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CPM: Paying By The Thousands

Posted by Imre Vogelezang on June 20th, 2014 at 9:27 am

Metrics in isolation: CPM

You know what they say, right? You get what you pay for. No wonder that advertisers and ad agencies alike will often stress the importance of the Cost Per Mille (CPM) when buying impressions online. Driven by the ambition to bring down the cost of GRPs, ad agencies evolved through complex deals, often buying large volumes of various media, from billboards to radio and TV spots.

When online ads came into the mix agencies approached them as just that; another channel to generate the cheapest GRPs for advertisers. This traditional approach obscures many of the unique advantages of online marketing. The traditional perspective brings about two paradoxical misconceptions we would like to tackle in this post:

CPMs Need to be as Low as Possible

High quality impressions require a premium price. When you get what you pay for, what are you paying for exactly?

Before demystifying some of the misconceptions generated by the traditional perspective, a bit of context might be helpful. The traditional perspective made a lot of sense when the digital media landscape started to develop. In fact, bulk buying of impressions based on a publisher's brand value did not differ dramatically from past routines in print media. It was the disrupting rise of programmatic media buying that really flipped the switch.

Buying individual impressions based on an increasingly huge amount of data reduced the price of an impression to just a metric in the complex whole of performance metrics. It would go beyond the scope of this post to delve into the reciprocal relationship between campaign metrics, but it is important to stress that it is the introduction of programmatic buying that demands a more holistic approach to understand the value of an impression.

A Low CPM Is a Good CPM

This first misconception is quite understandable, but no less deceptive. Coming from an era of striking deals at the golf course, media buying had a strong focus on finding the best deal at the lowest price. When buying on an exchange however, a lower price does not necessarily mean a better deal, it just means another deal. Buying impressions at a lower CPM primarily reflects that you are buying different impressions. The price reflects the level of competition for that single impression.

Basically, impressions with a lower CPM have less bidders competing to buy them. That might be the case because this single impression has little value, this impression only has value to you or maybe the competition has insufficient data to be aware of its quality. Hence, as long as you’re not sure of the reason, all you know is that the price is low.

High Quality Always Comes at a Premium Price

The second widespread misconception is that CPM is always an indication of inventory quality. This notion goes back to the same bulk buys where placements on domains with a higher perceived brand value were indeed sold at higher prices. Ironically, prices are still determined through perceived value of a placement, but the mechanism through which the perception is established has been refined tremendously.

In the case of bulk buys or direct deals, the value of placements is mostly based on brand value, number of unique visitors, and comparable meta-level characteristics. It is important to realize that these characteristics are very similar for all potential buyers. The brand value of the BBC is quite strong for many potential advertisers and its unique reach is identical for every interested buyer. The perceived value is therefore very similar for most advertisers as well.

In the case of RTB and programmatic buying however, the bid is based on the data in the hands of the bidders. These data points differ greatly among these bidders. They can can differ on:

  1. The volume of gathered data and therefore the level of precision in the expected value calculation.
  2. The required success event.
  3. The relevance of the individual user at which the impression is targeted. In case the data on a placement diverges greatly, so will its perceived value.

As is stated in the previous section, the price of an impression is based on the level of competition at the moment it’s sold. The price of a valuable impression will therefore only be high if your competitors are just as aware of its value as you are.

So next time you’re looking at a menu, you’ll be too smart to even look at the prices. Right? Of course you won’t be. I do trust however, that after reading this post, you’ll have taken a good look at what is being served. In case you’re serving an impression yourself, I hope you will take more time to evaluate its value than its price. Make sure you get what you’re willing to pay for.

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