Summary of Will CPE (Cost Per Engagement) advertising ever take off? at andrewchen

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    The Rise and Fall of Cost Per Engagement Advertising

    This article explores the concept of Cost Per Engagement (CPE) advertising and why it may not take off as a dominant model.

    • The author argues that CPE is a "weird" metric because it targets metrics that different types of advertisers value differently.
    • Direct response marketers, focused on Return On Investment (ROI), prioritize metrics like cost-per-action (CPA) and cost-per-click (CPC) that directly translate to sales and profits.
    • Brand advertisers, on the other hand, are more concerned with brand awareness and positioning, often opting for traditional channels like television and billboards.

    Direct Response Marketers: ROI-Focused

    Direct response marketers, known for their data-driven approach, are highly focused on quantifying the value of every advertising dollar spent.

    • They prioritize advertising channels where they can measure results, such as search marketing, email marketing, and telesales.
    • Direct response marketers seek to understand the lifetime value of a customer (LTV) and measure advertising success against the cost per customer acquired (CPA) or cost-per-action (CPA).
    • Their goal is to maximize ROI by ensuring that advertising investments generate a positive return.
    • CPE, with its focus on engagement, is less appealing to these marketers, as they prioritize metrics that directly impact sales and profitability.

    Brand Marketers: Awareness and Positioning

    Brand advertisers are more concerned with building brand awareness, establishing a strong brand identity, and differentiating themselves from competitors.

    • They often target large consumer bases, seeking to create an emotional connection with their brand.
    • Traditional advertising channels like television, billboards, and print media are frequently used to reach these broader audiences.
    • While they may utilize search advertising, their goals differ from those of direct response marketers. They often seek to dominate search results, rather than solely focusing on ROI.
    • Brand advertisers might be less interested in CPE, as they are not as focused on optimizing every advertising dollar for direct conversions.

    Why CPE is a Misfit

    CPE, as a metric, faces challenges in appealing to both direct response and brand advertisers due to its inherent limitations.

    • Direct response marketers, with their emphasis on ROI, see "engagement" as a secondary metric compared to direct sales and profitability.
    • Brand advertisers, while valuing brand awareness, may not be as keen on optimizing for engagement costs, as they prioritize the placement and impact of their advertising campaigns.
    • The author posits that a high CPE on a prominent platform like the front page of YouTube might be more appealing to a brand advertiser than a low CPE on less prominent placements.

    The Future of Advertising

    Despite the emergence of CPE, the author believes that traditional advertising models like Cost Per Mille (CPM) and CPC/CPA will continue to dominate the market.

    • CPM, based on impressions, will remain relevant for brand advertisers seeking broad reach and brand awareness.
    • CPC/CPA will continue to be the preferred model for direct response marketers who prioritize measurable results and ROI.
    • The author suggests that CPE might become a secondary metric used alongside other models, possibly as a bonus incentive for successful campaigns.
    • However, CPE is unlikely to replace existing models as the primary means of advertising on the web.

    Conclusion

    While CPE may offer a novel approach to advertising, it faces significant hurdles in gaining widespread adoption.

    • Its focus on "engagement" does not align well with the priorities of both direct response and brand advertisers.
    • The author suggests that traditional advertising models like CPM and CPC/CPA will continue to dominate the market.
    • CPE may find a limited role as a secondary metric or bonus incentive, but it is unlikely to become the dominant model.

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