Decoding the most crucial terminologies in performance marketing

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Performance marketing is one of the most preferred tools brands use to drive the growth of their e-commerce businesses.  As the name suggests, in this form of marketing, the advertisers only pay based on the performance of their campaigns and how many people have actually seen the advertisement and performed the desired action. While major corporations can spend millions of dollars on branding, most businesses must focus on the bottom line to stay profitable. And this is where performance marketing has stepped up.

This blog will talk about some of the most essential performance marketing jargon that every marketer should be well versed with in order to scale their campaigns.

Affiliate marketing

The arrangement where the brands collaborate with partners, who promote the company’s products on their websites and other media in return for a commission, is called affiliate marketing. A partner earns a commission whenever a sale is made through their referrals. Moreover, it is one of the few forms of advertising where you pay for marketing spending only after the sale. This feature makes it an attractive proposition for e-commerce businesses to use this performance marketing strategy to reach many new customers, who otherwise are not approachable, with a minimal investment. In addition, this channel allows brands and marketers to generate additional sales outside of their customer channels.

Pay Per Sale

Pay per sale is the standard payout model in affiliate marketing. The affiliate is paid a commission or a percentage of the product’s sale price by the merchant if their affiliate marketing efforts lead to the consumer buying the goods. It is up to the brands and affiliates to determine the fair commission percentage. Top retail companies and e-commerce brands use the pay-per-sale method to compensate their publishers. This payout method does not require any upfront investment on the merchants’ part; they only pay their partners once the purchase is completed. The pay-per-sale process is also immune to affiliate frauds like false online traffic and wrong customer leads or leads that do not convert.

Also Read: How digital coupons are helping online businesses to scale

Conversion Rate

In performance marketing, conversion rate refers to the percentage of users who have completed the desired action. Conversion rates are calculated by taking the total number of users who ‘convert,’ dividing it by the overall size of the audience, and converting that figure into a percentage. The desired action does not always mean the user needs to buy a product. Instead, it can range from opening emails, subscribing to newsletters, sharing personal details, or buying the product. Marketers must decide what action they want their users to take through their performance marketing campaigns.

Native Advertisements

Native ads are advertisements designed to adapt to the surrounding content and context within which they are displayed, which enables them to integrate effortlessly into the user journey instead of interrupting it. In other words, native ads are ads that do not look like ads. Various surveys have shown that more than 80 percent of consumers prefer native ads to display ads even when they know that the former is still an advertisement. The soaring popularity of native ads can be gauged by the fact that it is expected to reach $400 billion by 2025. Some popular examples of native ads are sponsored social media posts, recommended content, or sponsored product listings on the marketplaces that look like organic search results.

A/B Testing

When a brand marketer creates two versions of a digital asset to see which works well or resonates better with the audience to decide on the future course of action, it is called A/B testing. In this technique, your audience is divided into two parts – the first half will receive version A of your campaign, while the other half will get version B. The performance of each version is based on conversion rate goals, such as the percentage of people who click on a link, complete a form, or make a purchase. Some benefits brands can derive from A/B testing are increased web traffic, higher conversion rate, lower bounce rate, and lower cart abandonment.

Clickthrough Rate

Clickthrough rate or CTR in performance marketing is a metric that measures the number of clicks the advertisers receive on their ads per number of impressions. For example, if you have received 1000 impressions on your ad with 100 clicks, the CTR will be 10 percent. CTRs are a good indication for marketers to understand how well their keywords, ads, and free listings perform. A healthy CTR means that your users have found your campaigns relevant. A poor CTR implies changing your strategies and testing more options.

Customer Segmentation

Customer or market segmentation is the process of categorizing customers based on different criteria.  The objective of customer segmentation is to enable you to group customers based on their needs, interests, and budget and their potential value to your business. For example, if you are running a fashion website, some users would have explored the baby segment while others looked into the men’s sportswear category. Likewise, some women users would be interested in traditional wear while others explored office wear. Since these users are looking for different products on your platform, brands can segment them accordingly and personalize their remarketing campaigns to target them separately.

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