Some weeks ago I was in cologne on the dmexco and the current trend in the online marketing industry is programmatic buying. This blog post will explain how to use it and how to optimize it.
Programmatic buying
Programmatic buying means to automatically buy ad spaces and show relevant ads to online surfers. The most important players are real time bidding platforms that offer these spaces to all connected players (e.g. OpenX or AppNexus). These communities are often called DSP demand side platform or ad exchanges. The big advantage of real time bidding is that you can adapt your buying to your business objectives. E.g. If you have a lot in stock of a certain product you can increase the advertisement for this product.
How much should I bid?
This is the most important question and the answer is: It depends. The most important indicator is the profit of the product you are going to sell. Then click through rate and conversion rate influences your budgeting scheme. Beside these known factors which can be learned over time. There is also the behavior of the other advertisers that might adapt their behavior based on yours.
A rule of thumb is to just bid 1% of the profit of the product. Let’s assume you are selling shoes for 95 $ your profit margin is 60 $ so you can bid 0,60 $ for buying a click.
There are a lot more sophisticate bidding strategies that integrate methods from game theory like multi armed bandits and optimization strategies like non-linear optimization. Incentergy is using both of them.
Learning which advertisement is best
So lets still assume you want to sell this pair of shoes and you have 10 different advertisements that you can show. The real click through rates of these advertisements are:
| Slogang | Click-Through-Rate |
|---|---|
| Buy now! | 0.1% |
| Buy now shoes! | 0.2% |
| Buy now red shoes! | 0.3% |
| Buy now red, cheap shoes! | 0.4% |
| Buy now red shoes from gensky! | 0.5% |
| Buy now red pumps from gensky! | 0.6% |
| Buy now red pumps from gensky with free shipping! | 0.7% |
| Buy now red pumps from gensky with 10% off! | 0.8% |
| Buy now red pumps from gensky with 10% off and free shipping! | 0.9% |
| Buy now red pumps from gensky with 20% off and free shipping! | 1% |
When starting you don’t know which of these slogans has the highest click-through-rate so you have to learn this as fast as possible. You are in an explore-exploit problem and you have to learn online as fast as possible with the minimal loss which slogan is best.
In the image above every color corresponds with one slogan. As you can see you need around 30.000 impressions of every ad until you get a good feeling which one is the best. If you do not have sophisticated algorithms for optimizing the learning you will lose a lot of money.
Learning which bid is best
Learning the bids is even more sophisticated and requires non-linear optimization combined with probabilities. Incentergy uses the most state-of-the-art algorithms for optimizing both in the same time.
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