Your value chain is no stronger than its weakest link

1:50 PM, 7 April 2016

Is programmatic spending problematic?

Programmatic advertising is sweeping the industry. In the UK it is now a £2.5bn. This is an impressive headline figure, but what is less well known is how this revenue is distributed to the various players in a notoriously complex buying chain.

Don't worry, this isn't another article bemoaning the margins that nefarious ad tech buccaneers are carving off your ad spend. This piece is about the importance of understanding programmatic marketing's many costs, quantifying its diverse benefits and getting an accurate grip on the value it delivers.

Since the rise of ad tech, there has always been a simmering discontent at the fees siphoned off as each ad dollar works its way through the dark plumbing of the ecosystem; this discontent should come as no surprise.

In a traditional digital display buy, 85% of advertiser investment might have reached the publisher. Now those same advertisers have to wrap their heads around research showing that just 40% of programmatic ad spend reaches the media owners -- intuitively, this just seems like bad value.

But intuition can be misleading; the reason that investment in programmatic has swelled so rapidly is because it has a tendency to work much better than traditional ways of buying media. And all this despite the margins that are taken.

Value chain

How is this possible?

Clearly, at least some of the many stakeholders taking a cut of those ad dollars are adding net value -- that is, a benefit greater than the cost. This isn't to say that advertisers should be content to see so much of their investment apparently evaporating....

It's also no longer good enough to be satisfied that programmatic works better than what came before. As marketers we're not competing with what we did in the past, we're competing with what other marketers are doing right now. Given the current scale of programmatic spend, the best marketers must ensure that they're investing in ad tech in a smarter way than their peers to maintain a competitive edge.

What's the best way to approach this?

The first step is to understand what programmatic costs your organisation in the most granular way possible.

This means more than understanding how much you're investing in programmatic buys, or the margin you've negotiated with your media agency. The more fees you can confirm, the better. It's not unreasonable to expect full and auditable transparency over the cost of your media agency, their trading desk, the technology costs for the platforms, the price of any third party data, the tracking, the ad verification, the reporting ... the list goes on.

Verifying this by pairing invoices with finely sliced campaign data, ideally extracted directly from the DSP, will give you an assured enough view of your value chain to be able to talk confidently to

your procurement or finance departments about where your budget is going. But this is just half the story...

Understanding the benefit that each cost generates is a more subjective and complex task, but only by grasping this can you understand the value created by your investment.

What are the costs?

Costs can be broken into groups -- people, technology, and data. People may include agency and trade desk fees, technology costs comprise of platform and tracking or verification tools, and data fees are typically for third party data. Identifying the value delivered by each group will reveal separate challenges, but the first job is to understand the functions, processes and outputs of each.

Can you justify using a DSP that charges a 20% fee when others charge only 10%? If you know that its modelling capabilities outstrip the competition, it gives you access to exclusive inventory or its streamlined workflow drives down operating costs, the answer may be yes. Alternatively, if you discover that its output -- the performance generated -- is worse than another DSP, the answer is almost certainly going to be no.

Does the 15% management fee charged by your trade desk represent a sensible investment? If you have visibility over the processes they undertake to optimise your campaigns, can see the performance increases that these interventions produce and get fantastic business insight from the team, then they may generate a large net benefit. But if you judge that a lower price alternative would deliver the same service or that you could internalise some of the processes at a lower cost, it may be that this represents a comparatively low value solution.

Once you understand the cost of each element of your value chain and have visibility over the benefit that it confers, some may stand out as great value, some will stand out for the opposite reason and many will occupy a grey area.

Where to next?

This is just the first step in optimising your programmatic investment. Once armed with this insight, the next challenge is to adjust your investment flow to increase its return. It's unlikely that the most efficient way to do this will be to throw it all out and start from scratch, but tweaking elements, measuring the value differential and iterating again will help you move steadily in the right direction.

This a process that some major brands are starting to explore, but most are yet to fully embrace.

As your programmatic investment increases, getting a head start on this will help you reduce your marketing cost, increase its benefit and, ultimately, deliver a higher incremental value back to your business.

How do you balance your marketing expenditure? Is there a particular emphasis in one area than others? Where do you stand with programmatic investments? All feedback, queries, and opinions are welcomed to

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