As Apple and Google strengthened their privacy rules, many of the biggest ad platforms have started to “lose signal” meaning they can no longer effectively target specific audiences based on their past viewing habits. Advertisers in the packaged consumer goods (CPG) industry are reporting a 30% increase in cost of activating new customers from digital ads, click-through rates often fall below 1%, and most of these clicks are accidental. Media buyers are looking for a way to further leverage their existing tactics to drive conversions, and they want bottom-of-funnel results to be more directly measurable, not just modelable.
Advertisers’ next turning point
In this challenging environment, many leading advertisers are increasing their investment in performance marketing. Performance marketing allows an advertiser to pay per sale rather than per impression (CPM), per click (CPC), or per print (CPP). The appeal is clear: Advertisers only pay when their ads “work”—that is, when the ads result in a verified sale of their product in-store or online. Advertisers know in advance exactly what they will pay per sale and no longer rely on more controversial statistical models to determine how much each campaign or tactic leads to sales growth. As targeting based on “likes” and Google searches gets harder, performance marketers can now target their ads based on the most valuable data: the actual buying behavior of each consumer.
Mobilizing CPG advertisers
The core concept of performance marketing is nothing new. For years, online retailers have relied on affiliate marketing, a form of advertising that allows publishers to pay a fixed, pre-negotiated percentage of any online sales generated by their ads. This year, affiliate ad spend will surpass $8 billion in the US alone – double what it was in 2015. Globally, affiliate ad links account for 15% of all sales generated by online retailers.
For CPGs, ads continue to be sold at a CPM or CPC, rather than a fee per unit sold. So far, performance marketing has not been exploited as there is nothing equivalent to a national affiliate network for online retailers. For substantial money to move into the new, pay-per-sale paradigm, there had to be a way to follow the whole funnel from ad click to product-level purchase at multiple retailers. With over 85% of all CPG products still sold in stores, any viable performance marketing network should be able to track item-level purchases both offline and online. And that network had to reach hundreds of millions of consumers every day to make the shift in investment meaningful to advertisers. The combination of these factors did not exist at all – until now.
I founded Ibotta on the idea that giving consumers a small reward to try a new product is more cost-effective than bombarding them with online display ads. Over the past decade, we’ve built the industry’s first pay-per-sale platform for digital promotions, driving over 40 million downloads of our mobile app. We’ve worked with over 2,000 different CPG brand partners and awarded more than $1.2 billion in cashback. What we learned along the way is that cash rewards are a highly effective way to increase sales and encourage experimentation, leading to genuine approval from shoppers who first discover the brand through a reward. However, for all its benefits, our system still lacked the necessary scale to manage the lion’s share of an advertiser’s marketing budget.
A few years ago, we decided to change that by building the Ibotta Performance Network (IPN), a new way for CPG advertisers to combine marketing efficiency with Super Bowl scale. With IPN, advertisers can distribute digital promotions all at once in a coordinated manner across a wide network of publishers. Thanks to Ibotta’s partnership with Walmart and other major retailers, it’s now possible to reach digitally engaged consumers across the nation’s leading retailer websites, as well as consumers at Ibotta and other major third-party publishers on the network, through a single interface. This allows brand managers and media agencies to control their direct response strategies at the national level. Offer creation, stack prevention, fraud reduction, budget limits, campaign performance reports and invoicing are all handled through a single interface, an efficient trading desk for digital promotions.
IPN is launched with support from many of the world’s leading CPG brands and retailers. Its unprecedented scale and pay-to-sale efficiency have caused many of the world’s largest CPG advertisers to reconsider their marketing budgets. For these partners, performance marketing nicely complements their upper-of-the-funnel brand-focused tactics, helping to drive better conversions from these ads and increase the overall ROI. Ultimately, the success of IPN will help determine whether performance marketing will become the primary investment tool for CPG marketers. Regardless, it’s clear that performance marketing will continue to grow within the CPG marketing mix, and the next generation of advertisers and media agencies will benefit from perfecting it.