What is Programmatic Advertising in Ecommerce?

Data Analytics

What is programmatic advertising in Ecommerce?

For most of its existence, advertising has been a labor-intensive and relationship-based industry, where parties were put through grueling negotiations to secure packages of advertising space. Advertisers found themselves paying for times, banners, or locations that were less ideal in order to secure the more highly desirable spaces, and were stuck with stagnant ads that could not target specific audiences. 

Publishers, meanwhile, found themselves scrambling at the last minute to try and pawn off undesirable spaces, or found readers turned off by advertisements that seemed to have no relevance to their interests. The process lacked efficiency and efficacy, and could be a source of great frustration to potential advertisers who, because of the lack of a pre-existing relationship with publishers, never found their way to the table. 

Enter programmatic advertising.

What is Programmatic Advertising for Ecommerce?

Programmatic advertising, put simply, is the automation of the process of buying and selling digital ad space. It uses various platforms and databases to match buyers and sellers automatically, leveling the playing field and removing many of the frustrations of traditional advertising sales techniques that had compounded in significance in the new digital age. More than this, it does so in real time, allowing real-time bidding for advertising for every visitor to a website. 

The advantages of this kind of programmatic advertising versus the traditional model are many. It allows advertisers to become extremely granular as to the demographics of their targets, and to therefore optimize their digital ad spend. Publishers, likewise, can optimize every possible advertising space. With this kind of advantage, it’s therefore no surprise to learn that programmatic marketing is the dominant means of online advertising today. Projections say that 90% of all digital display ad dollars will transact programmatically in 2022.

How does programmatic advertising work for Ecommerce?

Have you ever seen clips or pictures of the New York Stock Exchange from the time before computers? A collection of sweaty men in thin ties holding phones and ticker tapes and yelling as loudly as they could “Buy!” or “Sell!” in hopes that they’d find a match for the offer? The digital age revolutionized this process, allowing for both immediate and automated matching of buyers and sellers and the transition from fraction prices (e.g. 32 1/8 a share) to more precise decimal prices. This was a coup for wall street, radically improving the efficiency of the allocation of capital.

Well, before programmatic advertising, digital ad sales had a very similar vibe. Buyers and sellers would scream (perhaps metaphorically) into the great yawning void of the world wide web, searching desperately for a match and clinging to the matches they knew like a baby koala to its mom. 

Programmatic advertising brings order to this ad sales wild west thanks to the integration of several key databases and platforms, including DMPs, SSPs, and DSPs.

  • A Data Management Platform, or DMP, collects and manages data from multiple sources, allowing for precision targeting of key audience segments. The data collected is varied, but it can include clicks, downloads, website and purchase history, demographics, and more. It also allows companies to integrate their own data into the database, creating more precise targets. 
  • A Demand Side Platform, or DSP, is, put simply, an automated database of available ad space.  When used in collaboration with a DMP, advertisers are able to match their targeting needs to an immense compendium of available advertising space in fractions of a second.
  • A Supply Side Platform, or SSP, is a database not of ad space but rather of ad inventories. The SSP collects ads from publishers looking for placement and matches them to available space. 

What are the benefits of programmatic advertising for Ecommerce?

When programmatic advertising is done correctly, the benefits are astounding.

1. Precision Targeting

As we’ve written in the past, one of the keys to keeping an Ecommerce business competitive is to keep your marketing plan simple and effective. In terms of simplicity, programmatic advertising allows Ecommerce companies to target their products to a precise consumer in exactly the manner they want at exactly the moment they want. In a pre-Internet world, this kind of targeting was more or less impossible outside of person to person contact. In the early internet, the odds were stacked against your company ever targeting this efficiently. Now it can be done – and done well – with the click of a button. What’s simpler than that?

2. Real Time Measurement

Similarly, measuring effectiveness, often boiled down to ROI, has always been a challenge for marketing and advertising, which are necessary expenditures with returns that can be difficult to quantify. Programmatic advertising can simplify the calculation, not only in a pure dollars out to dollars in sense, but also in terms of the effectiveness of the company’s hyper-specific targeting model. 

3. Reduced Costs

More specific targeting lower costs can translate to a better conversion rate and an improved return on investment. Additionally, fewer dollars need to be spent on irrelevant audiences, as they did in the days of bulk ad space buys.. 

4. Liberated Workers

Imagine starting a business and having to dedicate hours, days, even weeks to calling sellers of advertising space, negotiating packages, and settling for space and times that may only partially correlate with your targeted audience. Now all of that time can be used in other ways, improving operations and increasing variety in worker output. The latter can be surprisingly important: Increased specialization over time has been linked to declining productivity and higher turnover.

What are the risks of programmatic advertising for Ecommerce?

There are several potential downsides to programmatic advertising of which Ecommerce companies need to be aware: 

1. Fraud

The automation process naturally leaves open the potential for fraud. Some estimates mark as much as 40% of all web traffic as fraudulent (that is, not an actual person but a bot loading and visiting a website). Advertisers face the threat of fraud from DSPs, SSPs, and Publishers alike. Good programmatic advertising programs should integrate various forms of anomaly detection to protect Ecommerce companies from these sources of frauds. 

2. Exploitation

Programmatic advertising is a new technology and, as with all new technologies, it is ripe for exploitation by bad actors. Machine learning and A.I. have a blackbox kind of quality to them. Because of this lack of transparency, and the split second in which ads are sold and posted and paid for, Ecommerce advertisers can be led astray by unsavory types. Certain agencies have been known to inflate costs via hidden fees. 

3. Difficult to measure metrics

Almost half of companies report their greatest concern about using programmatic advertising is the lack of consistent measurement/metrics. Given the shocking alacrity in the rise in demand for programmatic advertising, not all companies are properly staffed or able to provide the proper data metrics for understanding how not just to improve ROI, but to optimize it. 

4. Brand Safety

Brand Safety refers to preserving the reputation of a brand in its online advertisements. The priority in brand safety is to avoid displaying your logo alongside content that would repel a potential or existing customer. Ecommerce companies need to take the proper precautions to avoid such associations before committing to any advertising dollars.

5. The end of third party cookies

One final issue on the horizon is that Google has said they will stop using third party cookies, likely by the end of 2023. This means a lot of companies that had previously relied on third party cookies for targeting information will need to improve their in-house information gathering to maximize their marketing dollars. 

When is programmatic advertising right for an Ecommerce business?

For most Ecommerce companies, the benefits of programmatic advertising far outweigh the risks. But you still need to ensure you have an Ecommerce solution that can back up the advertising and properly see the sales through. Zoey is built specifically for B2B Ecommerce and can ensure that once potential buyers make their way to your site, they can quickly and easily complete their purchase.

To learn more about how Zoey can help support your business, talk to us today! Let’s get started:

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Patrick Gallagher is a financial writer with nearly a decade of experience in communications with business owners and other high-net worth individuals. He was a writer for the New York Times and worked for several nonprofits. He holds an M.B.A. from the University of Minnesota. He lives in Atlanta with his family and two very rambunctious dogs. 

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