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Programmatic Buying: Understanding the Relationship Between Quality, Supply & CPMs

programmatic buyingBetween DSP, SSP, CPM, DMP, RTB and more, it can be easy to get lost in the alphabet soup that is programmatic buying.

In the simplest of terms, this strategy is the act of using technology and data to choose and buy digital advertising space on the web. The process is often automated and occurs in real time as a collaboration amongst brands, marketing pros and advertising agencies.

According to AdAge, this advertising approach is on the rise. In 2011, spend on programmatic digital display advertising reached $1.1 billion. Projections for 2019 predict a whopping $45.9 billion in ad spend.

What is Programmatic (Advertising) Buying?

Marketing Week reported that this method of selecting and buying ads is continually evolving so businesses can reach the right audience at the right time with the right message. Control is put in the hands of the advertiser — which is a shift from more common publisher-guided ad buying experiences.

To facilitate this automated process, the advertiser (either a brand or agency acting on its behalf) uses a demand-side platform (DSP) to carefully determine which advertising impressions to buy and their cost.

On the publisher's side, a supply-side platform (SSP) is used to sell ad space to advertisers. In programmatic buying, the data from DSPs and SSPs are merged, giving a more complete picture of the advertising landscape. This provides valuable insight into where to position a message that's effective and pertinent for both the brand's and the publisher's goals.

All of this information is housed in a data management platform (DMP). According to DigiDay, these digital warehouses have the ability to finesse the information, making it more than just a database for advertising and marketing teams. Audience segmentation and cookies storage lay the groundwork for targeting specific users online.

Marketing Week noted that the Display Trading Council sums up programmatic purchasing as "the use of automation in buying and selling of media," and added that "programmatic can apply to anything from display to digital out-of-home and television."

The Quality of the Advertisement

When a visitor lands on a website or opens a mobile app and the page loads, programmatic advertising is related to many of the automated steps that occur behind the scenes, according to State of Digital.

The spaces the publisher has held for advertisements are carefully populated with ads from an exchange service that directly targets the specific user, based on personal data collected online. In a fraction of a second, an advertisement is shown by an advertiser who won a speedy, real-time bidding (RTB) war with other advertisers to show the user their content. That advertiser then pays the publisher for the privilege of renting space on their website or app to display the ad.

But, how is the ad chosen? To provide a top-quality user experience, publishers want ads on their sites to speak directly to visitors and their lifestyle or current interests. For example, it doesn't make sense to show an ad from a snow ski apparel brand to a user searching for Florida vacation packages on a travel agency website.

According to The Next Web, advertisements are targeted based on several factors, including:

  • Demographics
  • Algorithms that analyze past user buying patterns and predict future behaviors
  • Similar audience trends
  • The context of the content the viewer is consuming
  • GPS location from a smart device

Programmatic buying allows advertisers and publishers to generate and display advertisements that make sense to each individual user as they land on a web or mobile app page. This approach is highly customized and targeted.

How it All Relates to CPM

So, how does this automated and individualized process of selecting and displaying ads relate to the cost of advertising online? The industry standard measurements of cost per click (CPC), cost per action (CPA) and click through rate (CTR) still apply. However, the most widely accepted buying method related to programmatic advertising is cost per thousand (CPM), according to The Next Web.

CPM rates vary based on:

  • The level of targeting
  • The quality of the advertisers bidding against you
  • Industry
  • Ad format and type
  • Preferred placement on the publisher's page

Advertisers are exploring programmatic methods not only for real-time targeting but also for cost savings. The bottom line is that it's cheaper than manually placed ads.

When considering a way to reach your target online audience quickly and on a budget, programmatic advertising should be explored. Users love that the ads actually pertain to what they're exploring on the web. Publishers love the consistency of useful, helpful content being displayed on their websites and apps. And advertisers enjoy knowing they've directed their messages to the ideal viewers.

Even with the basics figured out, programmatic buying can sometimes feel like a daunting project. Talk to a marketing professional to learn more and explore a strategy that works for you.

Related Articles

How Programmatic Advertising Creates Value & Efficiency for Marketers

Programmatic Advertising: 5 Common Mistakes You Might Be Making

Programmatic Advertising Trends That Can Work for You

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