Facebook: Winning the Biggest Auction of Them All

By Thought Leaders Archives
Cover image for  article: Facebook: Winning the Biggest Auction of Them All

In our introductory column we described how auction-based trading has become pervasive in media markets. Our second column focuses on Facebook. It considers how an auction can create an advantage for the advertiser even in the pursuit of reach and frequency, an objective that would seem to be perfectly well served by the structure of a conventional reserve market.

Advertisers have long used reach and frequency as the principle framework of media planning. The logic is straightforward; set a communication objective and back that out to the desired number of contacts requiring to elicit action from a given percentage of a population. This is especially useful when you are buying GRPs from a channel, rather than impressions form a platform.

Facebook offers reach and frequency on a reserve basis and many agencies and advertisers take that path. Despite the "reserve"nature of the transaction every impression in the Facebook ecosystem does compete in an auction. It's a big auction; unique ad experiences in two billion plus unique Facebook and Instagram feeds require trillions of daily ad-to-impression matching events.

Less apparent perhaps, for the more vigilant auction participants, Facebook also allows advertisers to exploit the phenomena of infinite inventory to sharpen their reach goals and to take a variable pricing approach to their reach objective. Exploiting that variability can yield a significant price advantage compared to standard reach and frequency.

It's as simple as the idea of buying apples at auction. If you want five but there are only ten available, you will either want to reserve five at a reasonable price or need to be prepared to overpay or go without. If there are one million apples available and you still only want five you will be confident of getting your share at a more attractive price.

Auction variability and volatility are the friends of the attentive buyer. The Facebook Ads system allows you to set parameters that help test the relationship between cost and effective reach. Setting frequency goals and budget start and end dates to the same cadence reveals the relationship between frequency delivery, frequency cap settings and time. Take the case of a one-per-week frequency goal across a three-month campaign flight. Within a week the buyer can observe the delivered frequency at the frequency cap and then reset the campaign (technically create a new weekly adset) to have an adjusted frequency cap and price to deliver upon that same effective reach and frequency goal.

Creativity also presents the opportunity to bend the cost vs reach curve in Facebook.

Facebook operates a "total value" auction that's very different from "the highest bid wins." It's an auction type that gives credit to advertisers who focus on delivering better creative performance to their audience. So, what does this mean? If you bid $1 CPM in the auction and your creative performs poorly for your audience Facebook devalues your $1 bid.  The converse is true; relevant high-performing creative is rewarded. There's no dimension on which a superior customer experience is not good for everyone.

By its nature the Facebook auction is dynamic, and it rewards the most thoughtful participants. Approaching it from a guaranteed reserved basis is to under-leverage its power. Active bidding strategies and investment in great creative assets make a difference; for some advertisers this could mean additional value of between 10% and 30% at a campaign level. Don't set it and forget it.

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