Will CPE Play An Important Role among Pricing Models?

Written by Joey Wang

It is well known that for display advertising, the pricing models of CPM (cost per thousand impressions) and CPC (cost per click) are the most frequently used ones, which are also the proof of the increasing maturity of the web and mobile channels. Undeniably, shortages exist as well. For example, there is no doubt that not all the ad impressions are dutifully viewed by the audience but it is a nature of CPM. For those advertisers who do care about ROI, it always causes waste of money. Thus, CPC is always regarded as the most common alternative model to CPM, which could reflect the readers’ initial engagement willing with the ads.

Then speaking of engagement, there are more advertisers now focusing on creating interactive content to attract audience to get involved in the online campaigns as they have realized the phenomenon that CTRs for traditional banner ads been declining for years.

Therefore, in response, it is said that an increasing number of publishers have started providing a new model called CPE, which stands for cost per engagement. In CPE model, the impressions are free, it asks advertisers to pay only when users “engage” with the ads. In the past, we always treat those “like”s, “comment”s, “share”s, page or video views, etc. on social media as vanity metrics, which make not that much sense. While the CPE model takes all these into considerations, as advertisers have begun to wonder that whether their display advertising are exactly doing something to reach their business goals, especially for those brand marketers who want to move the needle on brand awareness, purchase intention and favorability. From this perspective, it seems that the CPE model does have its necessity of existence. Some advertisers even claimed that, clicks are a good proxy for direct response, but cognition is the right measurement for branding. CPE models that guarantee message comprehension will be seen as a last mile solution for branding.

Also as mentioned above, in CPE model, the impressions are free, which means that publishers who promote CPE pricing must believe that they can ensure genuine engagement at larger scale or even lower cost than their peers or competitors. Maybe because they have effective format or they can reach audience with a more relevant context. Otherwise, if CPE publishers fail to drive the engagement as promised, they will never get paid, which is actually beneficial to marketers.

However, what must be clarified is, the CPE does not fit for all the marketers. For example, for direct response marketers who are typically very focusing on ROI when buying advertising, all they want to know is whether people are going to buy, how many of the sales and whether the media they spent is going to be profitable. Engagement is not included in their business goals and then CPE should never become the choice of them. Therefore, it also reminds the advertisers that do understand what you are paying for and balance whether the model matches with your business goals. Besides, once decided to pay for engagement, marketers also have to make sure that they target at the right audience, if not, it will not make any difference to the situation that people will ignore your advertising.

Then back to the question of the title, as discussed above, I don’t think CPE is going to replace CPM who is the dominant display advertising metric as it is closed linked with the business goals of advertisers who are aiming to influence perception and gain brand awareness. But it still matters when necessary.