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A complete guide to programmatic advertising

March 11, 2021

If you haven’t adopted programmatic advertising, or have only just begun to explore it, the time is now. Programmatic advertising continues to gain momentum around the world, with programmatic media buys making up 85% of all digital ad spending in the US and just over 80% in Europe. And, globally, programmatic media buys are predicted to make up 68% of all digital ad spending this year.1 So, what is programmatic advertising and is it right for you? Read on to learn more.

What is programmatic advertising?

At the most basic level, programmatic advertising is the use of technology to buy and sell digital ads. Programmatic advertising uses an automated process to purchase digital ad inventory—across the web, mobile, apps, video, and social media. The workflow automation used in programmatic advertising is driven by machine learning algorithms and artificial intelligence to deliver the most effective ads to audiences based on a variety of signals, like shopping patterns.

What are the benefits of programmatic advertising?

The benefits of programmatic advertising are many. For advertisers, there are four main benefits: greater efficiency, more targeted reach, transparency, and real-time measurement and optimization. Let’s break these down:

Efficiency: Traditional advertising requires time to develop requests for proposals, quotes, negotiation, and insertion orders. With programmatic is much more streamlined. For advertisers, buying and placing ads can be done quickly due to real-time bidding (more on that later). And programmatic media buying cuts down on wasted ad impressions—making it cost-efficient as well.

Reach: Programmatic allows for more targeted reach to audiences based on different signals, like demographics, or shopping and browsing preferences.

Transparency: With traditional media buying, ads are purchased in bulk and advertisers have little control over the inventory and placement. With programmatic advertising, advertisers know where their ads will be shown and can have greater confidence in the brand environments with which their ad appears.

Measurement: Real-time measurement and optimization to drive maximum results.

What are the challenges of programmatic advertising?

We can’t talk about the benefits of programmatic advertising without discussing the challenges. Some of those include:

Commoditization: As with other forms of media, programmatic is commoditized – and everyone is playing in the same space. That can mean that select types of ad supply could become scarce.

Transparency: While programmatic provides advertisers with greater control over where their ads are shown, brand safety and transparency into their placements still remain top of mind for advertisers.

Learning curve: Programmatic requires a learning curve which, if you’re not familiar with it, can seem overwhelming.

Despite some challenges, brands that don’t adopt to programmatic advertising strategies might be missing out on the benefits of efficiency, reach, transparency, and accountability.

What is Real Time Bidding?

Real Time Bidding (RTB) is a type of programmatic ad buying. With RTB, ad space is auctioned off in real time. Purchased at the impression level via online auctions, Real Time Bidding is most often facilitated by ad exchanges or supply-side platforms. RTB is not only efficient, but it helps advertisers focus on the most relevant inventory.

What is an ad exchange?

In programmatic advertising, an ad exchange is an online marketplace where advertisers, agencies, demand-side platforms, publishers, and supply-side platforms can bid on advertising inventory from various publishers using Real Time Bidding. Advertisers determine the price by participating in the bidding process, whereas an ad network acts as an intermediary, collecting advertising inventory from publishers and then selling it to advertisers. Additionally, with an ad exchange, advertisers gain visibility regarding where their ads will appear.

What is a supply-side platform?

A supply-side platform (SSP) is programmatic software for publishers to facilitate sales of advertising impressions via ad exchanges. By connecting publishers with multiple ad exchanges, demand-side platforms, and networks at once, it lets suppliers sell impressions to a greater pool of potential buyers. And, it allows suppliers to set the bidding range to maximize their revenue.

What is a demand-side platform?

A demand-side platform (DSP) is programmatic software for advertisers that helps facilitate the media buying from numerous publishers. DSPs help brands and agencies (demand side) determine which impressions to buy and at what price (supply side). Advertisers can select audiences based on demographics, and shopping signals.

How does programmatic advertising work?

Within less than a second, programmatic advertising automates the process and serves up relevant ad impressions to audiences as follows:

When consumers click on a publisher’s website, the publisher puts the ad impression up for auction through the SSP.

Advertisers place bids for that impression through a DSP based on their targeting strategies.

The DSP automatically assigns impressions to the winning bidder – which is the advertiser offering the highest CPM.

The ad is instantly served on the website.

And hopefully, the ad is clicked, and there is a conversion.

How do I run programmatic ads?

Once you’ve established your campaign goals, such as driving new product discovery or increasing sales; defined your ad types, such as display, video ads, or in-app ads; and have set up the DSP, you’re ready to get started.

To maximize your impact at the lowest cost, you need to think about the various components of your campaign set up, such as campaign duration and size of the audience, as this will determine the CPMs needed to win your bid. At this stage, you can estimate the budget you need for the campaign and develop a bidding strategy.

CPM bid levels are different for different channels and creative units. So, it’s important to break them out as separate ad groups. Display demands the lowest bid CPMs whereas video demands the highest bid CPMs.

Definitions

1. Base bid: This is your minimum bid–consider it a starting point. Start your base bids low, understanding that insights from your bids will help you refine your bidding strategy over time.

2. Maximum bid (max bid): This is the cap set on any bid and is typically 2x higher than your minimum bid. When setting your max bid higher, you have a higher likelihood of winning more impressions with adjustments made within the auction workflow.

Bid adjustments are automatic in the ad exchange between the base and max bids and happen within the ad exchange. You will only be charged what is needed to place your ad above the next highest bidder.

3. Ad group budgets: There are total and daily ad group budgets. The total refers to the total amount for the campaign’s duration. The daily budget is the amount you set for each ad campaign for each day.

From there you upload your creative and assign it to the relative device type.

Because programmatic is in real-time, so are the reporting capabilities. This is when you have an opportunity to evaluate the effectiveness of your campaign measuring the CTR, CPC, overall spend and the value of each conversion among other important metrics. You can then optimize your campaign in real-time based on these insights.

How much does programmatic advertising cost?

The cost of programmatic advertising varies and is generally based on CPM (cost per mille) or the cost per one thousand advertising impressions. Some service fees may also apply. When your targeting is broad, the CPM is less; when trying to reach a more niche audience, the cost goes up. Additionally, CPM bid levels are different for different types of ad units with display being the lowest and video demanding the highest. Targeting and ad group variables impact the CPMs required to secure inventory. With programmatic, advertisers set the prices through real-time bidding.

Have you already started a programmatic advertising effort? Evaluate your programmatic technology, service, and inventory costs as a percentage of your effective CPM using the Interactive Advertising Bureau’s programmatic fee transparency calculator.

How do I measure programmatic advertising?

Impressions, clicks, and actions are the three main ways to measure your programmatic advertising campaign, but they are just starting points. You can also measure key performance indicators that map back to your business objectives. Below is a helpful guide to utilize the metrics most relevant to your objective:

GoalKPIs
Branding and awareness – What is X?Reach/unique reach, average frequency, share of voice, brand lift, views
Interest and consideration – I want to know more about X.Completed views, clicks/site visits, detail page views, engagements, leads/cost per acquisition
Purchase – I am going to buy XReturn on ad spend (ROAS), Return on investment (ROI), sales, subscriptions

Programmatic advertising with Amazon DSP

What’s unique about the Amazon demand-side platform (DSP) is that it enables programmatic buying of display, video, audio, and in-app ads both on and off Amazon. Advertisers can choose self-service or managed service.

With Amazon DSP you can plan your programmatic ad campaign to:

Reach relevant audiences and use insights to inform the varying ways you can reach them.

Access unique owned and operated supply like Fire TV, IMDb TV, Twitch, and more.

Deliver quality ad experiences that can reach audiences by their preferred touchpoints like video/OTT and audio.

Measure the outcomes of your media investments.

“Amazon Advertising drives return on investment for us,”
– Nick Vlahos, CEO, The Honest Company

Programmatic is a key aspect to The Honest Company’ strategy to reach exclusive audiences. Read more about how The Honest Company employs a full-funnel advertising strategy, including programmatic advertising with Amazon Advertising, to reach audiences where they are.

Learn about our full suite of advertising solutions, including programmatic advertising.

1International Advertising Bureau, Brand Disruption 2020: Direct Brands Go Mainstream, 2020