This post is actually a re-post – perhaps one of the first re-posts ever using the new LinkedIn publishing feature.
I share co-author credits with Jodi Swartz on this one – we originally submitted this to LeadsCouncilback in April 2012.
But it’s timeless…
Direct-response marketing is designed to generate an immediate response from consumers that is measurable and attributed to individual advertising campaigns. How large is direct-response marketing in the online world? In 2011, advertisers spent $30B in online advertising and direct-response marketing lead the growth in spending at $19B (or approximately 60% of market share). That’s no small potatoes.
What does this information mean to us online marketers? It means that CMOs, Directors of Marketing, and Marketing Managers are under increasing pressure to show measurable ROI on their advertising spend and that pressure trickles down to us. We are responsible for not only providing them with strategies, but more than ever with results. We are in a unique position. We work in an industry that is thriving because its leaders are constantly innovating and blazing paths to meet the needs of online advertisers, so that they, in turn, can do better work, do more with less, and get the credit they deserve.
As our industry evolves, so do the people we serve (the advertisers), and the people they serve (the consumers), and vice-versa—all in one beautiful data-driven feedback loop.
Together, let’s take a look back, so that we have a clearer vision as we look forward.
It’s well established that the business of online advertising was initially based on a system most familiar with buying and selling print advertising. Since early Internet users were limited to browsing content, it made good sense that those looking to capitalize on those consumers (AKA: advertisers) paid content developers (AKA: publishers) based on reach and frequency of the content (AKA: impressions). The business model used to unite advertisers and publishers in the offline world of newspapers and magazines was to charge advertisers on a CPM (or per thousand impressions) basis. This pricing model made sense to advertisers and publishers offline, and, at the time, provided the most logical pricing model for online inventory as well. And, as in the offline world, online publishers who had greater reach and frequency and/or who commanded a highly valuable or demographically-targeted audience segment were able to charge a premium CPM rate for advertising on their site. The CPM model was utilized by portal sites with recognizable brand names such as Yahoo.com and MSNBC.com, as well as major well known offline media giants like CNN.com and ESPN.com.
At the most basic level, this model worked and still does for many brand advertisers. However, direct-response advertisers (those whose successes are dependent on eliciting an action from a consumer) soon realized that simply “showing up” did not take full advantage of what the online medium had to offer—nor did it contribute to their bottom lines. They needed a better way to ensure a yield on their advertising spend; they needed a way to make the publishers accountable, too.
As the Internet evolved, so did content development and consumers of content. Links within and between pages and sites changed the way consumers engaged with content. Consumers were no longer passengers on the information superhighway forced to consume what was presented to them, they were now the drivers. They had options, the ability to make choices, and act on them. Advertisers, aware of this momentum (and realizing there was no going back…that this was just the beginning) were no longer satisfied with their ads just being seen, they wanted their ads to be clicked and linked to pages where more information could be presented.
The introduction of the disruptive Cost-Per-Click (CPC) pricing model responded to that battle cry. CPC was first introduced by Advertising.com in 1998 but was made famous by Google in the context of Search Engine Marketing in 2001. With CPC, advertisers only paid if their advertising was not simply seen but if it provoked a response (in this case, a click). For direct response advertisers, this model provided a more quantifiable method for establishing publisher value and ultimately helped get them one step closer to answering the question that keeps every marketer up at night: “what are you willing to pay to acquire a new customer?”
Although CPC pricing changed the game for advertisers and publishers, it did not render CPM obsolete. Publishers with the highest quality traffic could still charge a premium CPM, however those publishers perceived as less valuable reluctantly adopted the new model in order to sell inventory that would otherwise have gone unsold on a CPM basis.
The desires and demands between brand advertisers and direct response advertisers also became more distinct. Brand advertisers were mostly concerned with eyeballs, whereas direct response advertisers focused on clicks and, more importantly, actions beyond the click. Using online forms to collect information about consumers—like a business reply card in a magazine—further opened opportunities for engagement between advertisers and their target markets and provided another measure of performance accountability between advertisers and publishers.
Just as CPC redefined the model of its predecessor CPM, Cost-Per-Action (CPA) and Cost-Per-Lead (CPL) redefined the model of CPC—and helped our weary marketer get closer to answering the nagging question about what it costs to acquire a new customer.
Measuring ad effectiveness under a CPA model meant that advertisers only paid for advertising that generated the desired actions…and actions ranged widely. Beyond the impression and click, actions were defined by the advertiser and included anything from a user landing on specific page (a “landing page”), to clicking through a series of pages on a microsite, to filling out a form, to completing an online transaction.
And, the hair splits again. And it splits right at “filling out a form.”
On the web and mobile web, if a completed form also represents the end of the sequence (AKA: a transaction or sale) then the end of the advertising funnel is reached. Together, the advertiser, publisher, and consumer went from CPM (impression), to CPC (click) to CPA (action, or in this case acquisition). Supply meets demand. Everyone is happy.
However, if the ultimate transaction is NOT complete when the form is completed (in other words, the action results in a lead), then the journey through the funnel continues until acquisition is reached.
A lead is an expression of interest by a consumer in an advertiser’s product or service offering and, in the online advertising world, is quantified by the completion of an online form—on an advertiser’s or aggregator’s site. The space between the completion of the form and the acquisition provided the opportunity for the birth of a new pricing model—Cost per Lead (CPL).
With CPL, advertisers were willing to pay a premium because, unlike a click, leads provided the advertiser not only with an actual interested consumer and their contact information. Additionally, the model was highly predictable and scalable. Through a simple calculation, advertisers could assign a certain dollar amount to spend (X), feel confident that that spend would generate a certain amount of leads (Y), and by diving that spend (X) by the number of leads (Y), Cost-Per-Lead was established.
This model worked especially well for verticals like mortgage, finance, and education, which represent high-value/considered purchases by consumers where the actual transaction took place offline or by phone. Lead giants LendingTree, QuinStreet, ClassesUSA and LowerMyBills are considered industry pioneers of the CPL pricing model and continue to be some of the largest players in the market today.
CPL moved the needle another step closer to answering the marketer’s question of customer acquisition cost.
But, what about those advertisers who couldn’t complete the transaction online and required offline engagement with the consumer to close the sale? What if these advertisers also wanted to increase their sales while reducing “sales waste” (chasing down consumers by phone, leaving voicemail after voicemail, and dialing fax numbers instead of phone numbers, etc.)? And, all the while desired the simplicity, scalability, and measurability of the CP[X] model they enjoyed with the online models?
The Cost-Per-Transfer (CPT) pricing model pioneered by DoublePositivein 2004, bridges the gap between online advertising activities (CPM to CPC to CPA/CPL) and offline sales. Consumers express interest in more information about a product or service by submitting an online form (or calling a toll-free number from a website). That data is gathered and sent to a call center in real time. The call center agent contacts the consumer, verifies the consumer’s information and confirms their interest in speaking with a representative (agent, salesperson, or counselor) at the advertiser. The call center agent transfers the call to the representative (along with the data provided by the consumer), and the sales process continues between the advertiser and the consumer. This model is widely acknowledged for increasing at the efficiency of the advertiser’s sales force (more sales with the existing team over the same period of time) and increasing lead consumption (contacting, qualifying, and confirming a consumer’s interest takes time and limits the volume of leads a sales team can effectively consume),thereby decreasing ultimate cost of sale through lower operating costs.
But what about all those folks not available on their home phone, or who exclusively use a mobile phone for both calling and web browsing?
How has the online advertising model evolved to meet the demands of advertisers selling products, publishers selling online real-estate, and consumers who are on the go?
Pay-Per-Call (PPC), pioneered by Marchexand Ingenio, and in particular Mobile Pay-Per-Call (MPPC), pioneered by DoublePositive, represent the newest disruptive pricing and lead generation models. MPPC responds to the massive shift in browsing behavior towards the mobile web and consumer preference to drive the experience by making a phone call.
Advertisers place mobile ads on a smartphones via mobile publishers’ websites and mobile applications. The consumer sees the ad and clicks it thereby initiating a real-time telephone call to advertiser’s sales team. The advertiser only pays for the phone calls that meet certain criteria (such as a minimum talk-time duration), the publisher gets paid for doing good work, and the consumer connects in real time on their terms.
It’s an intriguing marriage of online advertising strategies and pricing models, combined with the immediacy and effectiveness of live telephone contact between advertiser and consumer, and impression inventory is growing quickly as more consumers embrace the mobile web as their primary outlet. Right place, right time, right tech.
Hmmm, sounds familiar. We’re drawn back to 1994—when the first online advertisement was launched by AT&T on HotWired—and we’re on the onramp for the information superhighway and wondering who else was hitching a ride.
So where does this leave us, today? Exactly where we started—on the precipice of something quite amazing. Don’t Panic. Keep evolving. :-)
Originally published on LinkedIn. Read and comment on the original article →