Pay For Performance Marketing – A Curse Or A Boon For Digital Media?

We were at the Pay For Performance panel yesterday held at Sunville Rooms Worli, Mumbai by IAMAI and Pinstorm. The discussion was an interesting one but for me certain key issues were highlighted during the discussion which threw light on what could possibly be the future of Digital Marketing in India.

pay for performance

Insight 1- When you say ‘performance’ – What Performance metrics are we talking about?

Debdutta Upadhyay of Yahoo raised this point. According to her performance is measured against metrics and if metrics themselves are wrong then the point of measuring performance is futile. She also stressed that the metrics one measures should be based on the client/brands objectives. For example increase in sales could be one objective or some brand may have the objective for positioning their brand superior to another while some may want a detailed understanding of consumer perception.

She said the one size fits all for clicks and leads metrics isn’t what will drive value. She also gave the example of people driving traffic to their website when the website has absolutely no interactivity to engage an user.

All in all she was driving the point across that measurement metrics for online should be different for different client objectives and everything can’t boil down to leads or clicks as thats just one metric.

Insight 2 - Whats the lifetime value of a customer acquired online? Is it more than that of offline customers?

A gentlemen from the audience who represented HSBC asked an interesting question around the lifetime value of an online acquired customer. He posed the question to Pradeep Srivastava from Idea and asked him whether Idea was tracking whether the online acquired customer was more likely to opt for an ECS bill payment than other customers which means saving of money for Idea or whether we was likely to be a high ARPU customer again more money for Idea. Also may be an online acquired customer was more likely to buy VAS and other products of idea like the Netsetter datacard. Well all these questions increase the value of a customer acquired via online and thereby the money that companies should be spending online.

Insight 3 – Pay for performance  – The ideal way to sell digital be it leads or branding?

Post the panel I had an interesting discussion with Mahesh Murthy of Pinstorm (earlier a search marketing firm and now a full service agency). I asked Mahesh why did he shift his focus from SEM (search engine marketing). He stated that they were not in the business of SEM but they were in the business of providing pay for performance solutions. When I raised the question that pay for performance kills creativity and branding opportunities Mahesh contradicted me stating that given the way the internet medium is and its ability to track performance there is no way that performance measurement can be taken out of the picture. He also stated that non accountability to clients isn’t the way any agency could sustain and just creativity alone can’t be sold.

So I probed Mahesh a little more on his model and realised that its different from the Flat fee or commission based models that other agencies have. Also their measurement metric isnt CPM but cost per impact which is calculated by pixel size of banners and unique impressions to come to an Impact unit calculation. What’s even more interesting is they ask the client the deliverables and then base the costing on the actual delivery of those deliverables and this isn’t only done for SEM but for SEO, SMO and even banner based campaigns. This model reminded me of a friends business who was in the paper trade business and at a young age he took over the business from his dad and within 2 year bought a flat a car and what not. I was surprised at his sudden growth and asked him what did he do? He said in hindi “Client ko dekh kar dabbe mein daalta hoon” i.e. He understands the clients requirements and paying capacity and then quotes him a price for delivering exactly what he wants. This is possible because he was in the decorative paper, boxes stationery etc business where many permutations combinations were possible to create and deliver the same product. This also meant that his production costs could be lowered by him based on what material he used so he could provide the similar product in 10 bucks as well as 100 bucks.

Digital is somewhat similar in nature but only difference is that its a service and not a product. There is SEM, Banners, SMO, hundred different kinds of banners as well. What Pinstorm seems to be doing is controlling/managing/manupulating their costs on the supply side and charging a fixed cost per deliverable on the demand end thereby hiding their margins from clients. On a fixed fee/retainer the cost is calculated per person/man hours as a justification and In commission its on media buy i.e. % terms. In both those models digital doesn’t scale that much as the media buy’s aren’t huge enough and the people cost is pretty high thereby driving the fixed cost. The pay for performance model seems to be bridging this gap.

The question to be asked is .. is it a boon or a curse?

Pay for performance model if compared to other mediums like TV and print where there is notion of performance and branding and creative impact of campaigns is valued more is certainly a drawback to the monies that client would spend on digital. But it has to be admitted that the strength of digital medium does lie in its ability to track metrics and over time as scale of the usage of the medium increases so will the value paid for the user/customer acquired via the medium. So answering the question: In the shortterm it may be a curse as it limits scalability for many players and keeps the market small but in the long run it may actually be a boon.

2 Responses to “Pay For Performance Marketing – A Curse Or A Boon For Digital Media?”

  1. Kapil Kulkarni
    January 14, 2009 at 5:36 pm #

    Dear Rajiv, Lintas Media Group was also one of the organisers of the event.

  2. January 22, 2009 at 12:20 pm #

    While we are on the topic, heres an interesting address to a team of direct response marketers by Sir David Ogilvy. (Due credits to the copyright owners!)

Leave a Comment

3 − one =