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How Does Programmatic Advertising Work?

In today’s world, there are hundreds of TV channels, of which many offer ad-supported streaming services intended to shore up their audiences and to compete against the behemoth of YouTube. 

In addition, there’s the Internet and social media channels which consumers can access whenever and wherever they want on a variety of different devices.

There aren’t just TV, radio, and newspapers for luxury brands to consider digital advertising is more important than ever before.

There are millions of different ways for your brand or business to reach its target audiences, and this sheer abundance of choice has meant that the process of deciding where to advertise has largely been automated – this is programmatic advertising.

What is programmatic advertising?

Programmatic advertising is the automated selling and buying of online advertising slots. Programmatic ad buying allows advertising across multiple ad exchanges and networks.

Consider programmatic advertising as an always-on virtual marketplace.

In this marketplace, there are four different actors:

  • Programmatic advertisers – these are the companies wishing to purchase ad space on the internet and on streaming platforms like YouTube 
  • Publishers – these are the websites and the streaming platforms who want to sell advertising space
  • Demand side platforms (DSP) – an intermediary used by advertisers to purchase ad space
  • Supply side platforms (SSP) – an intermediary used by publishers to sell ad space across one or multiple ad exchanges

DSPs (the ad buying environment) purchase ad space on publisher websites via networks and ad exchanges to reach the specific types of buyers their clients want to sell their products and services to. At VERB, we partner with Spaceback, who are a global leader and creator of the Social Display and advertising format. 

SSPs break down the target audiences they can offer to DSPs using some or all of the following metrics:

DSPs buy ad space for their clients in four main ways:

  • Real-Time Bidding (RTB) – second-priced* automated auctions
  • Private Marketplace – premium ad space reserved for selected buyers and sold using the second-priced automated auction format
  • Preferred Deals (sometimes called spot buying) – prior to being offered at auction in a private marketplace, ad space is offered to selected buyers at a fixed price 
  • Programmatic guaranteed (sometimes called programmatic direct) – one-on-one negotiated deals between advertisers and publishers with no bidding involved and mediated by DSPs where only specific target users are exposed to a company’s adverts. 

(*) – “second-priced” means that, if you’re top bidder, you will only pay £0.01 more than the second-highest bidder as opposed to your actual maximum bid.

There are six main types of programmatic advertising:

  1. programmatic display advertising – adverts in sidebars, headers, or footers usually containing some graphical element (like the type of adverts you see on a newspaper website),
  2. social media adverts
  3. video adverts
  4. native advertising – advertising designed to look like editorial content on a website,
  5. audio advertising – for example, advertising heard between songs or podcasts for free users of Spotify
  6. direct out of home (DOOH) advertising – for example, digital billboards and signs.

What are the advantages of programmatic advertising?

To put it simply, it’s easier, cheaper, and quicker than traditional media buying.

Programmatic advertisers can roll out their campaigns much faster than with traditional media buying agencies.

The amount of data held on consumers and their behaviours is vast and, in partnership with your DSP, you can often simply select who sees your advertising by checking and unchecking tick boxes.

The creation of collateral and materials for digital marketing campaigns can often be very quickly expedited too.

This means a short turnaround time between making the decision to promote a product or service, purchasing ad space and your target audiences actually being exposed to your brand and selected products or services.

1. Cost effective and KPI responsive

Every aspect of programmatic advertising is measurable.

With this information, you can change programmatic ads campaign parameters like CPM (cost per 1,000 advertisement displays) to your target audience to improve the return on your investment.

2. Reach and scalability

SSPs have vast quantities of ad space to sell across their network.

Following the successful initial deployment of a campaign, you could then choose to target a wider but still relevant audience by appearing on a wider range of relevant sites.

3. Gain deeper customer insights in real-time

DSPs and SSPs collect a vast quantity of additional behavioural information on the individuals who interact with online advertising.

You may discover that engagement is higher among certain demographics, on certain types of platforms, or at different points of the week, for example. You could use these insights to fine-tune aspects of your targeting to further increase engagement and ROI.

What are the disadvantages of programmatic advertising?

1. Brand safety

The internet is home to a wide range of views outside the Overton window. The Overton window is the term used to describe what opinions are considered acceptable at any given time in society.

Many SSPs will sell ad inventory for sites whose opinions are outside the Overton window. These opinions may not reflect your values as a brand. 

Display of your adverts on such sites may create reputational problems, much like the problems raised for the brands advertised on controversial news channel GB News at launch.

You should carefully choose which types of content you wish to avoid when booking programmatic advertising. However, no system of indexing is perfect and you may find that your advertising still ends up on websites and platforms you don’t want it to appear on.

2. Ad fraud

While the technology exists to identify fraudulent traffic based upon user behaviour, the system is not fool-proof. 38% of website traffic in 2018 originated from bots so there is much work left to do.

3. Lack of fee transparency

You need to ensure that you’re not paying too high an agency fee to your DSP for programmatic advertising. There has been considerable progress towards real transparency in pricing and costs in the sector however the issue has not yet been fully resolved as a whole. 

At VERB, we pride ourselves in being transparent on cost, as opposed to upselling, we charge a monthly management fee, with no % incentive to sell more. 

4. Viewability concerns

Your advertising may be displayed above the fold (the part of the screen which is visible on load) or below the line on a site. 

Adverts that are below the line are considered “served” by many SSPs even if the consumer you’re targeting has not even seen them. These “servings” have no commercial value to your business or brand but you still have to pay for them.

Luxury Brand Programmatic Advertising Examples : Mercedes A-Class Sedan 

The “Hey Mercedes! A-Class Sedan” campaign, leveraged the reach and targeting opportunities offered by programmatic marketing.

“Hey Mercedes” is a voice assistant similar to Siri which gives drivers turn-by-turn directions as well as responding to questions and statements. For example, it will also turn up the temperature in your car if you say “Hey Mercedes, I’m cold” and it’ll let you know if it’s going to rain by saying “Hey Mercedes, do I need my umbrella today?”.

The goal of the overall campaign was to encourage potential customers to book dealer visits and test drives for the new A-Class Sedan model. Their prime marketing collateral was two videos that demonstrated the ease and value of the service.

The two videos include the voice commands “Hey Mercedes!” and “Open the Trunk!”, which were displayed to the new A-Class Sedan target audience to provide the opportunity to experience in-car voice commands. 

To reach the goal a combined approach was taken and included programmatic, mobile display and “Voice Activated” interactive video format. While consumers watched the campaign video about the new A-Class Sedan’s Voice Command feature which is activated by “Hey Mercedes!” voice command; the others who said “Open the Trunk!” saw the video about trunk volume and interior design.

Using programmatic advertising (KPIs were click through rate and model awareness) to persuade prospective clients to join their marketing funnel, they reached 500,000 people over the course of the campaign. 10% of those reached eventually went to their dealers in response to seeing the company’s videos initially.

Overall, the campaign delivered a 20% higher conversion rate than their previous campaigns.

The role of programmatic advertising for luxury brands

Writing for MarketingTechNews, Joanne Joynson-Hewlett believes that “for luxury brands, the possibilities of programmatic cannot be ignored”.

Citing the example of a luxury airline, their marketing team could choose programmatic advertising to target individuals earning above a certain amount per year or who have recently researched destinations served by the airline.

And it’s not just airlines. A luxury furniture retailer could target the same high-earning consumers whose internet search history suggests a future need for their products.

Given the low cost of reaching wealthy consumers with programmatic advertising, this channel could be a particularly effective way of raising brand and product awareness.

Between the likes of Swatch, Mercedes, Lexus, and BMW, their spending on programmatic advertising, increased by 42% of online ad spend in 2019

If you’re looking for some support and advice with your brand or business, get in touch with an expert at VERB to talk about programmatic advertising. We are here to help and would love to hear from you!