A glimpse into digital advertising pricing
By : Swati Sinha
Deputy Manager-Business Operations
We are living in a mobile-first world, where there are 7.2 billion people and 7.5 billion mobile devices. With mobile ad spend expected to touch Rs10, 000 crore by 2018, and account for over 70 percent of digital ad spend, mobile ads are becoming the biggest digital advertising market. Although both India and China have crossed the 1 billion mobile connections mark, India is the fastest growing mobile market, adding more subscribers annually than China.
With the increasing penetration of data and low priced smartphones, there is an increased opportunity for the advertisers to leverage mobile channel in a better way. Advertisers can now reach out to their audiences at any point of time basis their knowledge about the user behaviour.
There are no free lunches
However, there is a cost involved to reach out to the audiences to showcase the products. Hence every advertiser plan their mobile budgets basis the marketing objectives they have to achieve. As marketers tailor their ad strategies to mobile consumers, they need to decide how to optimally use their marketing investment
Not all advertisers in the market have humongous marketing budgets and targeted advertising comes to their rescue by reaching out to their precise target group, preventing spillage and hence effective utilisation of marketing budgets. We can safely say that Mobile is one of the most cost effective way to market your offering in alignment with the end goal of the business.
Types of pricing models
Today’s digital advertising is filled with many different pricing options. Just a few decades ago, there only used to be two options: CPC (cost per click) and CPM (cost per 1000 impressions). Now there are dozens. However, the advertisers chiefly use pricing options like CPM, CPC, and CPA (Cost per Action) which help the advertisers to make the maximum out of their marketing budgets.
CPM (cost per 1000 impressions)
The advertiser pays the publisher for every 1000 times the advertisement is displayed to a consumer. This is a model wherein, the publisher is paid every time the user views the ad. This kind of pricing model is popular when the main objective for the advertiser is creating awareness and success of the campaign can be judged basis the reach created through the campaign. CPM is particularly effective when you have high performing creative, as the cost of each action will go down as the total actions taken goes up.
CPC (Cost per click)
Cost per click is popular with publishers who use services such as Google AdSense, AdBrite, etc. This is the pricing model where the advertiser is paid basis the clicks user has done after viewing the ad. This model is effective for advertisers when they want their audiences to engage on their ads. It also helps them compare the performance of various ad networks. The ratio of clicks generated to impressions served is known as CTR and higher number reflects higher audience engagement. It is especially popular with advertisers because of the ability to track return on investment.
CPA (Cost per Action)
The CPA pricing model allows advertisers a bit more assurance for a quantifiable consumer engagement. This pricing model is used by advertisers only when the user has done any relevant action like app install, filling up of lead form, registration for the service etc. This model is effective for advertisers with restricted budgets, since it allows the payment to publisher when the advertiser actually has a relevant lead, making it a no risk option for the marketers.
Each of these pricing models has its own pros and cons. The number of different pricing models will only continue to increase in the future with the increase in number of platforms and media competing for share of digital advertising budget.
One price does not fit all
With time, the mobile advertising industry has seen significant development and has evolved over years. Also, mobile advertising is more appealing to brands since ad blocking capabilities does not seem to be as advanced for smartphones as in the case of desktop advertising. A number of such factors have led to an overall increase in the mobile advertising costs for marketers.
Apart from the SMS, mobile ads also comprise banner advertisements, video placements and other rich media experiences, which are thought to be more engaging and therefore more valuable to advertisers.
There was a time when it was difficult to place effective ads on old mobile phones with small, low resolution screens. Hence, mobile ads were very cheap too. New mobile phones have larger screens and a high resolution leading to more advertiser-friendly formats. Hence, inventories like the rich media ad units receive higher CPMs as compared to SMS advertising.
Also, higher prices may be more applicable to certain ad categories. Display advertising such as traditional banner ads command nearly twice the price on mobile compared to desktop while the price for a preroll video advertisements that show up before a clip score remains the same.
Mobile advertising prices can also rise dramatically seasonally. For example Click through rate is high during periods like the holiday season when the working middle and upper middle class is likely to shop more, leading to an increase in the mobile ad prices.
Getting the best of the lot
Mobile ads are relatively new, but they are quickly emerging as the most sought after digital media for advertisers. As more consumers shift their sphere of activities to a tablet or mobile phone, advertisers will embrace this digital media more to promote their products and services. Hence it is important for advertisers to understand the pricing models associated with mobile media so as to make optimal use of their budget to achieve desired campaign objectives.