Author: Franz Malten Buemann

Since its inception in 2009, real-time bidding (RTB) has become one of the most popular ways to purchase ad inventory online.

But even for experienced marketers, this type of programmatic advertising can be a very confusing concept. I, for one, get intimidated just by reading the word “programmatic.”
So let’s break down what RTB is, how it works, and the pros and cons of using it – all while keeping it jargon-free.
Before we dive into RTB, let’s cover a few basics.
An impression, which is when an ad is displayed on a user’s screen, is the currency used in RTB. Publishers – i.e., the owners of the webpages and mobile apps on which ads are displayed – typically charge for every 1,000 impressions the ad gets. Advertisers know this as the cost per mille (CPM) and place their bids based on the value of each impression.
How do you determine that value? By evaluating the user against your targeting parameters (more on that later).
Are there real-time bidding platforms?
There are no RTB platforms because real-time bidding is a method of purchasing impressions, not a channel. Still confused? Let’s picture a real auction.
Imagine you want to bid on a car. You hire someone to go to the auction for you – that’s your demand-side platform (DSP). The person putting the car up for auction is the publisher and the venue is the marketplace. Raising your hand to indicate a bid is your real-time bidding process.
To purchase ad inventory through RTB, you’ll have to use a DSP, which is a media buying platform on the advertiser side that facilitates the purchase of an ad campaign and monitors its performance. Learn more about that here.
How The Real-Time Bidding Algorithm Works
To understand how the algorithm works, you’ll need to first understand the platforms involved in the process.
On the advertiser side, marketers use DSPs to set up their ad campaign and track its performance. Publishers, on the other hand, use supply-side platforms (SSPs) to list their ad spaces (also known as ad inventory) and the price they charge. They then meet in the middle at the ad exchange, the marketplace where the real-time bidding actually takes place.
To determine what ad inventory to bid on, advertisers will set targeting parameters. For instance, a brand may only want to take users who are in a specific region or have visited their website recently.
So, advertisers, or specifically their DSPs, evaluate ad potential in real time and decide whether or not to place a bid and how much to bid.
So, now that we’ve covered the key elements needed for a real-time bid, let’s go through an example of how it works.
Let’s say Silk is a UK-based beauty brand that just launched a new brow line and is running a campaign. They set up their campaign on a DSP and are targeting users who regularly shop for makeup products, are located in the Manchester area, and are between 18 to 30 years of age. The brand also wants its ads to only show on sites related to beauty and lifestyle.
A user visits a publisher’s site. The publisher’s SSP sends a bid request to the ad exchange where Silk’s DSP will be evaluating the value of the impression. The DSP will then determine if the user meets the parameters outlined in the campaign. If so, the DSP will submit a bid.
If Silk has the winning bid, the user will see the ad once the page loads. This process happens thousands of times on different webpages during the length of Silk’s ad campaign.
Silk’s paid ads manager will also be monitoring their ad’s performance on the DSP to see if it’s reaching the desired audience, or if the parameters should be adjusted.
The Benefits of The Real-Time Bidding Process
Better Tracking
With RTB, advertisers can monitor their campaigns easily without relying on vendors. No need to reach out to multiple publishers and ask for reports, you can get them yourself on your DSP.
This also gives marketers the agility to pivot quickly if their campaign isn’t performing as expected. For instance, you might find that switching out one keyword for another may boost your campaign’s performance and align better with the audience you want to reach.
Better Targeting
When purchasing ads through RTB, you buy one impression at a time. This means that every time a website visitor or mobile app user visits a publisher’s site, you’re able to assess that person’s particular profile and see if it matches your target audience.
It makes for more accurate targeting as you can ensure your ads are only reaching the right people at the right time.
More Cost-Effective
The precision of the real-time bidding algorithm allows marketers to spend their ad dollars on high-value impressions.
Too often, brands launch marketing campaigns that only reach a portion of their target market, leaving the rest of the budget wasted on users who don’t fit the profile.
In addition, RTB takes much of the manual labor out of the online advertising process, allowing marketers to focus on other efforts.
Challenges of Real-Time Bidding
Brand Safety
Where your ad shows up is as important as who sees it. This is because consumers judge brands’ ads based on the surrounding content.
A 2019 Ad Colony survey reported that 60% of consumers have a negative perception of brands whose ads appear near inappropriate, hateful, or offensive content. This can be anything from a site that hosts pirated movies to sites promoting hate speech.
Due to the nature of RTB, there is a risk your ad may appear on a site with content you wouldn’t want your brand associated with. However, brands can limit this issue by putting certain keywords and sites on a deny list. This protects brands from showing up on webpages or mobile apps that don’t align with their identity.
Ad Fraud
Cheq estimated that in 2020, ad fraud would cost digital advertisers $35 billion, with 10.5% of digital ads reaching bots.
Beyond cost, the rising sophistication of bots can also cause brands to gather inaccurate data on their campaigns.
Some deceitful publishers fabricate impressions to steal from advertisers. One way to combat this is by using a DSP or ad network with fraud detection software.
Real-time bidding makes the online advertisement process fast and easy. Marketers can skip the back-and-forth previously associated with ad buying and focus on tracking the results.

Choosing the right pricing for your product is a little bit like Goldilocks.
Too high, and you risk alienating a large majority of your potential customers.
Too low, and you likely won’t have enough revenue to run a sustainable business. Plus, consumers might not value your product or brand as highly if they see a much lower cost than competitors’.
But how can you get it just right?
That’s what we’re going to explore in this post. Let’s dive into the pros and cons of A/B testing your pricing — and how to do it. Plus, some alternatives to A/B testing your pricing if you’ve determined the weaknesses outweigh the strengths. 

Product pricing is undeniably one of the most important decisions for your company.
Your price can determine how consumers see you in the marketplace — for instance, Ray Bans’ expensive sunglasses suggests they’re higher-quality than the ones I can find at CVS. Sure, the price might limit the amount of total consumers Ray Ban attracts, but the price also attracts high-intent prospects based on perceived value.
This premise is known as value-based pricing: a strategy that chooses pricing based on how much a consumer believes a product is worth. I believe Ray Ban sunglasses are high-quality, and more importantly, I have a good perception of the brand, which makes me feel the sunglasses are worth the hefty price.
Value-based pricing is most impactful if your brand reputation is good. If you’re a newcomer to the marketplace, it might be harder to persuade consumers that your product is worth the expense — people need to know (and love) your brand, first.
There are a few other factors to consider when choosing a price, including what competitors’ are charging (competition-based pricing), or how much it will cost you to produce your product or service, plus how much you want to profit (cost-plus pricing).
To learn more about different pricing strategies, take a look at The Ultimate Guide to Pricing Strategies.
However, even once you’ve chosen a pricing strategy that works for your business, you might be unsure if the specific dollar price is going to return maximum revenue.
For instance, your pricing strategy might show a range of $50-$60 is best for your product. However, you need to find the “sweet spot” within that range. Charge it for $50, and you might be missing out on the revenue you could’ve received if you’d charged it at $60.
Charge it for $60, alternatively, and you might limit the amount of people willing to purchase your product — which could also decrease the amount of revenue you can receive.
This is where A/B testing comes into play. Let’s explore how to A/B test your pricing, next. 
How to A/B Test Your Pricing
It’s important to note — many advise against A/B testing your pricing, for a few reasons.
There are a few major disadvantages or pitfalls associated with A/B testing a price. These include: 

It introduces an element of unfairness to buyers. It doesn’t seem fair that person A is able to purchase your product for less money than person B, which could cause harm to your brand’s reputation. Plus, it could ultimately dissuade a potential buyer from purchasing — for instance, if a prospect pitches a new software solution to her boss for $30/month, and then her boss logs onto the site and sees the product is $50/month, the confusion and frustration over the increase in price could prevent them from purchasing your product at all.

You’ll have a group of customers paying an outdated price for your product. Let’s say you ultimately decide to go with the $30/month variant of your test — but you already have 40 customers who are paying $50/month. What do you do with them? You’ll need to either migrate them to the $30/month plan and potentially deal with reimbursement requests, or keep them on an outdated model … which could cause frustration and high turnover rates when those customers learn they’re paying more than others. 

It can be difficult to get statistical significance. You need a certain amount of people to purchase both price options for your test to be statistically significant, rather than pure chance. For many SaaS companies or companies that work with larger clients or more complex deals, you likely won’t have enough people to ensure your results are even useful.

It requires the development of multiple SKUs and other systems functionality, which can be a large (and potentially unrewarded) effort.

However, if you are going to A/B test your pricing, here’s how you’ll want to do it.
1. Choose two different products (or plans) within the same category type.
To ensure you’re being ethical and fair with your prospects, you don’t want to test two different prices on the same product. Consumers will eventually catch that you’re charging different users varying prices, and it could permanently damage your brand’s reputation.
One alternative to this is testing two different products, or plans, within the same category type to see how much people are willing to pay for your product.
For instance, if you sell social media software, you might choose a Basic plan and charge people $50/month. Within this plan, consumers receive 10 social accounts and 1 user. Then, you might choose your Professional plan, and charge people $140/month, which includes 20 social accounts and 2 users.
By doing this, you’re testing how much people are willing to pay for a social management tool, and whether there’s a cut-off. Technically, the Professional plan offers double the value of the Basic plan, but charges more than double each month ($140/month for 20 accounts and 2 users can be broken down to $70 for 10 accounts and 1 user — whereas a Basic plan is $50 for 10 accounts and 1 user).
Then, you’ll want to track if the conversion rates are higher or equal on both Basic and Professional. If there seems to be a drop-off of buyers for the Professional tool, you might want to lower your pricing on that product and see if it can positively impact revenue.
2. Figure out the price points you want to test.
You’ll want to determine the prices you want to test within a given range based on a variety of factors, including competitor pricing and operational costs.
You’re hoping to gauge price sensitivity, or the degree to which demand changes after a certain price point. For instance, you might find if you price your product at $100, the amount of people who will purchase your product drops dramatically.

Ultimately, you want to choose realistic price points to figure out the highest price you can go, while still maintaining the highest number of potential customers.

3. Measure revenue to determine price.
A small but important detail — measure revenue, not conversions, to determine which price wins out on your A/B test.
You’ll likely have much higher conversion rates on lower-priced products, but that doesn’t mean you’re able to hit your revenue goals. If you price a product too low, you might still struggle to meet revenue goals even with thousands of additional customers. This is why it’s important to measure revenue, not conversions. 
4. Iterate on results and re-test two new price points, if need be.
If you’ve tested $30/month against $50/month and found $30/month equates to the most conversions and possible revenue, consider re-testing between $30 and $40, or $30 and $35.
Iterating on your results enables you to find a highly specific price point that will provide you with maximum revenue. 
5. Choose the price that equates to maximum revenue.
Finally, choose the price point that suggests maximum revenue by determining the highest price that still converts enough customers to meet your business goals.
Alternatives to A/B Testing
If the potential risks associated with A/B testing pricing outweigh the benefits for your own business, there are plenty of alternative options to test a product’s pricing.
For one, you could try A/B testing the pricing page — including different layouts and CTAs — to figure out the best page for optimal conversions and monetization. Maybe your pricing isn’t the issue, but your landing page is.
Alternatively, if you’re releasing a new product, consider launching the product in one market only to gauge market reaction and performance, before rolling the product out on a broader scale. This enables you to make tweaks to your pricing or product before releasing the product to the entire marketplace.
Finally, you might consider conducting a survey and simply asking prospective customers how much they’re willing to pay for a similar product in the industry.
For instance, if you’re selling a website design tool, you might ask: “What features are most important to you in a website design tool?” and, “At what point would a website design tool be too expensive?” or “What is the maximum price you’re willing to pay for a website design tool?”
Ultimately, pricing is about determining your product or service’s value, and how much consumers are willing to pay for that value. It’s an incredibly important factor to consider when running a business, but it’s not something you can A/B test — at least not without potentially losing consumers or damaging your reputation when consumers find different prices every time they visit your site.
If you are interested in A/B testing, we’d suggest using the process to test out the design of your pricing pages or product landing pages. Perhaps by altering how you display your product’s value on a page, you’ll raise the amount consumers are willing to pay.

Have you ever clicked on an advertisement from Google or social media and landed on a page that felt like it was speaking directly to you? Chances are, the page you saw was a landing page.

 

 

What toilet paper, cookies and Kanye West’s shoes have in common? All of these items at some point were used as the leading examples of the Scarcity Principle. See how scarcity mechanisms can mess with our heads. 

 

The desire

 

We crave what is out of reach – this is absolutely normal. When we buy or receive some goods that are limited, we like to feel more important, appreciated, and even better than others. It’s no coincidence that we see more and more advertisements for limited edition products that are available for a short time. The fact is that humans are greedy by nature, and marketing companies know exactly how to exploit this for their own profit by applying the Scarcity Principle.

 

Hours worth queues to get the ungettable

 

As mentioned, consumers love to get their hands on merchandise that is almost VIP-only, hence every now and then we see or hear about thousands of people who stand in line for hours to get a piece of clothing. The same situation happened when Kanye West launched the limited edition Yeezy Boots, which were sold out within minutes of their release online. In stationary stores, people waited from midnight, and those who got there at 4 am no longer had a chance to buy! 

 

So the question is, how does it work? Why are consumers so driven by the idea of buying something that is limited?

 

Would you eat the last cookie?

 

Before diving into a more scientific explanation, let’s quickly use some hypothetical examples. Imagine two very similar scenarios: in the first, you are sitting at a table with a jar full of cookies on it. You don’t feel necessarily hungry or crave sweets. Also, as I mentioned before, the jar is full of cookies, so there is very little chance that someone will eat them all before you get hungry. You and the cookies can feel safe. 

 

The second scenario is pretty much the same, with the only difference being the number of cookies in the jar. Namely, only one cookie left. Again, you are not that hungry, nor feel a sudden drive for sugar. But this is the LAST cookie. Would you eat it? Well, if your answer is somewhere near “yes” it’s because you know that the good in the form of a cookie is limited, and you feel an urge to get it, even if you wouldn’t if there were more. 

 

Why is it like this?

 

The Scarcity Principle

 

According to Scarcity Principle, people consider a scarce item to be more valuable than one that is abundant. Scarcity creates a sense of urgency and prompts people to act immediately. The principle can be used in two broad methods:

 

Quantity limitations – item is low in stock and will not be available once run out 
Time restrictions – the item is available only during the specified time 

 

These tactics are often used in marketing. In the above example of the $180 Kanye shoes, a quantitative method was clearly used. Consumers knew the sneakers were low on stock, so they did everything they could to make a purchase, even if it meant standing in line for several hours.

 

Artificial availability reduce

 

To harness the power of scarcity, companies found a convenient way of creating artificial urges. One of the clothing companies tested a limited offer of next-day shipping against the same offer but with hidden limitations. The boost for the limited offer was next to unimaginable as it reached 226% of increased sales. 

 

Surprised? Don’t be! Everyone has fallen into the trap of a limited-time or limited-quantity sale at least once. In fact, it is scientifically proven.

 

Smart-ass proven

 

Studies conducted by Tilburg and Wageningen Universities confirmed several facts about scarcity. Based on their results:

 

Study participants believed that limited supply in a virtual shopping environment leads to the popularity of scarce items, 
They believed that supply was limited because demand for these products was higher than for others, 
Bearing this information in mind, more shoppers chose a scarce item over a non-scarce one when told to choose the item themselves.

 

In short – the more scarce the product is, the more consumers want it.

 

In a sudden need of toilet paper

 

To give you an even clearer picture of scarce products’ demand, let’s go 12 months back when Covid-19 was barely at the beginning of its spread and people were concerned about store products’ availability. In March 2020 sales of toilet paper rose by an estimated 60% compared to the same month the year before. It was because people believed this often undervalued product would vanish from the store shelves and so it became scarce.

 

Steps to take to awake the scarce hunger in consumers

 

Taking into account the examples of cookies, toilet paper and Kanye’s shoes (which may seem a bit unusual used next to each other), the listing of rules used to drive scarce demand now seem pretty simple to crack. 

 

Recapping what has been said before, getting the item that is scarce makes people feel unique, special, and powerful, almost like they had some magical access to the superpowers, unreachable for ordinary mortals.

 

Companies like to take the advantage of that feeling by using a set of limitations or restrictions, making the purchase harder. 

 

The list contains:

 

Sale countdowns
Next-day shipping limitations 
Low in stock warnings
Limited editions
Seasonal offers
Time-restricted offers
Indication of item’s popularity

 

Scarce or Scare?

 

It’s hard to disagree – scarcity companies may have hit a vein of gold, but as consumers, we need to watch out for the demand traps we can fall into without a clue about marketing psychology.

The Marketing Automation of Businesses is the most useful thing that anyone can do. There are 2 main tactics depending on someones business. Outsourcing, and Automated Sales Systems. A new business in the growing faze is most likely to use outsourcing, at least that’s what I did building my businesses. I learned the secrets of outsourcing from this book, that I really recommend to anyone: https://gumroad.com/l/FxSBS On the second faze, which is when the business has enough income to grow itself, that’s when it’s time to create Automated Sales Systems. I learned that skill from this book which I really recommend because it helped me a lot: https://gumroad.com/l/DcDhCS
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