuracy.

The contrast between these two scenarios should worry buyers. Implementing one of these changes alone is hard, but both at the same time will make programmatic exponentially harder as the two factors build on each other to decrease ROI.

It’s too late for digital marketers to return to inefficient, time-consuming direct deals as an alternative. Fortunately, several strategies can help buyers deliver more value in programmatic in this first-price, GDPR world.

Leverage new data

The most pessimistic outlooks on GDPR posit that its strict opt-in policy will kill the third-party data market across Europe. Marketers seem well aware that the future of targeted media lies outside of cookies and behavioral data – eMarketer recently published a study in which more than 60% of respondents said they would not need to rely on cookies for digital marketing within the next two years.

There are many arguments about the quality of third-party data across the industry, going back well before the GDPR. While much of the criticism is fair, you’d be hard-pressed to find many marketers who would rather have their option to use the data stripped away. In the event that it does diminish, marketers need to be resourceful.

The old world allowed marketers to get away with reaching consumers using either behavioral, contextual or another kind of targeting. But in the GDPR era, where behavioral data may be lacking, contextual data alone will not be enough to succeed. Layering multiple types of data for targeting will be a requirement going forward. Marketers can start by combining contextual signals plus psychographic data. Combinations like this are the beginning of the path to get us near the accuracy and value that marketers have received from third-party behavioral data.

Marketers shouldn’t forget second-party data either. Publishers have spent a decade slowly understanding and leveraging the audience insights and immense value of their own onsite data. That value is primed to explode if there is any decline in the amount of third-party data available to use.

There is also a lot of good data buried in the raw logs of a bid stream. Marketers should look at this information now, before GDPR goes into effect, to identify where their best users are going online and which sites they visit before they convert. They can use this information to build site and categorical profiles of their best customers, which creates a click stream targeting function.

That can then be used as part of the layering process, ensuring great targeting accuracy. Most major panel-based data companies already have this information, and theirs is much more complete for each of their users, although the scale will be smaller.

Bid smarter

Let’s move on to bidding strategy itself, which is paramount in first-price auctions. Very few buyers have built bidding technology sophisticated enough to appropriately value an impression pre-bid. That means most buyers are overpaying. It’s the degree to which they’re overpaying that varies, and if a marketer doesn’t have a grasp on that now, it will spiral out of control very quickly.

To bid the correct value, marketers must be sure that the bid will return fair value. In other words, marketers should know ahead of time that an $X CPM bid will deliver the required return on ad spend. This is the bare minimum right now, and it will only get more important as first-price auctions become more commonplace. Reckless bidding will turn into a budget killer fast.

Bidding correctly also requires increased sophistication from the buyer, whether that’s a marketer or agency. Upfront deals and programmatic guaranteed rates will not cut it anymore. Buyers need predictive bidding to ensure they’re bidding a smart price with a high chance of winning the auction.

Deep analyses of the bid-rate-to-win ratio will help identify price floors and establish the lowest possible price a buyer can – and should – pay for an impression. This is hard work but doable, and it pays dividends to those who take the time to do it. When buyers understand where to bid, they’ll unlock more value in the long term.

Above all else, marketers targeting EU consumers need to enter the new first-price GDPR era with a plan in place. To date, it’s been possible to run successful programmatic campaigns without putting a lot of work toward a bid strategy or exploring alternative data sources. Marketers will now be forced to confront both issues simultaneously, and those who think they can rest easy and continue to do things the old way are in for a rude awakening.

Those who invest time and strategic thinking are likely to experience minimal decline in their accuracy and ROAS, even if the direst GDPR scenarios come to pass.

Follow Jay Friedman (@jaymfriedman) and AdExchanger (@adexchanger) on Twitter.

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