Google Remarketing: CPC Pricing Model Has Edge over Competitors
Google has launched a remarketing product with similar functionality to what the other big remarketing providers offer (Acerno, Dotomi, Advertising.com, etc). The technical implementation is about the same. A Google pixel needs to be installed on the advertiser’s website which facilitates the remarketing. When a visitor comes to the website and leaves without taking the desired action (buying, inquiring, etc), the person will be subsequently shown display (or text) ads in an effort to lure the person back to the site. These ads will follow the person around the internet provided that the sites they visit are within Google’s network. The size of Google’s network is on par with that of the other big ad networks, so from an audience perspective, the reach is competitive.
The way Google has chosen to price this product, however, sets it apart from the other remarketing providers. Google’s structure is CPC, whereas the other companies charge CPM or CPA. Cost-wise, the CPC model has a clear advantage. Comparatively, the cost savings to the advertiser can be huge.
With CPC pricing, despite the fact thousands may see an ad, the advertiser is only charged for clicks. This is the preferred pricing model for direct response advertisers all over the internet. Long ago, Google’s paid search ads were originally priced at CPM, and when they switched to CPC, the source took off. With banner advertising, only a small percentage of people who see an ad actually click on it. That’s why display ads are more commonly used for branding efforts—they are guaranteeing impressions, not clicks.
Display advertising in a remarketing sense, though, has gained traction with direct response advertisers as the audience is more qualified. Since the person who is presented with the ad has already been on the advertiser’s site, some level of interest in the brand already exists. Despite this, the click-through rate of remarketing banners remains less than 20%, and often is even less than that. As we saw long ago with Google paid search, there is a clear monetary advantage for the advertiser using CPC over CPM.
For anyone not familiar with the way remarketing pricing has traditionally been structured on CPA, one may wonder why anyone would opt for CPC over CPA. CPA has always had an allure, but as the saying goes, there’s no free lunch. The issue is view-through tracking, a method of accounting for sales that some people have a real issue with. Most CPA remarketing programs charge revenue share using a two-tier structure: the advertiser pays more for sales that originate from people who click through the banner since it’s pretty obvious that the traffic got to the site as a result of the person seeing the ad. They pay less for sales that resulted from someone who saw the banner but didn’t click on it (called view-through tracking).
All view-based sales are allocated to another channel, which is why many advertisers don’t like this program. No one can ever be certain that the fact that the person saw the display ad is why they later purchased on the site. For example, if someone was on About.com and saw the advertiser’s display ad, and some time in the future (either hours or days) went to Google and clicked on a paid search ad to go back to the advertiser’s site and then made a purchase, the advertiser has now paid twice for the order: once for the click on Google and again to the remarketing company as a view-based order. In the same scenario, if the person used the search bar to get to the advertiser’s site, it’s possible that they now have to pay revenue share on a sale they would have gotten for free.
Advertisers who have tried to determine how many view-through orders are incremental usually find that roughly 30% are new buyers (although in some cases, it’s much less). For some, a 30% new buyer rate represents a winning program, while others object to paying revenue share on 70% that they already paid for through another source or would have gotten for free (as in the case of direct load).
So when you compare the Google pricing structure of just paying for the people who click on the remarketing banner to having to also pay for view-based orders, there is no comparison to the lower cost of remarketing with Google than going with a CPA program. Google’s CPCs for remarketing are more expensive than the average paid search click, but eliminating the entire view-through portion of the sales represents a tremendous cost savings. (Note: view-through sales can be tracked with Google’s program, but the advertiser doesn’t have to pay for them.)
There are a few things we need to watch out for with Google remarketing. One is scale. CPC ads tend to get prioritized lower by publishers who may also have CPM ads in the queue, as they make more money running them. Publishers may opt to run the CPM ad over the CPC ad. The other difference is that Google does not yet have the ability to serve dynamic banners which can be effective with remarketing offers. The big brother/creep factor with dynamic banners makes some advertisers shy away from them, so this may not neccessarily be much of an issue for now. I would bet that Google has this enhancement in the works anyway.
Suzy Sandberg is President of PM Digital.