A study from market research company Forrester found that more marketers are focusing on performance-based marketing. Performance marketing is “the new normal,” according to Forrester. Performance advertising is a competitive differentiator today; it will be table stakes tomorrow.
What is performance marketing? Performance marketing uses clearly defined and measurable business objectives as the basis of payment or optimization. This includes cost-per-action (CPA) models, such as affiliate marketing, and programmatic ads that optimize based on real-time performance metrics.
How Performance Marketing Works
The Basics
The CPA model of payment is critical to understanding how performance marketing works. Advertisers and marketing companies are paid only when a specific action, such as a sale, lead or click, is completed.
This model is what separates performance marketing from other forms of advertising. In traditional advertising, fees are paid up front and do not depend on the success of the ads. Advertisers in performance marketing only pay for successful transactions.
As a result, performance marketing reverses the traditional value proposition of advertising and allows marketers the ability to measure advertisements in real time, according to the Performance Marketing Association. “Performance marketing is trackable and measurable down to the click. Advertisers can measure everything from the cost of acquisition to incrementality (e.g., new customers of new customers or average order value),” the association says.
Application in Retargeting Campaigns
A number of e-commerce companies are challenged with the task of retargeting and converting customers throughout their marketing funnel. If customers leave the website before making a purchase, marketing to them can be effective because they’re already engaged with the brand. An incentive could motivate them to follow through with the purchase.
Forrester reports that better ROI and market pressures are driving performance advertising adoption for retargeting marketers. Across retargeting and other types of campaigns, performance marketing leads to a number of capabilities and advantages.
- Personalized Advertising: “Over half of enhanced retargeting marketers said they were driven to pursue [performance marketing] because their customers expect personalized advertisements,” according to Forrester. Performance marketing allows marketers to target specific customers and measure how well these ads are performing.
- Data: Performance marketing gives marketers specific data on how well advertisements are doing. A retargeting marketer can gauge effectiveness and respond accordingly. These insights are true for any type of campaign. “For executives to extract the most value from their affiliate channel, they must be able to track the true source of every lead, inbound call, download and sale across multiple channels, platforms, media and points of contact … just like non-affiliate channel counterparts,” according to Insights Association. “When that kind of spotlight is placed on partner activity and conversion attribution, affiliate performance becomes infinitely easier to evaluate and affiliate programs begin to deliver much greater results.”
- Technology: Marketers have access to powerful tools that can help with tracking, attribution and targeting. Mobile marketing company TUNE recommends that mobile marketers examine marketing automation and tracking tools that can enhance efficiency and improve ROI of performance marketing efforts.
- Mobile and Desktop: Outside of desktop displays, 46 percent of marketers surveyed by Forrester are retargeting across multiple devices and channels, including mobile web, mobile in-app, email and social platforms.
Marketers are integrating these principles and tools together to improve performance marketing. “These marketers are taking the necessary steps to delight their customers by creating more personalized, targeted marketing programs across channels, thereby delivering more relevant content for customers,” Forrester says.
Performance Marketing in 2017
Traditional Retail: Online-to-Offline
Performance marketing has grown in the retail marketplace because retailers face pressure for efficiency due to Amazon.com and falling foot traffic, eMarketer reports.
“Over the past decade, many iconic retail brands have seen their market values decline precipitously,” according to Byan Leach, founder and CEO of mobile shopping app Ibotta. “A wave of anchor store closings this year followed a holiday season that saw store traffic fall dramatically. Meanwhile, Amazon now has more value than all the major, publicly-traded department stores in the United States.”
For companies like Target and Walmart, less than 5 percent of their annual revenues occur online. “How can traditional retailers use technology to beat the online retailers at their own game?” LiveRamp asks. “By embracing performance marketing like never before.”
Online-to-offline marketing techniques allow traditional retailers to use online performance marketing campaigns to drive offline sales. For instance, a retailer can use technology to create an online rebate that is redeemed in the store. This all takes place under a performance marketing model, and each rebate can be tracked.
“Emerging technology is not solely an ally of online retailers,” LiveRamp says. “By embracing new tools and techniques that unlock the power of performance marketing for the offline world, leading retailers such as Jo-Ann Fabric and Craft Stores, Best Buy, and Hallmark have developed smarter and more efficient promotions that are helping invigorate their offline businesses.”
Increasing Sophistication
Performance marketing allows for a better understanding of the consumer journey, eMarketer says, which “has enabled a more nuanced use of multichannel marketing with appropriate attribution.” As performance marketing becomes more advanced, marketers will be able to take advantage of more opportunities to know and interact with their audience.
Marketers are using more sophisticated retargeting methods such as video ads. Lexus used Facebook’s audience segmentation technology to deliver a single ad campaign that involved more than 1,000 individual videos. The award-winning “1000:1” campaign reached 11.2 million Facebook users.
“Maybe it’s time to consider video as the best performance-marketing tool in the marketer’s arsenal,” Jason Baadsgaard, chief revenue officer of marketing company of Eyeview, says at Convince and Convert. The future of performance marketing could be found in its integration with video advertising, personalized advertising and other advanced methods of targeting and appealing to customers.