What Is Programmatic Advertising? A Guide for Marketers

In this modern digital landscape, there is no better way to generate conversions than to advertise on the highly populated online market that your customer base accesses daily. Yet, the traditional methods by which advertisers place ads are becoming outdated, causing an evolution within the industry. Advertisers have turned to the use of AI technology to create a more powerful data-driven system that allows them to get the most out of their vast online audience called programmatic advertising.

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But what is programmatic advertising? How can you utilize this tool to cash in on a higher return on investment (ROI) and improve audience targeting? This guide from elk Marketing will provide vital information about programmatic advertising, how it works, and what it can do for you as a marketer.

What Is Programmatic Advertising?

Programmatic advertising is the automated buying and selling of ads using marketing technology. This allows both companies that advertise to buy, and ad agencies to sell without needing human interaction. Within programmatic advertising, both parties communicate simultaneously through various channels around the ad exchange or digital ad marketplace.

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AI matches buyers with the best options on the ad exchange, depending on their target audience and budget parameters.  The best part of this system is that once buyers and sellers submit their parameters, the rest is automatic. 

Comparison: Traditional Ad buying vs. Programmatic Advertising

Programmatic advertising is a huge evolution in digital marketing that optimizes the process of buying and selling ads. As of this year, the ad spend on programmatic advertising in the U.S. alone is $157 billion and will likely exceed $300 billion by 2027.

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Typically, buying ads requires marketing teams and publishers to meet and negotiate a price for a campaign. These simplified agreements cost a fixed amount, whether the ads are beneficial or not. This method often leaves buyers unsatisfied with the results of ad campaigns and wanting a more tailored approach to reaching their audience.

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This practice has become less effective due to the number of companies and platforms. Now, intermediary systems allow buyers to send bids to multiple platforms at once or for platforms to notify companies when they have ad space available. 

How Programmatic Advertising Works

The programmatic advertising ecosystem has three major moving parts: the demand-side platforms (DSPs), the supply-side platforms (SSPs), and the ad exchange. To complete the sale of these marketing assets, there is a bidding process that allows companies to sell ads using automation. Behind this automation are complex technological procedures to keep it running smoothly, such as AI and data management platforms (DMP).

Key Components

Demand-side platforms are the software buyers or advertisers use to create ad campaigns and make offerings on currently available ad space. When starting an ad campaign, the advertiser will upload their associated assets, set a price point according to their budget, and provide information about their target audience. 

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Supply-side platforms serve a complementary purpose to DSP. This software allows sellers, such as websites, content streaming platforms, and other native ad spaces, to share ad openings and connect with potential buyers. With this software, sellers can filter clients by potential traffic, target audience, ad content, and unsuitable content. 

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Ad exchanges are intermediaries between buyers and sellers of ads. The ad exchange is a virtual marketplace, and Google's ad exchange is one of the most common examples. It’s a regulated system that allows both buyers and sellers to get the most out of their assets.

Process Overview

Since programmatic advertising is an automated process, you may be curious about what technology they use. Within programmatic, the use of data management platforms, artificial intelligence, and algorithms streamline the flow of information within the software.

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Programmatic advertising uses algorithms and AI to determine where you should place your ads. AI is extremely proficient in processing quantitative data. The AI used in this software can interpret user cues such as where they are browsing from, what their demographic is, and what they're interested in. The AI determines this by using aggregate data linked to their online presence.

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With this information, the algorithm can calculate their click-through percentage, or CPT, also known as the likelihood that they will click on a given ad. This information is the basis for whether an advertiser should bid on the given ad space. Automation allows AI to gather, interpret, and act on this information in real time without human intervention. 

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Despite this AI's refined nature, it wouldn’t work properly without the data to back its computation. Data Management Platforms (DMPs) are cloud-based tools that compile and organize all data about your ad campaign, your target audience, and the people who view your ads. The more robust your DMP is, the better you will be able to match your ads to the type of people likely to buy your product. 

Types of Programmatic Advertising

The programmatic advertising software creates a framework that allows many points of connection between buyers and sellers. This breadth of options for placing ads is beneficial for advertisers, but it can be overwhelming if you aren’t familiar with the different types.

Real-Time Bidding (RTB)

The most common example of ad placement is real-time bidding (RTB). In this process, any number of buyers can simultaneously bid on an ad slot on an ad impression basis. If the ad slot is a good match for the highest-bidding advertiser and meets the publisher's guidelines, the publisher displays the ad.

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This can be useful when targeting a very specific audience and shows a direct return on investment. By winning the bid, you know someone in your audience will see your ad. This is also the most widespread form of programmatic advertising.

Programmatic Direct

If you want to forgo the bidding process, you can also take advantage of Programmatic Direct. This allows advertisers to contact and make a deal with the publisher one-on-one. It allows an advertiser to guarantee valuable, high-traffic ad spaces with the publishers they most prefer. 

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This form of advertising is best when the product for the ad and the publisher's site have complementary or similar goals. For example, an online book retailer might partner with an e-learning website. This can be a complementary partnership that results in a benefit for both parties.

Private Marketplaces (PMP)

A private marketplace is an environment cultivated by a publisher who wants to work with only certain advertisers. By setting the parameters and only offering their ad slots to certain brands, they have more control. 

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This type of programmatic advertising works well for high-value advertisers working with high-value publishers. This allows sellers to maximize their profit while providing a higher-quality of ad space. For example, the New York Times may only want to work with high-profile advertisers who aren’t news sources. In this case, they would send out a PMP invite to Nike, but not to the BBC.

Preferred Deals

There are two options when it comes to programmatic directs: preferred deals and preferred guaranteed deals. Preferred deals set a precedent for price, but volume is not guaranteed, so they place ads on an availability basis. Alternatively, preferred guaranteed deals involve paying a lump sum for a guaranteed number of views at a set price.

Benefits of Programmatic Advertising

Programmatic advertising makes up roughly 90% of the ad spend in the U.S. because it’s the best way to improve businesses' ROI. Here is an outline of some of the most important benefits of utilizing programmatic advertising.

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Among the biggest benefits of programmatic advertising are efficiency and speed. By skipping lengthy negotiations, businesses can get their ads out there much faster. Most forms of advertising happen in real-time and without having to constantly monitor bids. 

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Another important factor is the precision targeting that programmatic advertising provides. The sophistication of the AI and algorithm enables advertisers and publishers to define their intended audience, leading to better ad impressions.

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Speaking of real-time, programmatic advertising users benefit from real-time optimization. This means that by using ongoing streams of data, advertisers can use the best strategy possible right away with the help of the algorithm. 

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This data-gathering capability also makes programmatic advertising a powerful tool for scalability. This software helps define your audience and also grants more accessibility to the wide network of advertising platforms. Utilizing this tool can push your business to new heights.

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Despite all these features, one of the biggest considerations for businesses is the bottom line. The good news is that programmatic advertising is also cost-effective. Knowing your ads will reach exactly the right audience means you guarantee a return on investment. This precision of ad spend can make a programmatic approach more profitable.

Challenges and Considerations

Though programmatic advertising is a powerful tool with many benefits, there are challenges and considerations when using it.

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One of which is an ongoing potential for ad fraud, a practice of exploiting or manipulating data to earn money within the ad exchange. This can look like falsely inflating clicks or ad impressions to garner a higher buy price. There are several software tools you can use to prevent this type of fraudulent activity. 

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Another concern is brand safety. With automation comes complications about improper ad placement. Protecting your brand's reputation should be a top priority, which means making sure your ad appears in appropriate contexts. This can involve ongoing monitoring and improving expertise in defining your ad placement parameters.

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Though this type of advertising ultimately does share buyer and seller intent, there are still some transparency issues. Due to the number of automated placements, some companies may struggle to understand where their ad spending goes and how their ads are performing. Picking a good DSP can help with this, as many offer a dashboard that allows companies to track their ads and their payouts. 

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Finally, there are concerns about data privacy to contend with in programmatic advertising. User data is the basis of ad placement through this system, which, if compromised, can put users in a sensitive spot. Advertisers or publishers who want to prioritize data privacy should comply with regulations such as the General Data Protection Regulation (GDPR) and employ data protection and transparency around data usage.

Best Practices for Programmatic Advertising

If you want to use ad software for your business, it’s important to know the best protocol:

• Define Clear Objectives: A good campaign starts with aligning your goals with business objectives. Clarifying what you want from your customers and focusing on the correct audience will yield better results.
• Leverage Quality Data: Use a quality data management platform (DMP) to collect first-party and third-party data. Having this data will enable the AI to place your ads more effectively.
• Continuous Monitoring and Optimization: Although automation occurs without intervention, it’s still important to track and adjust your campaign as needed. Flexibility in marketing is essential to converting new customers.
• Choose the Right Partners: Understanding what makes a DSP and SSP a good partner is essential to succeeding with a programmatic advertising campaign. Pick a reputable software provider, and focus on placing ads on high-quality, verified publications whenever possible.
• Test and Learn: When starting out, you may not have the perfect approach. This highlights the importance of ongoing testing and experimenting with different strategies. Try A/B tests to see what markets perform better, and tailor your strategy accordingly.

Focusing on the best practices and receiving guidance from a trusted marketing agency can help you launch and execute your marketing strategy with confidence.

Case Studies

Programmatic advertising consistently drives ROI and improves your business's conversion rate. Here are a few notable case studies that highlight the benefits of this type of campaign:

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One case study highlights Hestan Culinary. By implementing a successful programmatic advertising campaign, they improved their return on ad spend (ROAS) by 300% in about a month. By retargeting its ads through catalog feed and native ads, the company increased its conversion rate from 1.91 to a remarkable 9.1, representing a 281% increase.

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This principle extends to many different industries, including automotive. In this case study about Michelin, a well-known tire manufacturer, programmatic advertising allowed them to achieve a 100% impression volume on their campaign. The company did this by accessing dual parameters around "car enthusiasts" and a specific age group.

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This strategy is also great for small businesses due to its high return on investment and scalability. A case study on a small British charity, called Missing People, highlights the potential benefits of programmatic advertising. They employed a specific method, called programmatic digital out-of-home (DOOH), which targets local digital billboards and displays to share advertisements. 

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By automating this type of ad, this approach improved response rates from 50% to 70% and led to the charity receiving £10 million of advertising inventory. This transformed their potential and allowed them to continue their cause of reuniting lost children with their families.

Final Thoughts on Programmatic Advertising

To conclude, programmatic advertising is an evolutionary marketing strategy that utilizes powerful AI technology to provide unparalleled results for businesses. By employing this software, your business can experience the ease, transparency, and improved customer focus that drives conversion, guaranteed.

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As technology continues to evolve and marketing options expand, it’s essential to stay on the cutting edge of marketing strategies. Programmatic marketing may be the strategy you’ve been missing that can unlock your growth potential.

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Have questions? Want to learn more about programmatic advertising? elk Marketing can provide the expert guidance you're looking for. Contact us to see what our proven marketing strategies can do to vitalize your business.