Pay-Per-Click Advertising Vs Traditional Methods Of Advertising

September 24th, 2007 by Click Consult

John Wanamaker (July 11, 1838 – December 12, 1922) was a United States merchant, religious leader, politician and, most importantly, the father of modern advertising. In the 1870s, the devout Christian opened the first department stores and invented price tags (to eliminate haggling because everyone should be equal before God and price). He also became the first modern advertiser when, on November 4th 1874, he bought space in newspapers to promote his stores. He went about it in a Christian way, neither advertising on a Sunday or fibbing. When people discovered that its promises were true, business boomed. His most famous quote is by far: “Half the money I spend on advertising is wasted; the trouble is I don't know which half.”

Wanamaker's well known quote is not entirely proverbial. The worldwide advertising industry was worth around $428 billion in revenues in 2006. The IAB (Interactive Advertising Bureau), a trade association, estimates that advertisers waste (i.e. they send messages that reach the wrong audience or none at all) roughly $112 billion a year in America and $220 billion worldwide, or just over half of their total spending. Wanamaker was surprisingly accurate.

What Wanamaker could not have foreseen, however, was the World Wide Web. A host of proactive firms, like Google, Yahoo and MSN, are now selling advertisers new tools to reduce waste. These tools come in many forms, but they have one thing in common: a desire to replace the old approach to advertising, in which advertisers pay to expose a hypothetical audience to their message, with one in which advertisers pay only for real and measurable actions by consumers, such as clicking on a web link, placing a phonecall, printing a coupon, completing an enquiry form or making a purchase.

Traditional Wanamaker-era advertising has been likened to an atom bomb dropped on a big city. The best example is a 30-second spot on broadcast television. An independent firm estimates how many television sets are tuned to a given channel at a given time. Advertisers then pay a rate, called CPM (cost per thousand), for the right to expose the implied audience to their advert. If it is estimated that 1m people (“the city”) are watching a show, for example, an advertiser paying a CPM of £20 would fork out £20,000 for his television commercial (“the atom bomb”).

The problem is clear. The television room may be empty. Its owners may have gone to the kitchen to make a cup of tea or to the toilet. They may have switched channels during the commercial break, be napping or talking on the telephone. The viewer may be a teenage girl, even though the advertisement promotes Viagra. The viewer may have a TiVo digital video recorder (DVR) or other such devices that record shows and skips commercials. Approximately 10m American households already have a DVR.

Market Segmentation and fragmentation, an advertising trend from the past 20 years, represents only a cosmetic change. Advertisers airing a spot on a niche channel on cable television, for example, might be able to make more educated guesses about the audience (for instance, thirtysomething, gay and affluent), but they are still paying a CPM rate in order blindly to cast a message in a general direction. Instead of atom bombs on cities, segmentation could be equated to dropping conventional bombs on villages. The collateral damage is still considerable.

By contrast, the Pay-Per-Click (PPC) advertising models address these shortcomings. Instead of metaphorical bombs, advertisers make lots of spearheads and then get people to impale themselves. PPC is based on the principle of the customer taking the initiative by showing up voluntarily. In its simplest form, this involves typing a query into a search engine with keywords (“cheap holidays”, for example), then scanning the search results as well as the sponsored links from advertisers, and then clicking on one such link. In effect, the consumer has expressed an intention twice – first with his query, then with his click. This double dose of intent makes a consumer's action far more valuable than his/hers exposure.

Reference: The Economist (July 6th, 2006), “The Ultimate Marketing Machine.”

This entry was posted on Monday, September 24th, 2007 at 4:47 pm . You can follow any responses to this entry through the RSS feed.

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