Programmatic Advertising: What it is and How it works

By March 20, 2017Advertising

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The methods of digital advertising are constantly evolving. With the increase in penetration of mobile usage, consumer behavior along the purchasing journey has changed drastically. Your potential customers are no longer seeing an ad on the TV or in a magazine and making a purchase; instead they are seeing your product, doing research, consulting with friends, reading reviews, and then making a purchasing decision. Additionally, the length of time between the decision making process and making a purchase now differs significantly from say 5 years ago, this process can take days, even months. With these changes in consumer behavior, marketers have to find a way to break through the noise, and drive brand recollection, thereby increasing the chance of purchase. With this need, programmatic advertising is one of the digital solutions.

What is Programmatic Advertising?

Programmatic advertising refers to an automated digital ad buying platform that allows advertisers to connect directly with customers that are looking for that product or service.  Programmatic advertising relies on artificial intelligence to target ads to the right customers. This artificial intelligence uses algorithms to analyze a customer’s online/ digital behavior (such as Google searches, apps downloaded, etc.) to find out what their interests are, so that ads can be shown to the customers whose online behavior suggests they are most likely to act on them.

How it works

An ad is developed by an advertiser and sent to a programmatic ad agency for placement. The ad formats include display (statics, HTML 5 and rich media), video and native formats. Programmatic ad agencies then utilize Demand Side Platforms (DSP) to buy ad spaces through the allocation of bids for the ads to be shown. A bid is the amount of money an advertiser is willing to pay for persons to see their ad. These DSPs also include Data Management Platforms that collect and analyze data from customers’ devices cookie to provide information that informs what ads is shown to each customer. After the customer is identified to be served a type of ad, for example a car ad, a decision needs to be made about which advertiser’s car ad should be shown.

To make this publishing decision, ad spaces on each web page or within an app, are allocated through a Supply Side Platform (SSP). This SSP selects the ad that is shown to the customer by using data collected, such as how long the customer has been on the site, or the number of pages visited on the site. Using this information, an auction is done, based on the bids set by each advertiser, and the advertiser with the winning bid gets their ad shown to the customer. This process of collecting the customer’s data, completing the auction, and publishing an ad takes place in real-time, which means it’s completed in milli seconds.

RTB

Diagram showing the process an ad goes through before it is shown in programmatic advertising.

To summarize, programmatic advertising offers phenomenal efficiency as it is targeted directly to users based on their interests, behaviors and the context. For advertisers, programmatic provides an avenue for ads to be shown to customers who are most likely to act on it. The gathering of information about customers’ behaviours can be thought of as a digital referral. The information collected from the customer tells what their interests are; such as buying a new car, life insurance, or shoes. This information from the customer recommends which ad is shown and gives the brand an opportunity to offer their solution to the customer, which is what each brand aims to do through advertising.

To discuss a programmatic advertising option for your brand, contact us today!

In our next blog we will take a look at the advantages of Programmatic Advertising and brands that are currently using it.