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  • Dec 05, 2012

Advertisers who have discovered pay-per-click (PPC) advertising overnight become evangelists of ‘digital advertising’, virtuously declaring the control they have over their budgets and the ability to measure the ‘return on investment’ on their advertising spends.

True, the control and measurability turbo-charges the realised value of advertising, but, as usual, the enthusiasm needs to be tempered with a dose of reality.

The nub of the issue lies in the ‘click’. PPC advertisers pay only for the click an online advertisement generates. Implicit in this are two assumptions – one, since only those interested in the advertisement will click on the advertisement, and hence are likely to be warmer prospects than those who only ‘see’ the advertisement; two – all the clicks that are generated actually generate an evaluation of the offer conveyed in the advertisement, whether a transaction, (ie a response to an offer to buy, if not the actual purchase) or a proposition.

Beyond this is a third dimension that relates to the process – but, more about it later.

CPC a robust metric
Intuitively, it stands to reason that the propensity of an individual desiring to transact is greater among those clicking on a digital communication than those who do not. In a general sense this is probably right too, for, after all, why would anybody respond to something that he or she is not stimulated by.

Thus is born the metric of click and the cost it requires to generate the click, aka, cost-per-click (CPC), to evaluate the efficiency of the digital advertising.  This, by the way, is a significant improvement over the metric, cost-per-million (CPM) used in mainstream advertising, The CPM measures only the cost per a million impressions of the advertising delivered, irrespective whether or not the consumer responds or leave alone if he/she has actually seen the advertising. Given the import of this metric, CPM, the frenzied rush to buy advertising space in guaranteed block-busters such as a cricket match involving India is not surprising, since a spot on such a programme will almost always deliver a large number of eye-balls and consequently lower CPM.

CPC on the other hand, measures the cost of a consumer response. Thus, as a metric, CPC is more robust than CPM, since it represents an impact rather than an opportunity for an impact.

No such thing as an average CPC
But, this is where the good news ends. Typically, the CPC is computed on the average click-through-rate (CTR) of digital advertising.  Thus, obviously, if CTR can be improved, the CPC can be brought down.

In most buying situations though, the seller determines the CPC based on their metric of average CTR.  The average obviously is a via media, between impressions that have a high CTR and low CTR. Since media sellers want to maximize revenues, they would naturally peg the CPC rate most advantageous to them.

From the buyer’s view-point, however, it stands to reason that advertising on high CTR locations will lower the CPC. In such a situation buying advertising using the average CPC as the metric, may in fact be detrimental to the campaign., since the seller would be pegging the CPM rate at lower level than the CPC rate. However, with a higher CTR, the advertiser may actually end up having greater yields, which will reduce the effective cost to him.

Thus the key is media selection, rather than the false security of CPC. As can be seen, in situations where the media selection is right, the CTR of the campaign may be higher than the metric the seller determines. In such an event it might actually be more profitable for the advertiser to buy impressions rather than clicks, since, then the actual CPC is likely to be lower than what is being offered by the media seller.

All clicks are not made equal
Are clicks by themselves sufficient? Consider the following scenario (See table):

On the face of it all three scenarios are attractive since they have about the same CPC and the variability in the number of clicks between the scenarios is low.

Now, reconsider these scenarios with business metrics added to them:

As is apparent from a business point-of-view the second scenario is far more attractive than the other two scenarios, which on a mere CPC basis are as attractive.

While clicks and the attendant CTR is an improvement over conventional media metrics, the above example shows why it is not enough.

To make it complete, the click should lead to an interaction that has a demonstrable business value. Such business values depend upon the business situation. For example, in an e-commerce situation, the business value would be an online purchase, for a branding campaign it could be the page views on a website or the increase in time spent on a particular page. The fact is that a business value can be determined and needs to be determined, to reach the ultimate holy grail of measuring return-on-investment.

So buying clicks without the attendant business value is a chimera that gives a false assurance that money is being well spent, when in actual fact it isn’t.

When is a click a click?
Numbers easily seduce hard-nosed businessmen. However, are the clicks reported by the ad-servers for real?

Typically, a click on an advertisement leads to a destination – either a web-site, a landing page or a transaction page.

There is sufficient evidence, both, anecdotal and backed by tracking data that the two numbers often mismatch, sometimes as high as twice as many clicks being reported as the page-views of the destination page.

In the early days of PPC these were usually attributed to click fraud. This to a large extent has been reportedly curbed to a very great extent.

However, a number of technical factors also contribute to fewer than reported clicks being registered on the destination page.

So the adage of ‘Half-my-advertising-is-wasted-I-wish-I-knew-which-half’, continues to be as relevant to PPC.

This in fact has now extended to the social-media network environment and, the leaders in the space, Facebook and Twitter, have announced their commitment to weed-out malpractices that lead to inflating metrics that demonstrate the success of campaigns on their lack of it.

The bane of the algorithm
Notwithstanding these inherent issues in evaluating whether PPC is an appropriate strategy, the twin factors of budget control and RoI, lead a headlong rush of advertisers opting for PPC campaigns that are managed by algorithms.

These algorithms promise to run the ads in millions of scenarios within specified constraints of budget and desired number of clicks. They certainly meet the twin goals of budget and clicks, and even progressively manage to opitmise the plan by lowering the CPC.

The moot point though is whether the clicks deliver business value or are a mere fig-leaf to justify the enrichment of the purveyors of the click.

A blue pill or…
In all, PPC is a powerful tool in the arsenal of a marketer, particularly when it is linked to a well-defined, measurable outcome.

The key is the outcome. Linked to the outcome, PPC is indeed a powerful aphrodisiac. In its absence, though, PPC is merely a blue pill masquerading as Viagra!

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