What is Programmatic Advertising (And How Does it Work?)

An innovative approach that has revolutionized the way businesses connect with their target audience is programmatic advertising, a technology-driven, data-centric approach to procuring and positioning digital advertisements. In contrast to conventional ad-buying methods that include human negotiations and manual insertion orders, programmatic advertising utilizes algorithms and technology to simplify the entire process.

How Does Programmatic Advertising Work?

Let us have a look at how programmatic advertising works.

Data Collection and Analysis

Data collection and analysis involve the systematic gathering and examination of information about the target audience to inform and optimize advertising strategies. Marketers start by creating detailed profiles of their target audience. This includes demographic information such as age, gender, location and income level.

Understanding how users interact with digital platforms is essential. Marketers collect data on online behaviors, including browsing history, search patterns and the types of content users engage with.

Learning about the preferences and interests of the target audience helps in tailoring advertisements to be more relevant and appealing. This data can include information about the products or services users are interested in. Knowing which devices (desktop, mobile, tablet) and platforms (websites, social media, apps) the audience prefers provides insights into where and how to deliver ads effectively.

Marketers use various sources for data collection, including first-party data (collected directly from their own interactions with users), second-party data (shared directly with partners) and third-party data (purchased from external sources).

READ: Battling the “Data Wheel of Death” in Business Development

Ad Inventory Auction

This is a critical component of programmatic advertising that involves the sale of advertising space in real-time through auctions. In the programmatic ecosystem, publishers make their available ad space, known as ad inventory, accessible for advertisers to bid on.

Publishers, which could be website owners, app developers or other digital platforms, designate spaces on their platforms for displaying ads. This can include banner spaces, video slots or other formats.

Publishers provide details about the available ad space, including the type of content it will be displayed alongside, the target audience and the format of the ad (e.g., display, video, native).

Ad inventory is made available in real-time, often through ad exchanges or supply-side platforms (SSPs). These platforms facilitate the connection between publishers and advertisers. Ad exchanges or SSPs play a crucial role in the ad inventory auction. They act as intermediaries, managing the auction process and ensuring that the transaction occurs seamlessly. Advertisers, through demand-side platforms (DSPs), review the available ad inventory based on their campaign objectives and target audience criteria. They then place bids on the ad spaces they wish to secure.

The bidding process occurs in real-time. Advertisers set a maximum bid for each impression, and the highest bidder wins the right to have their ad displayed in the designated ad space. The auction process often involves dynamic pricing. The winning bid may not necessarily be the full amount the bidder was willing to pay. Instead, it could be a slightly higher amount than the second-highest bid.

Once the auction is concluded, the winning ad is immediately placed in the reserved ad space on the user’s screen. This entire process happens in a fraction of a second as the webpage or app loads.

READ: From Clicks to Conversions — How to Craft an Effective Online Advertising Strategy

Optimization

Programmatic advertising platforms constantly monitor the performance of ad campaigns in real-time. Metrics such as click-through rates (CTR), conversion rates and engagement levels are tracked to gauge the effectiveness of each ad.

The data collected during the campaign, including user interactions and responses, is analyzed to identify patterns and trends. This analysis helps advertisers understand what is working well and what may need improvement. Based on the insights gained from the data analysis, programmatic platforms make dynamic adjustments to various campaign parameters. This can include changing bid amounts, refining audience targeting, adjusting ad creatives or modifying the timing and placement of ads.

Programmatic advertising often leverages machine-learning algorithms to automate the optimization process. These algorithms can quickly analyze vast amounts of data and make predictions about which adjustments are likely to yield the best results.

READ: 5 Metrics for Measuring the Success of Emotional Marketing

Cross-Channel Integration

Programmatic advertising is not confined to a single digital channel. It can span a range of channels, including display advertising, video, mobile apps, social media platforms, and even traditional channels such as television and radio. Advertisers can manage and coordinate their campaigns across different channels through a unified platform. This centralized approach streamlines the planning, execution, and monitoring of cross-channel campaigns.

Cross-channel integration ensures that the messaging and creative elements of the campaign remain consistent across various platforms. This consistency helps reinforce the brand message and identity, contributing to a cohesive and memorable customer experience. Advertisers can leverage audience insights and targeting capabilities consistently across multiple channels. This ensures that the right message is delivered to the right audience, regardless of the platform they are using.

Programmatic advertising platforms can adapt to user behavior across different channels. For example, if a user interacts with an ad on a website, programmatic systems can adjust the targeting parameters to deliver more relevant ads on social media or mobile apps. Advertisers can implement sequential messaging strategies, where a series of ads are delivered in a specific order across different channels. This storytelling approach helps guide users through a narrative or marketing funnel.

READ: Cracking the Code of Business Marketing — 10 Strategies for Success

The bottom line

In the dynamic landscape of digital marketing, programmatic advertising emerges as a transformative force. Its automated and data-driven methodology not only boosts operational efficiency but also equips advertisers with the ability to make timely and informed decisions.

As businesses increasingly immerse themselves in the digital domain, the comprehension and utilization of programmatic advertising’s capabilities are unquestionably crucial for attaining success in marketing endeavors.

Andy Beohar is the Managing Partner at SevenAtoms, a leading B2B demand generation agency. SevenAtoms is dedicated to driving growth for SaaS and B2B businesses through innovative and optimized paid search and is recognized by Google as a Google Premier Ads partner. At SevenAtoms, Andy plays a strategic role in managing paid search campaigns. Let’s connect on LinkedIn and Twitter!