Understanding Auction Dynamics: Why More Traffic Can Mean Less Revenue

By George Michie


Auction-based advertising models force important trade-offs between traffic volumes and revenue for fixed-budget advertisers. Today, we’re going walk through why that is and how that fact confuses many marketers who primarily buy fixed-price media placements.

Put on your fixed-price advertising hat for a moment and think about this: what do you expect to get from a $5,000 TV ad buy, or print ad or circular? You want that ad to create awareness, get people into your stores (online or off) and ultimately, generate revenue.

The more qualified prospective customers the ad reaches, the better. The more traffic generated, the better. The more revenue generated, the better. You paid a flat price for the media placement, so the more eyeballs, traffic and revenue you get from it, the happier you are with the performance.

There is no tension whatsoever when you set goals for fixed media that include reach, traffic and revenue. As always, those goals may or may not be realistic, but they are not inherently in conflict with each other.

Now, consider what happens when the ad-buying model flips to an auction for individual prospective customers. With the same $5,000 to spend, maximizing visibility and traffic requires the marketer to buy prospective customers at the lowest possible price.

On the surface, that seems like a good plan. The problem is – assuming the marketplace is rational – the quality of the prospects declines with the price. You get what you pay for; and since you’re buying the dregs, you’re likely going to hurt your revenue.

Metaphor #1: The Estate Sale

You go to an estate sale with $5K to spend and instructions to get the largest number of items you can get for that. Your strategy has to be to only bid on the cheapest stuff that few other shoppers want. Maybe there’s a hidden treasure, …read more

Source:: SearchEngineLand


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