Cost-per-performance pricing models

Cygnus Business Media today announced that 67 of its trade publications are offering advertising based on pay-per-performance, fuelled by the popularity of this model online. A bold move for print!

It wasn’t too long ago that Google announced its CPA (cost per action) model and much frenzy resonated globally by those in favour as well as those against the model. For those not accustomed to the term, CPA simply means only paying when a certain goal has been met. This could range from a sign-up or a lead to a confirmed sale.

Google has historically only offered a CPC (cost per click) model, meaning advertisers pay each time someone clicks on their ad. Also available but less popular on Google is paying on a CPM (cost per thousand impressions) basis. What resulted from CPC models a few years back was a major outcry concerning click fraud. While Google claims to have adequate measures in place to combat click fraud, advertisers can never be 100% assured that each click is legitimate without implementing some form of reputable third-party tracking that alerts any fraudulent activity.

While the Google CPA model could well work to combat click fraud, there are many considerations to take into account. What if the consumer moves offline and concludes the transaction either in-store or telephonically? What if seeing the ad influenced their purchasing decision, but then they went directly to the site to conclude the transaction without clicking on the ad?

Without the necessary multiple tracking tools ranging from ad-serving technology to specific call-centre numbers, it’s difficult to accurately assess. And will Google be rewarded for those that don’t conclude the transaction online? Absolutely not. What will result is CPA advertisers not being favoured if the conversions are not tracked by Google, thus leaving advertisers no choice by to increase their CPA bids if they hope to achieve any favour.

On our local shores, South African publishers are well aware of this, and those that have tested CPA models have in most instances been burnt as they are held at the mercy of poorly converting websites. Internationally, networks and the like will not consider a CPA model until they have scrutinised the conversion path on the advertiser’s site and set the CPA cost accordingly. (The conversion path simply means the process a consumer has to go through from the initial land on the site through to the ultimate desired objective. This could, for example, be a concluded online purchase or a request for a quote). The lengthier or more difficult it is to convert online, the more expensive it becomes.

The other debate that often resonates locally is that of the value of branding. For an unknown brand that has not invested in building the brand, a CPA model is not going to be easy to accomplish unless a strong incentive is offered.

Affiliates, on the other hand, have offered CPC or CPA models for years. What marketers need to understand, however, is that the better the ability to convert online, the more favourable they will be with affiliates and the like.

Regardless of the purchasing model on which the advertising space is purchased, the ability to convert consumers once they reach the website is key. As we track through to conversion on all our clients’ online campaigns, we have the advantage of being able to assess what the CPA result is, regardless of the pricing model the space was bought on in the first place. This allows us to accurately monitor ROI (return on investment). We also monitor each step of a transaction process, thus enabling us to identify possible problem pages quickly and remedy these in order to push consumers through to a successfully concluded acquisition. Without the right technology in place, it is impossible to assess this.

Astute marketers are well aware what the value of an acquisition is. Working closely with marketers enables us to benchmark achievable CPAs and, ultimately, ROI. In many instances, buying on a CPM basis results in a lower CPA had the space been bought on a CPC or CPA basis. As with any online campaign, testing is crucial.

I do, however, believe it’s going to be some time before we see South African print companies offering CPA models!