Performance marketing has brought together activities across a range of digital channels, from mobile to SEO to social. All these activities have one thing in common – payment is made only when a specific activity has been delivered. This means that the client pays till the campaign performs.
Sharing of the risk factor
The best part of performance marketing is that risk is shared between the brand and the agencies that promote it. This is why brands choose to fund it from sales rather than marketing budget. All the brands use digital platforms to market their ad campaigns and their success is quantifiable to some extent. However, the expenses and the risks involved with the returns are entirely borne by the brands.
In performance marketing, the amount of risk borne by the publisher depends on the campaign. As you climb up the value chain, the shared risk is also increased on the publisher’s part. The brand takes the entire risk when it is a cost per thousand impressions campaign. The risk is shared between the two parties when it is a cost per download, lead or application campaign. But in case of a cost per acquisition (CPA) campaign, the risk is mainly on the publisher. In all these campaigns, the performance marketing model encourages the publishers to ensure that the advertising is targeted to the right audience.
Performance marketing cannot be deemed to be free from all the risks. Some of the main risks include transparency and reduction in the sales volumes. Moreover, for an effective management of CPA, brands need to know the value of sales across all the channels. So, the key aspects of managing these risks include having a strong tracking and analytics, consistent performance monitoring and effective publisher management.
Therefore, having a robust performance marketing should be an integral part of the marketing strategy. It is an effective tool to monitor the digital channels that have already made their place in the marketing mix and improve their ROI.
Same investment, big returns
The risk sharing model helped in understanding why brands can earn better returns on the investment by incorporating performance marketing. According to a study conducted by the Internet Advertising Bureau (IAB) UK, performance marketing has the potential to deliver an average of £14 return for every £1 invested compared to other advertising forms.
Taking an example of traditional paid search campaign, the brand invests a portion of its budget towards search and in return it receives traffic to its website. But whether these clicks or leads convert into sales is a big risk which is entirely borne by the brand.
If you add the performance element with the same budget, the brand engages search affiliates to buy clicks or leads for its behalf. But it pays only for those leads that have been converted into sales rather than clicks. This reallocated the risk on the part of the affiliates, conserving the brand’s ROI. There is a greater likelihood of getting your clicks monetized if you offer a variety of products/services to the consumer. On the other hand, a brand buying the same amount of clicks would have a portion of customers who won’t buy their product, but the brand still pays for the clicks received.
By making use of the performance mechanisms in your digital marketing strategy increases the prospects of conversions, customer engagements and sales more efficiently. It is an attractive tool from the financial point of view as the brands do not have to take the risk of marketing costs, but only the risk of engaging and acquiring customers.
Flexibility and scale
Shared risk and higher returns on investments mean that brands can choose to use more channels and explore other campaign types. The role of performance marketing is to focus on quantifying the actions, from impressions, views and downloads to leads, registrations and applications.
There are some verticals that have taken their own time to adapt to mobile, but they have managed to grab a significant market share in the mobile segment with the help of performance marketing. One of the best examples is that of a global banking brand, who invested in a cost per call campaign to target users who use mobile search. The return on investment was 16 times more than the investment. Performance marketing allowed the brand to engage with the customers more effectively compared to relatively lesser investment.
Diversity and reach
The flexibility offered by performance marketing makes it easier for the brands to use various performance-based mechanisms across different channels and reach out to their target audience. According to the IAB study, more than 50 percent of the consumers that were surveyed use online performance marketing sites. Almost similar proportion of consumers also engaged with new brands during their site visits.
Performance marketing is indeed a powerful tool to target the right consumers in a highly cost effective way. Performance publishers also have a key role to play here. A cashback site Quidco reaches 4 million consumers, who spend an average of £275 per month and earns an average of £40,000 every month through this site. It is true that performance publishers work hard to stay ahead of the competition. Their aim is to drive the target audience, customer engagement irrespective of the device or the vertical. That is why these publishers are present on various devices and formats, including mobile, apps, mobile search and email. According to Yesmail, almost 61 percent of the users access email through their smartphones.
Employing a more diverse approach has two main advantages. Firstly, brands are able to reach the verticals that are otherwise difficult or expensive to engage. Secondly, they can reduce their dependence on channels like price comparison sites, rather helping them to achieve a balanced and a robust strategy.
The digital platform is continuously evolving. A wide range of media formats is being consumed by people across various devices. Performance marketing provides the brands with the ability to reach these people through their preferred channels, delivering quantifiable engagement and acquisition. The best part of performance marketing is that it allows the brand to share the risk while still earning returns.