By Laia Cardona, on 18 February 2016
In this article, we are going to explain exactly what performance marketing is, and its advantages and disadvantages for agencies and advertisers. This should help you evaluate whether it is a solution that could be useful for you, and draw your own conclusions.
According to the Performance Marketing Association (to which companies like Google, Yahoo!, Dell, EBay or Amazon belong) we are dealing with “an online marketing model in which the advertiser only pays for the results achieved”.
Today we're digging deeper into the concept. Our clients often seek clarity in truly understanding "what is online performance marketing?" So here our aim is to clarify this marketing concept, evaluating the pros and cons and deriving conclusions.
What is Online Performance Marketing?
In short, we could say that performance marketing is the online marketing strategy in which the customer only pays for the results obtained by the strategy, not the strategy itself. That is, the customer will pay more if they have obtained better results and they won’t pay anything if the strategy or campaign has not achieved results. Generally, these conversions for which the customer pays are usually a download, a lead, a purchase or a click.
In other words, the client only pays the company according to results that are previously agreed on (subscriptions, traffic, registrations, sales…). This means that these campaigns only make sense for campaigns of a certain dimension, otherwise the cost of your team and work hours necessary to put the campaign in motion will exceed the expected benefits.
Another characteristic important to keep in mind is that these campaigns take place in digital environments (and, increasingly more often, on mobile devices). For this method to make sense, it is essential to have precise result tracking tools, which store clicks, visits, subscriptions or sales in real time.
It is also noteworthy that this type of marketing is aimed at getting actions from users. More than for branding or notoriety type campaigns, the goal with performance marketing is achieving measurable conversions. Like this, we will be able to have campaigns in which the aim is to reach X downloads of a form, or Y credit card transactions.
A very common mistake is to think that performance marketing is the same as affiliate marketing or as performance-based advertising, so it becomes pertinent to clarify these terms also:
- Affiliate Marketing is based on using companies or websites (called affiliates) and putting them in charge of publishing advertisements and promotions. It does have a result-based payment method in common with performance marketing, but in this type of marketing, there is a large range of other techniques and formats other than affiliate marketing.
- Performance-based advertising is the advertising model in which the advertiser only pays when results are produced, for example, with cost per click or cost per thousand models. Although they are obviously related, performance marketing does not only use advertising techniques, but also the field of marketing, advertising and public relations.
Main advantages of online performance marketing
Without a doubt, one of the biggest advantages of this type of marketing is the ease in measuring the ROI of the actions taken. Although “classic” models such as CPM and CPC also offer costs related to results, its real relation to sales is much more diffused. In the former case, the only thing we know is that the ad has been showed a certain amount of times, but we have no idea if it was even a really person viewing it. In the latter, we at least know that someone has arrived at our page after clicking, but this metric tells us nothing of what happens afterwards: Has the user left the page without having read it, or did it go through to the next stage of the conversion funnel?
On the other hand, in this model, we connect the success of the campaign to goals based on conversion, such as leads or even sales. This allows us to know what the real benefit from the campaign was (i.e. 1000 sales with an average value of 50 euros or 10 000 downloads of a form with a sales possibility of 20%) and adequately evaluate the return on investment (ROI).
The result of this improved measurement is that we can achieve improved optimization. If you are sure about which actions relate to which results, we can then concentrate on which ones works better and set the rest aside. Furthermore, as these tools are able to measure results in real time, we can establish periodical control tests to make adjustments within a campaign. Long story short, the result will be having much better advertising.
For the advertisers, result oriented marketing brings great advantages. The first of which is that it eliminates the need to support opportunity costs, investing capital in a campaign without knowing what the results will be. With this model, the risk is minimal, as you only pay if you are able to achieve the agreed results. Secondly, this type of marketing makes it possible to know the exact cost of the campaign beforehand. Thanks to these two factors, it is possible to administrate the advertising budget with significantly increased efficiency.
From the agencies’ viewpoint, this kind of marketing is an excellent opportunity to standout from the competition, offering the client a service with clear advantages, financially speaking. Moreover, these types of campaigns are perfect to display on a grand variety of online environments: email marketing, advertising on social networks, display… Beyond a shadow of a doubt, the perfect opportunity to let out your creativity and create truly effective campaigns.
The inconveniences of online performance marketing
For both agencies and marketers alike, the main disadvantage becomes quite obvious, which is the fact that they assume all of the economic risk. If the campaign doesn’t meet the goals that had been set, not only do they not get any benefits, but they also suffer the loss of the time and resources that were invested in the campaign.
From the point of view of the advertisers, the biggest risk they take is that of digital fraud. According to experts, half of all that is earned by advertising and digital marketing is related to fraudulent advertising, and this market sector is no exception. There have even been cases of fake agencies who would limit themselves to hiring record providers in Latin America or Asia to fake the results, without, of course, generating any real conversions nor earnings for the advertiser.
Performance Marketing is a very promising tool that offers multiple possibilities both to advertisers and agencies. Like any tool, however, you have to know how to use it. For this reason, we would like to finish off with a few recommendations to make your result marketing campaign as efficient as possible:
- Only work with high quality professionals. When searching for an agency, don’t look only for the cheapest rates, but for the best methods, professionalism and trustworthiness. You are looking to invest to deal with one of your most valuable assets: the health of your brand.
- Create win-win deals. With this type of marketing, agencies work according to objectives, so it is in the client’s interest to give generous incentives, without sacrificing profitability. As we have already seen, it is possible to measure the results and benefits with a high level of precision, in order to reach agreements, which are beneficial for all.
- Set SMART goals to maximize your chances of success. This acronym sums up the characteristics that any good marketing objective should have: Specific, Measurable, Achievable, Realistic and Time-bound.
- Take care of your Agencies and clients have the same objectives, so it’s in both their interests to work side by side. Communication channels between the two should always be open, but in this case it is particularly important to maximize the chances of reaching the set goals.
- Use result marketing only for campaigns for which it is appropriate. As good a technique or tool it may be, it cannot be used in every situation. In these situations, it is much better to use it for campaigns closely linked to user actions (e.g. subscriptions) and not for advertising more focused on awareness and branding. Furthermore, it is necessary to manage a certain amount of objectives for it to be profitable on all fronts.
- Optimize your landing pages. Like any campaign focused on conversions, landing pages are fundamental to success. Don’t fall into the trap of creating spectacular looking advertisements but that then lead to non-optimized landing pages.
- Choose the right actions and platforms. One of the greatest advantages of this kind of marketing is its versatility, so make the most of it! Always think of the most adequate channels for each campaign and objective before putting them in action.
- Tracking is key. Watch your results in real time and don’t be afraid to make as many changed as necessary. Achieving your goals is vital, and measurement is your tightest ally in that battle.
Metrics and KPIs
To develop a successful performance marketing optimization strategy, the first step is to share which tactics and channels you have tried and the respective results. Knowing that, recommendations are elaborated based on your main KPIs.
The goal is not only to meet your objectives, but that you do it using the right channels for each moment and to mature your product and/or brand, at the lowest possible cost and with the highest possible return. To do so, you need to optimize the following elements:
- Calls to action
- Landing pages
Checklist: how to apply performance marketing optimization to my brand?
To start optimizing your marketing efforts and maximizing your results straight away, I’d like to share this list of performance marketing recommendations with you:
- Try all options before making any decisions. Carefully measure each of your channel’s metrics and identify the highest conversion ratio to distribute your budget to perfection.
- Analyze your customer journey. If you are a brand of clothing, you probably will have noticed that people who buy the summer collection usually return later to update their accessories. So use this knowledge about your customer to your advantage to convert more of your visitors into clients. Pay attention to the number of conversions but also to the previous steps: where did the people who bought in the end lick before their purchase?
- Observe your contact points with your clients: how did they arrive at your website? If you know exactly which channel attracts most sales, you can optimize it to improve your results.
- Go multichannel. Nowadays you need to integrate all channels to be able to know what is going on with your brand. For example, receiving one of your email marketing communications can make a user post something on social media that can, in turn, bring a lead. And never forget how often users switch between desktop, phone and tablet.
- Increase your campaigns’ effectiveness with real-time follow-ups. In moments of crisis, be it due to reputation or virality, it is vital to know what is happening in real time. Social media monitoring and online surveys can help you achieve this.
- Explore retargeting. Retargeting is one of the key bases to performance optimization in marketing. Customized banners and email marketing campaigns can help you maximize impact and measure results to the smallest detail, so make the most of them!
At the end of the day, performance optimization in marketing is the way you can ultimately optimize all of the channels through which you are interacting with your target.
5 cases of performance marketing
Now let's put theory into practice and talk about 5 cases of Performance Marketing. What kind of marketing is this? In short, we could say that performance marketing is the online marketing strategy in which the customer only pays for the results obtained by the strategy, not the strategy itself. That is, the customer will pay more if they have obtained better results and they won’t pay anything if the strategy or campaign has not achieved results. Generally, these conversions for which the customer pays are usually a download, a lead, a purchase or a click.
To better understand how performance marketing works the we will study 5 cases of success:
The Financial Times launched a risky performance marketing campaign in order to attract a larger number of young readers and to commit more to the newspaper. In this way, they managed to identify the problem; it is needed to increase ad exposure subscription to get more conversions. Similarly, it was concluded that the campaign should involve a combination of channels, giving more importance to support the video. Thus, it managed to increase the number of clicks and the number of subscriptions to the newspaper.
The purpose of Volkswagen in performance marketing strategy was to offer more personalized messages to customers. It was through the study and analysis of customer behavior and launching personalized messages such as test-drives of new cars, etc. Thus, the cost per lead was decreased by 26% and the number of potential customers increased.
House of Fraser
The online fashion store House of Fraser is one of the most significant cases of triumph in performance marketing. The brand identified serious problems in their affiliate campaigns, so they decided to start working with a leading marketing agency to launch a major performance marketing strategy. They got more than 83% of participants to receive a commission for their participation. Thus, it gives more value to users that were previously undervalued by the traditional model and also gives them a clearer idea of the role they play in the company throughout the purchase process.
The insurance company wanted to increase its home insurance customer base. To this end, it launched a successful campaign to offer free coffee to all of its new customers. Thus, more than 300 sales with traditional campaigns were achieved, representing an 50% conversion increase.
Their strategy was to understand how to get their different marketing channels to increase company direct sales. The company could identify the real impact of each channel and to take full advantage. Thus, it significantly increased revenue conversions in the three months of the campaign.