On-Line Display Advertising

Here we are with installment #4 of our five part introduction to on-line marketing. In case you missed the earlier installments, you can find them here:

Before I dive into the meat of things, I want to talk a little bit about the title of this post. When I initially envisioned it, this article was going to be about banner ads. Now, when I think of “banner ads”, the natural analog equivalent is billboard advertising. Thinking that way is why I said that, of all the on-line marketing techniques, e-mail marketing is probably the closest analog to a traditional marketing technique which you have probably used. But the more I thought about things, the more I came to realize that “banner ads” are only called that because of their shape. From a marketing perspective, what I’m really talking about is display advertising, regardless of the shape of the ad — and display advertising is something that as a business owner you are probably just as, if not more, likely to have used than direct mail. Display advertising covers billboards, but it also covers ads in periodicals, and, most significantly, ads in your local Yellow Pages.

Display Ad Pricing

The price (cost) of a display ad is primarily influenced by two factors: how targeted the ad is, and how many eyeballs it attracts. This is true for both the on-line and off-line versions. If you’ve ever worked with an ad agency, you will have heard them talk about things in terms of “eyeballs”, which is industry slang for the somewhat jargonistic “impressions”: the number of times your ad is seen. A billboard ad on a busy stretch of a major interstate costs a lot more than that same billboard ad on the side of a barn along a rural road. Of course, the reason is that it’s garnering far more eyeballs: far more people are driving by, and therefore seeing it, every day.

The same is true with publications: an ad in a publication with large circulation costs more than an ad in a publication with limited circulation. However, there’s another factor here. If you divide the cost of the ad by the circulation of the publication, it will often turn out that the cost per impression is much higher in the more limited one. Why? Because the more limited one is also (presumably) more targeted. An ad in the New York Times might cost more than an ad in the Journal for Research in Mathematics Education, but the cost per impression of the latter is almost certainly much higher. And if you were selling a product for math teachers, then that higher cost per impression would almost certainly be worth it — because the periodical is much more targeted. That is, the quality of the impressions is much higher for your product, because they are much more likely to buy it than the general public is.

The same thing is true of on-line display advertising: the cost of advertising is directly related both to the number of impressions and how targeted those impressions are. When pricing an ad, these two characteristics are rolled up into a single number, the CPM, or cost per thousand impressions. That number, the CPM, can vary tremendously based on the two factors. It is fairly easy to find published CPM rates anywhere from 25¢ to $60 (that is, anywhere from $0.00025 to $0.06 per impression).

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