Performance advertising is changing the way businesses are run

The United States’ digital ad spends are 1.2 per cent of its gross domestic product (GDP). India is at 0.2 per cent. In the US, 48 per cent of the businesses engage in digital advertising. In India, barely three per cent of the total businesses engage in online advertising.

For all the accelerated digitisation that India is going through, it is very clear that the country lags far behind, when it comes to using digital advertising to propel growth.

Today, many businesses around the world are driven solely by performance advertising. The debate between performance advertising and brand building was always one for the textbooks. Successful performance advertising leads to brand building. We live in an age where all advertising is performance advertising.

Businesses need to make the distinction between advertising on digital platforms and performance advertising. If you search using keywords like women’s denim, cereals, a consumer durable product, etc., you won’t see the big brands at the top of the search. New-age businesses are making far better use of performance advertising.

The CEO of a leading flower company in India recently said that they spent 30 per cent of their topline on performance advertising. Yes, topline. The business model of many companies is defined by ROAS, or return on advertising spend. At an ROAS of two, they make a loss, at three, they break even and at four, they make a profit. Lending business models are completely dependent on the CPL and the conversion matrix.

According to the WARC Marketer’s Toolkit 2021, a global survey of marketing professionals revealed that the majority (70 per cent) of those expecting budget cuts last year, predict that they’ll be made to brand advertising. Performance marketing is expected to be among the least affected areas of investment.

Here are some of the reasons why performance advertising scores:

· Multiple channels and attribution

o The data-driven approach in performance advertising, combined with extensive attribution models, allows businesses to assess, on a daily basis, how their marketing spends can give the maximum result.

o Multiple touchpoints are created for outreaches in the user journey to lead to a purchase. Measurement techniques take all the touchpoints into consideration and assign credit to each so that the marketer can see how much sale each channel/event is bringing along.

· Faster return on investment (ROI)

o The awareness to consideration and then purchase cycle has a very fast turnaround period in the case of performance advertising. This allows businesses to grow faster and churn their marketing budget to the fullest.

o A marketing mix as well as multi-touch attribution models help track the effectiveness of the spend for campaigns that give the best ROI.

o There is no fixed funnel strategy that works anymore, if a user is at a mid-funnel level. If you show top-level ads to them, it may account for wasted ad spend, because they will not be compelled to take an action.

o When you establish business goals, you take into account several factors, to achieve your goals. SMART – specific, measurable, achievable, relevant and time-bound – goals are used by most businesses to measure the ROI.

· Customisation of targeting

o As compared to traditional advertising methods, performance advertising allows for hyper customisation of targeting, i.e., based on the business type and cost of a product, businesses have the opportunity to target specific profiles with higher intent to convert.

o Performance advertising also gives businesses the opportunity to re-target customers, who have shown affinity to their product, resulting in high conversion rates and building higher customer loyalty.

o Hyper and demographic targeting allows brands to target their customers at a personalised scale, with messaging that resonates with the target audience. For example, if you are a local business with multiple outlets, you will target audiences in that vicinity or a radius. And, depending on the neighbourhood or area, you will craft your message as per that region’s language.

Similarly, if you are a maternity brand, you will use demographics to target married couples, working professionals, etc. This shows that you know your target persona well and have clearly defined objectives.

· Lower risk element

o Performance marketing is highly aligned with business key performance indicators (KPIs) and marketing campaigns are designed accordingly. This allows businesses to test campaigns on a daily basis and limit their exposure to higher spends.

o This is especially important for startups or small and medium-sized enterprises (SMEs) that are looking to compete with the big players in the market, but do not have a lion’s share of the budget to run branding campaigns and TV ads.

o When they allocate a budget for a certain objective and measure their returns on ad spend, they know much of it is quantifiable and where the improvements can be made. Many businesses start small and, in a matter of a few months, take the big leap and increase their marketing budgets subsequently.

· Higher transparency

o All performance advertising channels share various metrics on a campaign level and charge on a click basis. This allows businesses to optimise their spends more carefully.

o The heavy amount of data shared by the platforms, provides an opportunity to businesses to do an in-depth analysis of campaigns and get better at driving results.

o You can define your objectives, set your budget and see the results in real-time. This kind of transparency in measuring and attaining desired results is only possible with performance advertising. Every number is attributed to a certain event in the user journey and the data shows the real picture, without leaving any gaps for confusion.

Never before was 'micro' audience optimisation this important for 'macro' sales numbers. Micro inputs now deliver macro business outcomes. Continuous audience optimisation by meticulous planning of keywords, interests and behaviour is the answer for performance advertising, and it requires data, speed and automation.

Businesses need to increasingly turn towards performance advertising platforms to drive growth. It is becoming increasingly clear that performance advertising has become the Holy Grail, as far as the success of a business is concerned.

The author is founder, MediaQart