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High friction sales processes don’t work in local

Recently, CPA has been exalted as the savior for local monetization. Low friction, high velocity sales are key in local. Below are three reasons CPA billing models introduce significant friction into the sales process and don’t align incentives of advertiser and ad network as well as other models. Until these issues are resolved at scale, I expect CPC to dominate pricing models in local advertising.

  1. Measurement must be completed by the advertiser – in CPC, it’s easy for the ad network to measure a click. But in CPA, the advertiser must send data back to the ad network controlling the sale because the ad network isn’t part of the payment flow and thus lacks visibility into transactions. Data sharing integrations are rife with friction because of the confidentiality of sales data and the realities of technical integration.
  2. The ad network has no control over the conversion effectiveness of the advertiser – On the web, the most critical part of the sales funnel is the landing page (the page a user finds after clicking the ad). Optimizing landing pages is a big business because out of the box landing pages can be improved by orders of magnitude with tuning, generating much more revenue. Remember, that the advertiser is responsible for investing in landing page optimization. The CPA pricing model forces the ad network to assume the risk of bad conversion rates and lower revenue resulting from under-optimized landing pages. For local offers, the issue is the same. An ad network cannot influence the effectiveness of sales people, local store inventory or many other factors influencing conversion at point of sale.
  3. Average CPA prices are much higher and have dramatically lower volume, making these models harder to sell – For SMBs, marketing dollars are precious and scarce. Investing several hundred dollars a month to drive a thousand clicks seems more valuable than investing the same amount and bringing in 20-50 visitors to the store. Unless the merchant has a strong understanding of up-sell, cross-sell and lifetime value of a customer, it’s as simple as perception of getting more for your money.
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