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Last year, programmatic advertising accounted for 85% of total US digital ad spending which is a huge increase as compared to the 76% back in 2019.
This trend is expected to grow steadily in the upcoming years and there is a good reason for that. Buckle-up, because if you are still aware of the benefits of programmatic advertising, we’re about to reveal a whole new world before you.
Table of Contents
What Is Programmatic Advertising
The term programmatic advertising was first introduced back in 2009 and was used to describe an advertising strategy that greatly focused on personalization.
In essence, new ad-buying platforms appeared that relied on complex computer algorithms. Programmatic advertising helps brands automatically reach their target audience with relevant ad content.
With programmatic advertising, you are charged for a targeted impression instead of being required to pay for ad placement on certain fixed inventory. But first, you need to set the parameters of the audience to which you are going to serve your ads.
ML and AI algorithms are used to automate the media buying process. The advertising automation aims to improve the targeting precision by strictly complying with the defined target audience parameters.
Back in 2010 advertisers used to negotiate a price with multiple ad networks and thus their advertising efforts were limited to serving fewer ads. Modern programmatic technology now automates the targeting process, while still offering full transparency to the advertiser.
The automated process of buying ad placements is made possible thanks to the online bidding option set in the platform. Let’s have a more detailed look at those.
RTB (real-time bidding) is the actual mechanism of buying online placement via a programmatic auction of sorts, and it all happens in real-time. During such auctions, advertisers compete for the right to serve ad impressions. The system decides who wins the right to serve an impression.
How Does Programmatic Auction Work?
- A person visits a website connected to an advertising network.
- The network transmits data about this user to the buying platform.
- The buying platform analyzes the received data.
- Based on the data about the website/app visitor, the buying platform concludes whether it makes sense to bid to serve an ad for this particular user.
- If the algorithm deems the online user eligible for the ad, it enters into the real-time bidding auction.
- The ad with the highest bid wins the impression contest and it gets rendered to the online user.
Who are the key players in programmatic buying?
Usually, DSPs, SSPs, DMPs, are the main players in the programmatic buying environment. Let’s study them closely:
- The demand-side platform (DSP) offers advertisers and agencies to buy ad impressions (inventory). DSP manages the ad campaigns, analyzes the results of those campaigns and optimizes ad placements.
- The supply-side platform (SSP) helps publishers to monetize their website inventory and optimize ad impressions. Usually, SSPs work through RTB (real-time bidding), but they can also work on a direct sales model.
- The data management platform (DMP) collects and processes different types of data about the online users. It helps advertisers identify their target audience and reach out to them with a relevant message. DMPs are an important mediator between advertisers and DSPs.
- Ad Server is a web server that stores various ad creatives (banners, videos) and their data. It delivers ad content to its users. The server is also responsible for targeting ads, tracking the number of impressions and monitoring campaign performance.
The programmatic ecosystem is simple one once you have a hold of it. Just remember: DMPs provide information about the audience to DSPs, and SSPs are responsible for selling inventory in real-time. The Ad exchange maintains an RTB auction among DSPs and defines the winner. As a result, advertisers can show ads to the selected audience on appropriate sites.
Ad Formats Used in Programmatic Advertising
The most popular formats in programmatic advertising are banners, videos and native ads. However, it is also possible to use audio advertising if you are targeting music services and radio. Advertisements show in mobile, desktop, inside apps and connected TV environments.
Are Programmatic and Contextual Advertising the Same?
Some people are convinced that contextual and programmatic advertising are the same thing; however, the two are rather distinct concepts.
Contextual advertising focuses on what the online user shows interest in. The online user types in keywords to express their needs and the publisher’s ads are served based on those keywords.
Programmatic advertising, on the other hand, works at the top of the funnel. It creates a need and leads the client to a purchase decision. If the online user has left the site, the platform will tempt them back to the site via retargeting advertising.
Where does the target user information come from?
Any user action on the Internet leaves digital traces. Cookies are used to collect and store online user data. Web browsers and online profiles (like gmail) could keep a user’s search engine history.
Nowadays it is easy to draft a full-fledged digital profile of the online users: their age, social status, interests, tastes and preferences. In programmatic advertising it is essential to apply privacy standards so that in the digital environment algorithms don’t cause problems with personal data misuse.
What Are the Benefits of Programmatic Ad Buying
Why is programmatic ad buying better than classic display ad buying? There are several reasons for that. Obviously, programmatic advertising is more convenient, it’s faster, it renders high ROI, and it’s quite efficient. But there is more to it:
- Better online user targeting
Advertisers’ ads are served to the right people at the right time. The system processes huge amounts of information. It selects the right person to promote the advertisers’ message from within a crowd of billions of online users.
- No intermediaries
You don’t have to undergo any price negotiations with ad sellers and publishers. The programmatic approach allows the advertiser to get unlimited access to a large amount of inventory from all over the Internet.
- Increased ROI
While the user waits for a web page to load, the ads on that page are being auctioned by the programmatic ecosystem. The whole process takes a few milliseconds. It takes significantly less time to reach a higher-quality audience, which inevitably leads to an increase in ROI.
- Flexible process
Programmatic ad buying is a flexible advertising approach – it allows you to change strategies and reallocate a budget in real-time. The system analyzes the campaign for its effectiveness and, based on the data received, selects the most favorable price per impression. The algorithm automatically determines how much to pay to reach a specific user at a given time.
- A cost-saving approach
The system will offer the optimal price per impression for a particular prospect.
- Quality Filters
Ad will only appear on relevant websites. Programmatic advertising consists in ignoring websites with negative reviews and questionable content.
Proper Targeting with Programmatic Advertising
The targeting process in programmatic ad buying starts with analyzing layers of data. The main ones are used to find and customize audience segments for each ad campaign. The better the advertiser knows the specifics of their target audience, the more precisely they’ll be able to fine-tune the ad-buying algorithm. Respectively, having greater insight and control over the process will also positively affect the campaign revenue.
But let’s discuss each layer of data separately:
Location data is the backbone of any solid targeting process. Location history as well as online users’ live feeds often reveal valuable data on where your customers ацтуаллъ live and work. You’d be able to conclude whether your audience resides in the suburbs and whether it commutes to work?
It’s a good idea to use location data on the DSP platform for your campaigns to target users who are in close proximity to your store. It’s also possible to conduct campaigns for users in specific states or even neighborhoods.
Demographic & psychographic data
A fundamental element of a targeting strategy would be to assess your customers’ age, income, marital status, whether they own a home, whether they have children, etc. This kind of data will help you understand your target customers’ needs, priorities and future predispositions to your brand. For instance, if you represent a brand offering baby toys you’d be much interested in targeting newly-wed couples or such that have already announced the birth of their first child.
Device usage & IP address
Will programmatic replace direct media buying?
Programmatic ad buying is definitely a fine alternative to direct buying methods. Advertisers and publishers are seeing more and more benefits of buying and selling ad space through AI processes. The trend shows that large companies and corporations are gradually shifting their budgets in favor of this approach.
What is the future of programmatic?
Due to the technological boost, advertising methods are changing at a fast pace. New advertising platforms are constantly emerging. Marketers have to catch up with new ad format trends and approaches and it all starts to get pretty exhausting.
With programmatic, the entire campaign could be automated to the slightest detail. New technologies are constantly being introduced to make the ad campaign management process even more effective. With the increase of the data that marketers should keep in mind to strategize their activities, programmatic gradually establish itself as a reliable and indispensable tool they could hardly go without.
Given that programmatic ad buying allows for real-time campaign optimizations, brands could take advantage of new opportunities and step up on their omnichannel marketing planning.
AI and ML
The importance of artificial intelligence in advertising will only grow to respond to the rising demand for fast data processing. Artificial intelligence combines audience search, targeting, campaign optimization and results measurement. Marketers are already seeing the AI algorithm analyzing audience behavior in real-time and are taking full advantage of this revolutional competitive advantage.
Omnichannel vs integrated programmatic
Nowadays, people use various types of devices to connect to the Internet (smartwatches, smartphones, tablets, TVs) as compared to the previous decade. In addition, there are a number of online channels that marketers could use to address those online users, including gaming applications, podcasts, videos and other entertainment content.
Only by using an omnichannel approach can advertisers increase the number of touch-points with their audience and thus maximize the effectiveness of their advertising campaigns. Programmatic ad buying makes it possible to optimize advertising processes and customize it for different devices and channels. It helps advertisers to achieve maximum performance by placing ads on the right device at the right time and by tailoring a relevant message for each of those channels and target audience segments.
Stats for 2020 show marketers who’ve been using three channels or more earned a 287% higher purchase rate (compared to those who used a single-channel campaign).
DOOH (digital out of home) media
Outdoor digital advertising, combined with mobile phone location data, is also a popular trend in programmatic advertising. A 2019 study reveals that the industry revenue from billboards grew approximately 0.6%, amounting to $8.6 billion in advertising revenue for that year alone. The introduction of LED billboards tied up to the programmatic ad buying method is surely a solid factor that influenced that abrupt rise.
Programmatic audio is gaining momentum as well. Online users enjoy listening to music on their mobile or desktop. According to the 2021 Report on Digital Marketing Listeners Trends by eMarketer, 65.3% of Americans listen to digital audio on a monthly basis.
How to start a programmatic campaign?
Here are the main steps you should consider when drafting your programmatic ad buying campaign:
Determine the campaign goals and toolset
If your goal is to increase brand awareness among a new target audience, you should pay special attention to online user targeting.
First define the main characteristics of your target audience, including gender, location, income, age, education, marital status and all the demographic attributes that will help you narrow down your reach.
Then draft your creative and make sure it can really grab the attention of your target audience. Go for an intriguing headline and a high quality visual.
Use the retargeting method whenever applicable to reach out to people who have already visited your site but haven’t converted yet.
Choose the optimum ad platform
To choose the right platform for your campaign, pay attention to the following criteria:
1) Reach (media coverage)
2) Targeting accuracy
3) Impression cost
4) Flexibility in pricing
5) Analytics capabilities
Set specific KPIs and a tracking system
The effectiveness of programmatic advertising is measured by some standard performance metrics like CTR, CPA, ROI, etc. To quickly receive information about the effectiveness of your ad placements, set up end-to-end analytics at the very beginning of your campaign launch.
Choose an appropriate ad format
Programmatic advertising is not limited to banner formats. You can also run video ads, embed video in a banner, create an interactive advertising message or use rich-media banners.
Statistics reveal that customers usually interact with a brand up to 13 times before they make a purchase.
Set your targeting options
Targeting can be configured:
- By content, where you decide on which website your display ads actually show; ;
- By audience, where you divide the audience into segments and send your message only to those falling into the right social, demographic, behavioral group;
- By technology, where you reach out to online users that show preferences in a particular web browser, device, etc.
To wrap it up
Although programmatic advertising has been around for a while now, it is still an emerging technology. With programmatic, media buyers can easily reach their target audiences utilizing super-precise targeting.
This helps brands to avoid overspending and deliver a smooth and relevant experience to their target online users. AI and ML are continually evolving, so the share of non-targeted impressions resulting from programmatic ad buying is expected to decrease over time. As a result, there is a high opportunity that programmatic will become one of the best advertising tools for marketers.