Re: Cost-per-Action Advertising

From: John Gaskill <gm_at_info-central-usa.com>
Date: Thu 03 May 2001 11:27:04 -0500

MICHAEL ODZA <modza_at_sfnewmexican.com> WROTE:

>While I salute anyone who can make a deal that works, I
>think there's an unfair comparison being made when we
>make the analogy between web advertising and other
>direct response, and try to buy our web advertising on
>a cost per action basis. As one who sustained a highly
>targeted print newsletter for a dozen years primarily
>on direct mail campaigns, I'm intimately familiar with
>the costs involved in DM. It's true that web ad
>effectiveness can be *measured* by looking at the cost
>per action, but I don't think it's a reasonable way to
>*price* the purchase of the advertising space (trust
>me--it's not just because I now have banner ad space
>to sell!)

Only the most sophisticated publishers are willing to
take "cost per action" contracts from advertisers.
Not only are they good for the advertiser, they are
good for the publisher when the publisher controls
the order queue and can confirm the number of
orders placed.

CPA contracts are also good for the publisher as
market feedback about the purchase preferences
of their customers. And this information is based
on real world situations, not questions on a market
survey. As everyone on this list knows, the cost
of producing an extra page of advertising is not
great compared to the cost of doing a statistically
valid survey of a large readership.

Publishers with the knowledge of what does and
doesn't sell have an advantage in knowing where
to point their sales staffs, etc. Need I also mention
that profitable CPA campaigns can be very profitable
for publishers with large circulations.

>Look at this way: if you had something to sell, do you
>think you could go to a direct mail shop and say, you
>buy the postage, you buy the paper, you buy use of the
>list, the mailmerge, etc., etc.--and I'll pay you a
>little bit per order I receive? The medium costs too
>much, the players know how much depends on the product
>and the offer, and they would have gone out of business
>long ago if they took a commission from the direct
>merchants.

Poor analogy. You have just said the customer pays
the costs. What does the DM shop do?

If they supply the copywriting and creative and
all other costs are paid by the advertiser I suspect
that a number of shops would make a deal if they
could assure fulfillment and verify orders.

>The big difference (okay, one big difference) between
>the cases of direct mail and direct response on the
>web is the cost of the delivery. As an advertiser, you
>can't help thinking about how cheap those electrons and
>pixels are to manufacture and push around, but it's
>unfair to base your media decisions on your supplier's
>cost alone.

Supplier's cost is a benchmark the advertiser
has to keep in mind to remain solvent. Had many
dot-bombs thought about their spending relative
to the costs of production and distribution, they
might still be around today.

>What DM people do is target, target, target; test,
>test, test...
  ------------- < snip > -------------------------

Which is what more net advertisers should have been
doing all along. At least they are finally coming around.

Regards all,


John Gaskill
jg_at_info-central-usa.com
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Received on Thu May 03 2001 - 11:27:04 CDT