“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 by Jaysen Gillespie, Director of Analytics and Business Intelligence at Criteo. It is a response to an earlier AdExchanger column by Tal Keinan, CEO of AdExtent (Read it: “DSPs Vs. Personalized Retargeters. One Step Forward, Two Steps Back?“)
“Transparency” is the hot buzzword these days. However, most vendors are applying the word to the wrong concept. A recent post from Tal Keinan, CEO of AdExtent, extolled the virtues of extending the reach of DSP-based advertising to include personalized retargeting in order to provide transparency. While I agree that personalized retargeting is a critically important component of any integrated marketing plan, I would argue that comingling a DSP-based upper funnel “prospecting” campaign with lower-funnel retargeting is a step backward in terms of real transparency. There are a number of reasons why starting with high-quality personalized retargeting is in fact the “two steps forward” the industry needs.
Transparent ROI
What has always mattered in performance marketing is return on investment. If you are getting a true 8:1 ROI with Vendor X and a 5:1 ROI with Vendor Y, it’s irrelevant how Vendors X and Y obtain internal margins with their respective technologies. Paid search vendors run high gross margins but still provide a solid ROI to clients.
Transparent Vendor Margins are the Real Sucker’s Bet
Transparent vendor margins, on the other hand, provide a client with a false sense of security about performance. In the internet of the past, where inventory was bought and sold on a CPM (cost per impression) basis, comparing vendors on a cost-plus-markup basis may have provided some insight into vendor efficiency. In today’s world of real-time user valuation and advanced predictive modeling technologies, cost-plus pricing allows vendors to execute profitably, even when their solutions are sub-par. If vendors can continue to garner a 20% margin based on inferior solutions, outdated technology will prevail over true performance.
Holding vendors to the highest possible ROI standard not only makes more sense for the marketer, but also allows vendors to do what they do best: leverage advanced technology, publisher relationships, and the entrepreneurial ecosystem that undergirds the advertising technology space to drive performance.
Transparent Methods Prove ROI
Personalized retargeting vendors know they have to prove their worth: ROI can’t be obscured by blended results with other marketing initiatives. The most structurally sound method for proving ROI is to split the cookie pool of site visitors into two mutually exclusive groups, with one group getting the personalized retargeting and the other group getting no personalized retargeting. The split must be truly random so that the composition of each pool is the same in every respect, and no other retargeting outside of the vendor under study should be applied to either cookie pool.
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Once the cookie pool is split, it’s easy for a vendor or client to track performance (conversions or sales revenue) in each group. The lift in revenue per unique user from exposed to unexposed groups provides the basis for calculating incremental revenue. True ROI is then a simple matter of total incremental revenue from the exposed group divided by cost. Strong vendors can perform this split and insert client-visible tracking codes, such as DART trackers, to bring full transparency to the process.
Many Users, Different Habits
A DSP can play an important role in bringing potential new customers to an advertiser’s website. However, once the new prospect has arrived, specialized retargeting companies are the most efficient solution for “closing the deal” with that new prospect. All-in-one solution providers run the risk of becoming the ERP systems of the online ad world (general solutions to specific problems). The online advertising ecosystem acts as a team, allowing the client to select the solution that meets their needs most efficiently for each type of customer the marketing strategy chooses to address.
One ROI Hurdle Rate For Each Unique User
Leading edge marketers are realizing that the days of having a marketing “budget” are long gone. Instead of allocating $X to retargeting and $Y to prospecting – or relying on a third party to shift dollars from one group to another, performance-driven marketers are stipulating what ROI or Cost-of-Sales needs to be hit and then go uncapped as long as results are exceeding those goals. Financially, this makes much more sense: If your business model is to allocate 10% of revenue to cost-of-marketing, you would want to spend as much as possible on a solution that generated a 12:1 ratio of revenue to cost. In effect, today’s budget-constrained marketers are doing just this by repeatedly extending the budget for solutions that scale and are above the desired return rate. This isn’t restricted to COS metrics, as many marketers have other metrics they measure success by. As long as they have a clear feedback loop and at least a basic attribution framework, this same approach can be extended in most cases.
The value that DSPs and other prospecting tools bring to advertisers is most clearly registered when the costs and benefits of upper funnel initiatives are separated from lower funnel results. Keeping a “best of breed” approach to marketing spend creates this level of transparency around the performance of each vendor. Such a separation also allows third-party attribution solutions to correctly attribute conversions to their respective vendors across the entire sales funnel.
Follow Jaysen Gillespie (@jaysengillespie) and AdExchanger (@adexchanger) on Twitter.
