OMG: Why brands need performance marketing

Online performance marketing (OPM) brings together activities across a range of digital channels, from mobile to social to SEO, with one thing in common – payment is required only when a particular action is delivered. Hence the performance element – the client pays to the extent that the campaign performs.

Sharing the risks

The value of performance marketing is that the risk is shared between the brand and the publishers that promote it. This is why it is typically funded from sales rather than marketing budget. 

Nearly all brands have digital campaigns and their success is measurable to some degree. However, the costs and the risks associated with their returns are borne entirely by the brands. 

With performance marketing, how much risk the publisher takes on depends on the campaign. As you move up the value chain, more risk is shared by performance publishers. In a cost per thousand impressions campaign (CPM), the brand typically takes all the risk. A cost per download, lead or application campaign shares the risk between both parties. And a cost per acquisition (CPA) campaign places the risk squarely with the publisher. In all cases, the performance model gives publishers an incentive to make sure advertising is targeted to the right audience.

This isn’t to say that performance marketing is risk-free – cannibalisation, transparency and best practice can all be concerns. And to manage CPA effectively, brands must know the value of sales across all channels. The keys to managing these risks are robust tracking and analytics, effective publisher management and consistent performance monitoring.

That is why performance marketing should be part of an integrated strategy. It is most effective when used to support the digital channels already in the mix and improve their returns.

Same investment, superior returns 

The shared-risk model helps explain why brands can realise better return on investment (ROI) from performance marketing than with almost any other form of advertising. According to the Internet Advertising Bureau (IAB) ‘Value of UK OPM’ study, performance marketing delivers an average £14 return for every £1 invested.

For example, let’s look at a traditional paid search campaign. A brand allocates a proportion of its budget to search and in return it receives clicks to its website. Whether these clicks convert to sales is a risk that rests entirely with the brand.

Now add a performance element. With the same budget, the brand engages search affiliates to buy clicks on its behalf. But it pays affiliates only for sales generated rather than clicks received. This reassigns part of the risk to affiliates, protecting the brand’s ROI. The affiliate has a greater likelihood of monetising the click by offering a variety of products to the consumer, whereas a brand buying the same clicks would have a proportion of customers that would not buy their product, but would still pay for clicks received.

Using performance mechanisms across the digital marketing mix makes prospecting, engaging and acquiring customers far more efficient and financially attractive. Brands do not necessarily take the risk of marketing costs – just the risk of engaging or acquiring customers.

Flexibility and scale

Shared risk and higher returns mean that brands can afford to use a wider range of channels and campaign types. Performance marketing can focus on a host of measurable actions, from views, impressions and downloads to registrations, leads and applications – not to mention sales.

For example, some verticals have been slow to adapt to mobile but they have still been able to grab a respectable mobile market share by using performance marketing. One global banking brand used a cost per call campaign
to target mobile search users. It achieved an ROI of 16:1 – better than it got from its own paid search campaigns or price comparison sites. Performance marketing let it engage very effectively with mobile users for a relatively small investment.

Diversity and reach

This flexibility makes it easy for brands to use performance mechanisms across a range of channels and reach their desired customer demographics. The IAB study found that more than 50 per cent of consumers surveyed use OPM sites. What’s more, the same proportion had engaged with new brands during their visits, showing the incremental power of performance marketing.

Do not underestimate the power of some publishers to target relevant consumers in a highly cost-efficient way. Cashback site Quidco says it reaches four million consumers who earn £40,000 on average and spend an average £275 every month via the site. And that is not an isolated example: a leading voucher code site has a user base of about seven million consumers, while a leading email publisher offers the ability to target up to 15 million customer records based on data such as insurance renewal date or postcode.

Indeed, performance publishers work hard to stay ahead of the curve. Their success depends on driving targeted, engaged customers, no matter the device or vertical. That is why they are present across multiple devices and formats, including mobile, apps, mobile search and email. It is a powerful position to be in, with Yesmail saying 61 per cent of users already access email on their smartphones and Intelligent Positioning forecasts that mobile search will overtake desktop by 2015.

Another trend is programmatic buying, where brands ‘bid’ in real time to have their ad displayed to a specific user. Programmatic buying reaches millions of targeted prospects and the display budget works harder too, with programmatic publishers working back to a CPA to ensure good ROI for brands.

Tapping into this diversity has two key benefits. First, brands can reach segments that are otherwise too difficult or expensive to engage. Second, they can reduce their reliance on dominant channels such as price comparison sites, helping to achieve a balanced, sustainable strategy that drives lifetime value.

The digital landscape continues to evolve. People are consuming a huge range of media formats, across many different devices. Performance marketing gives brands the ability to reach them through the channels they prefer, delivering measurable engagement and acquisition. Best of all, it allows brands to share the commercial risk while still reaping the reward.