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Is cost-per-engagement the hot new ad buy?

Is cost-per-engagement the hot new ad buy? Sebastian Tonkin

As marketers, we're all familiar with the idea that in order for people to choose your product over a competing one, your customer has to A) be aware that your product exists and B) have some understanding or emotion that guides them toward your brand.
Creating that awareness, association, and purchase intent is the realm of brand advertising, which, research shows, currently makes up 41 percent of U.S. ad spend online. Car commercials provide a good example of this: How many car commercials did you see in your life before you were ever in the market for a car? And yet, once you did make that purchase, you already carried a lifetime of associations that were created by the advertising you were exposed to.

How much awareness is generated by a display ad impression that 1/1000 people engage with? What kind of brand associations flow from a click? These are tricky questions to answer. For this reason, many new players in the online ad market have begun offering cost-per-engagement (CPE) pricing to advertisers to try and close the gap between ad spend and meaningful engagement. CPE might involve asking users to complete a type-in, begin a trial, or initiate and watch an entire videos -- it's up to the advertiser. With CPE, the advertiser only pays when that engagement action is completed.

Here are five parts of the CPE model that advertisers should take into consideration when allocating digital spend: 

Engagement requires attention, impressions don't

I learned long ago that when marketing products for Google, you can buy display ad impressions with absolutely no measurable impact on any of your key metrics. In the words of David Tokheim, a true media guru, "When you buy a display ad impression, you're buying the potential for attention. When you buy engagement, you're buying actual attention." If your engagement action requires people to think and act and engage with your brand, that's a lot harder to fake than an impression. 

People learn better when they're interacting

If you're like me, you probably spent a good chunk of your early life in a classroom. Classrooms exist because people learn better by actively interacting with one another than by sitting around by themselves. Ad formats that require engagement in the form of a two-way interaction between the audience and your creative (like a type-in, a branded game, or a user-initiated video), leverage this simple principle to boost recall and effectiveness. CPE lets you buy these interactions at scale wherever users are with much less risk than trying to drive traffic to an off-page interaction using a CPM or CPC buy. 

People respond to incentives in predictable ways

Many CPE vendors leverage the principle of value exchange to gather attention. For example, ad engagement could be exchanged for access to premium content or for virtual credits in a social game. Not surprisingly, most people tend to be happy with the exchange since they get something tangible out of it. This translates to better results for the advertiser and the consumer -- a win-win for everyone. 

The internet is an active medium, not a passive one

People like to do stuff online, not sit around and soak things in the way they do with TV. CPE puts engagement at the center of the economic model. For that reason, it's well suited to ad formats designed to get people to do stuff, rather than passively look at what's in front of them. 

Not everyone wants to purchase your product right now, but they will eventually

There's so much data available through simple ad serving and analytics tools that it's tempting to look at all online media through the lens of immediate post-click purchase activity. Remember, people need to know you exist and feel good about you before they become customers. That means investing in all layers of the purchase funnel, with CPE campaigns becoming an increasingly popular choice as a lower risk method for hitting people high up in that funnel (provided you can find a CPE campaign that lines up with the right audience for you).
So, when doesn't CPE make sense? If you're a direct response advertiser who can easily measure your online sales activity and care mostly about traffic arbitrage, then CPE probably isn't the best fit for you. CPE's value is higher up in the purchase funnel and is optimized for brand lift, not for immediate post-click purchases. In other words, CPE advertising competes with CPM ad goals and not with direct response conversions, the usual aim of CPC ads. And, as with any advertising model, regardless of how effective a given CPE format might be, if it isn't hitting the right audience for your product, then you're wasting your dollars.

So, what do you think about CPE? Do you see it as just another parlor trick by publishers trying to push for higher rates? Have an idea for how it could be used effectively for your campaign?  Leave a comment and let us know. 

Sebastian Tonkin is the co-founder and CEO of Cloud Nine Media.

On Twitter? Follow iMedia Connection at @iMediaTweet.

"Time for Change concept" image via Shutterstock.

Sebastian Tonkin is the Co-Founder and CEO of Cloud Nine Media, a WiFi advertising and sponsorship network serving millions of users in thousands of airports, hotels and cafes nationwide.

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Commenter: Peter Gowrie-Smith

2012, September 12

We've been offering this pricing model for some time now. In the lead generation business, as with general advertising, a 'result' can mean any number of things as both the article and commentators have remarked - and it's vital we can not only generate that exact result, but record it and be rewarded for it accordingly. I must say we're not noticing any reticence from advertisers re your point on it being a potential publishers' parlour trick - but this all comes down to defining the targets, identifying the right media placement, developing a compelling proposition and provisioning the 'result' correctly.

Highly recommend a quick read of a relatively old, but still relevant Accenture report that outlined an expected migration towards CPDO (cost per desired outcome) back in 2009 - this is where CPE is surely heading next. You can find it here: http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture_Billion_Dollar_Challenge_Monetizing_the_Digital_Opportunity_Final.pdf

Peter Gowrie-Smith, Managing Director, Magnetise Group

Commenter: Piyush Aggarwal

2012, August 28

well i disagree with the CPE concept simply because the actual demand generated for any brand or product is not just a function of single line item in the media plan but a summation of many. Like you mentioned in the auto example, consumer's purchase is credited to all the combined experiences he had of that brand's communication in his lifetime.

I agree with Jay, though price is one metric due to which CPE may not be viable for publishers globally, but in the post Social Media dominated world, job of any digital planner is not just restricted to drive engagement but also to keep the high recall value since there are plenty such similar engagements being offered by the rival brands or products which will dilute your efforts in generating that quality engagement.

Commenter: Sebastian Tonkin

2012, August 23

@Jason - I totally agree here. The problem is that real innovation outpaces standards. Once we get to the stage where engagement actions are standardized across the industry, than many of the arbitrage opportunities that are being created now by emerging media vendors selling on a CPE basis will have seriously diminished.

@Jay - Aha! You've hit on a great point. Take on more risk, and there's the potential for more reward. On the other hand, if you take your math back to any CPE vendor who's actually good at delivering engagement (sounds like the ones you have in mind aren't), then you've got a great chance at negotiating better rates. Once you've locked in a profitable price, you can scale up with much less concern. CPE alone is no substitute for savvy buying.

Commenter: Jay Friedman

2012, August 23

I'm going to completely disagree on CPE here for the sole reason that vendors typically price it more like an insurance policy with all upside to them. We've been pitched on the CPE thing many times, but when we look at real engagement rates and back out the CPM, it's usually 2-3x what we would have paid for that CPM and just taken the risk ourselves. Yes, it's much easier to sell CPE to an agency because they can sell it to the client as "you have no risk!" The same could be said for buying insurance on every aspect of your life. You'd have no risk, but you'd have spent a heck of a lot more money than you ever needed to.

Commenter: Jason Burke

2012, August 22

Completely agree Sebastian, but we (everyone in the digital marketing space, including IAB) need to "define" engagement for this model to really succeed. We all benefit when there is an industry standard definition versus everyone having their own version of the metric