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The What, Why and How of Programmatic Advertising (and 5 Tips on Using It) Effectively target specific groups across a wide swath of the internet with this marketing tool.

By Harry Kabadaian

Opinions expressed by Entrepreneur contributors are their own.

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As any digital marketing pro can tell you, programmatic advertising is one of the most critical — and least understood — concepts in the industry today. It's a strategy made more difficult by the fact that individual platforms and vendors in the space use a confusing array of redundant and overlapping terms to describe the process. For the average business, though, understanding and making use of programmatic advertising is essential in today's multichannel environment.

In reality, programmatic advertising is a pretty simple thing to grasp, once you drop all of the jargon and boil it down to its essentials. That doesn't mean, however, that it's an easy strategy to use correctly. To help, here's an easy to understand overview of what programmatic advertising is, how it works, and 5 specific tips on how to use it to get the biggest bang for your marketing buck.

Related: Reprogramming Digital Engagement with Programmatic Advertising

What is programmatic advertising?

Put simply, programmatic advertising refers to the practice of using an automated bidding and placement platform to buy and sell digital ad space in real time. What makes it so effective, though, is that the bidding decisions are made using data that indicates the user's interests, geographic location and specific consumer profile. That makes it possible for businesses to create hypertargeted ad campaigns that make the best possible use of their budget and that self-adjust based on available advertising inventory. In short, it's one of the most effective, efficient and valuable types of marketing automation out there.

How it works

Although the specifics of each platform can vary, the way programmatic advertising works is always the same. The advertiser creates a campaign with a set budget that includes specific targets and goals, and uses KPIs as a measure of how well the campaign meets them. The platform then uses an algorithm to automate the process of selecting the right advertising opportunities on the right platforms as they become available. Then, the platform carries out an auction to determine which advertiser gets which placement. Critically, all of the action takes place in the time between when a user requests a web page and when it appears on their screen.

For businesses, this means having the ability to target specific groups across a wide swath of the internet landscape, all within the same campaign. In practice, it helps ensure that the business's message is seen by the exact audience for which it's intended, no matter where they surf. So if it makes the most sense to advertise on Facebook to reach the right audience, that's what'll happen. If the algorithm decides that the most effective use of the campaign's funds is to run the ad on a niche website where a small subset of the desired demographic congregates, the ad goes there instead.

Related: Podcast Advertising: Is Programmatic the Next Big Thing?

How to use it effectively

One of the biggest issues that businesses tend to have when trying to figure out how to best use programmatic advertising is that they see it as a set-it-and-forget-it solution. They hear the term "automation" and believe that the machine will have all of the answers from day one. In reality, the opposite is true. Crafting a programmatic advertising campaign takes plenty of forethought and continuous tweaking to get right. To encapsulate what has to be done, here are five tips to make such a campaign a success.

1. Don't arbitrarily pick a platform

Before beginning the process of building a programmatic advertising campaign, it's first essential to choose a platform that has everything needed to make it a success. With so many to choose from, it's best to ask plenty of questions before committing to a single platform.

For example, it's important to understand their reach, so finding out which ad exchanges are included and if they contain the sites most relevant to the campaign's likely target audiences is critical. It's also worth finding out if the platform relies on demand-side platforms (DSP) as middlemen to reach those exchanges. Last, getting to know the platform's pricing structure and how they'll invoice for their services (dynamic vs. fixed CPMs) can determine if a platform's a good fit for a given campaign.

2. Communicate with your representative

One thing that all programmatic advertising platforms have in common is that they assign advertisers to a representative who's there to help make every campaign a success. They have access to all kinds of historical data about other advertisers' campaigns and can offer insight that can increase the odds of success. So, the best advice is to communicate with the platform representative early and often throughout the process. It's their job to help, and with broad experience under their belts, they are better equipped to provide it than the average first-time user of the platform could ever be.

3. Use iterative optimization

When putting a campaign together, the best approach is to target it as generally as it is possible to get started, then revise it as performance data becomes available. This process should be repeated, gradually narrowing down the campaign's targeting with each pass. It's the same kind of iterative optimization that's used in other forms of digital marketing, and it's the surest way to develop a high-performance programmatic advertising campaign over time.

4. Choose channels wisely

Because programmatic advertising is, by default, a multichannel affair, it's important to choose from what's available to make sure the right messaging reaches the right platforms to meet the stated goals. For example, there's a wide variance in the target demographics that the various social media platforms reach, but that's not the only thing to worry about. It's also necessary to choose channels based on what the campaign's trying to accomplish. If the goal is to drive traffic to a landing page, for instance, the campaign should target channels that allow for direct traffic, which means eliminating things like ads on connected media devices (TVs, set-top boxes, gaming hardware). Getting this choice right will have a direct effect on the efficiency of the campaign.

Related: 12 Social Media Trends to Watch in 2020

5. Experiment wherever possible

Once a campaign's delivering solid results through a specific set of channels, it doesn't mean there's nothing left to do. Since digital marketing always involves making certain assumptions about a target demographic and the best way to reach it, it's always a good idea to test those assumptions by trying other approaches that may not be obvious ones. That often means making limited runs of advertising on channels that seem like they aren't a good fit to make sure that the campaign's not missing out on a channel where there might be less competition.

To get this right, however, it's crucial to have a solid analytics solution in place to connect the individual channel results back to conversion behavior. That makes it possible to conduct cost/benefit analyses and try to identify "diamond in the rough" opportunities that can amplify the effect of a campaign.

Related: 5 Ways Brands Can Reinvent Their Digital Marketing Strategy

Time to get started

It should be clear by now that programmatic advertising isn't anywhere near as complex as it may seem from the outside looking in. In fact, using it well isn't all that much different from any other digital marketing approach. It's still necessary to use the same judgment and optimization strategies as you would for a manually executed advertising campaign. In effect, the only real difference is that there's a sophisticated algorithm helping to turn the campaign's parameters into results at the lowest possible expense. So, for any business that hasn't added programmatic advertising to its marketing arsenal, the only question that should remain is: Now that you know what it can do for you, what are you waiting for?

Harry Kabadaian

CEO of Fancy Lab

Harry Kabadaian is the CEO of Fancy Lab, a digital marketing agency. Kabadaian is also the co-founder of Ideal Evolved, a Magento development company. He's a serial entrepreneur and brand strategist who is passionate about marketing, tech and small business.

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