by James Kim
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CPA vs. CPM (in relation to media buying)
Online marketers must make numerous decisions when it comes to media buying, such as which media products to buy ‘space’ from and how much should be budgeted and spent. One imperative decision an online marketer will surely face is whether to buy media on a CPA or CPM basis. Both forms carry strategic implications that warrant further discussion.
Let’s begin by once again briefly defining what CPA and CPM stand for. CPA is an advertising payment model by which the advertiser pays the publisher each time a specific, visitor-initiated, and qualified action occurs, such as the completion of an offer or registration. In this case, you only pay for the customers or action you get. On the other hand, CPM is an advertising payment model that charges advertiser based on the number of times an ad is viewed by a visitor, regardless of the visitor's subsequent action. Nearly all offline advertising and online banner or graphical advertising is sold on some form of CPM basis. Typically, publishers price CPM rates or ad impressions based on reader quality and demographics.
In general, media buyers view online advertising within a promotional context and as action-driven, primarily because of its inherent measurability. Marketers typically engage in online advertising to gain new customers and immediate sales, as measured by return on investment (ROI). From this point of view, they spend their online promotional budgets to generate leads or other direct actions that yield only some branding. Media buyers must realize that CPA and CPM are complementary advertising buys that fulfill different needs. While CPA typically focuses on delivering conversions (actions), CPM generally serves to build brand awareness. Since not every product warrants a direct conversion, CPM can also be used for direct marketing. There is a potential synergistic effect in smart and calculated spending, for instance, a hybrid media model may deliver superlative results by not only selling, but also building brand awareness and purchase intent.
In deciding between CPA and CPM buying, the media buyer must ask himself or herself questions from a strategic perspective, while considering his or her marketing strategy's media aspect. Heidi Cohen, a principal in Riverside Marketing Strategies and a professor within New York University’s Masters Program in Direct and Interactive Marketing suggests media buyers asks themselves the following questions in deciding between CPA and CPM buying: How do our target customers use the Internet as a whole, as well as particular websites? How does this relate to the product or service we are offering? How does it fit into our company’s overall strategy or marketing plan? What are our marketing and advertising goals? Do we need to improve branding to build purchase intent, drive immediate conversions, or both? How will the Internet get us to where we need to be? How does our ad's viewing environment reflect on and influence branding and purchase intent? Can our media buy scale? This is where the media buyer should broadly assess the editorial direction, content, target audience, and other advertisers (in terms of product and quality) on the publisher’s site. How does our creative, including copy, design, format, and landing pages, relate to our target customer and marketing strategy?
In the context of media buying, the difference between CPA and CPM buys might be contingent on who assumes the risk for converting impressions into acquisitions. When publishers sell media on a CPA basis, they don't exactly know in advance how many page views are required for a conversion or action. Many factors influencing yield, such as creatives, landing pages, and conversion processes are beyond the publisher’s control. Accordingly, CPA-placement sellers typically charge a premium to accept the risk of the ad’s yield. When publishers sell media on a CPM basis, they are more familiar with how many page views it takes to fulfill their obligation.
Given that not all publishers allow for CPA buys, media buyers can severely limit their options and reach by only engaging in CPA deals. On the CPA side, choices are usually more limited, mainly to sites with significant amounts of unsold inventory and low demand. Cohen suggests that media buyers should consider the following: Does the publisher or network deliver quality customers or leads? In this case, if you don't know the quality of customers gained from each combination of media placement and promotional campaign, you might be better off looking into a more refined marketing tracking system. How does the media context interact with our ads, or is our advertising integrated with the content? Does this environment help increase purchase intent for our product or service? Does the content complement what we have to offer? Should we develop and test new creative approaches? Are the media cost effective in light of our strategic goals and key indicators? What's our projected customer lifetime value? Can the campaign's effectiveness be improved by optimizing various factors, such as format, content, landing pages, and media placement, to get higher conversion rates and lower acquisition costs?
When figuring out whether a CPA or a CPM basis is more cost efficient for your specific campaign, Cohen advises to express CPMs and CPAs using consistent factors in the analysis. For instance, express CPMs in terms of acquisitions or CPAs in terms of impressions or CPMs, which is the industry standard. Media buyers should also budget to advertise more on sites where their ad receives more attention and suffers less from viewer fatigue. As a direct benefit, fewer impressions are needed to attract and gain better-performing customers. Cohen suggests that narrow-minded marketers may not consider the fact that lower prices, although appearing more cost-effective, can translate into less-productive media. Cohen also believes for a media buyer to truly understand his or her customer base's dynamics, he or she must use fully loaded costs. Reason being, a customer's true lifetime value is based on its revenue streams minus the cost to acquire and retain him or her. Regardless of how the media buyer purchases media, either CPM or CPA, he or she must manage customer acquisition on a CPA basis that includes all marketing costs to understand his or her ROI. Given that at the end of the day, the media buyer’s ROI is what matters most.
Sources:
http://www.marketingterms.com/dictionary/cost_per_action/
http://www.clickz.com/experts/crm/actionable_analysis/article.php/3421141
http://www.webpronews.com/ebusiness/smallbusiness/wpn-2-20040924HowtoTrackOnlineMarketingROIUsingCostperAction.html
James Kim
e: jamesk@gmail.com
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