Value-Based Bidding: What It Is, and What You Need to Know to Make the Most of It

Value-based bidding (VBB) is a topic that is increasingly discussed within the digital marketing industry. While the concept itself isn’t new, Google made the strategy a major focus in 2021, encouraging advertisers and media buyers to get in on the ground floor.

Alex Moody and Damien Bennett

At its core, VBB solves for a major business challenge that has plagued companies for years. Most companies optimize their ad spends to total conversions, but not all conversions are created equal; they may have different margins, different customer types, or other variables. VBB allows marketers to optimize beyond sales revenue to add more sophistication to their strategies and prioritize budgets in a more nuanced way.

When executed successfully, VBB has the ability to maximize ROAS by better identifying prospects and segments on a more granular level and bidding towards business outcomes rather than media performance.

Prior to this bidding strategy, it was far more challenging for advertisers to allocate ad spend based on the true value of a customer. This lack of differentiation in targeting caused advertisers to overspend on users that provided low actual value while underspending on high-value customers. With value-driven bidding on the other hand, the business value of a customer determines the scale of ad spend.

While this tactic was being adopted by advertisers, events within the industry forced marketers to address this topic faster than they may have anticipated. The unprecedented rate of eCommerce adoption during the pandemic led to rising competition and media costs. Though traditional media saw a decline in ad spend, search, social, and online video all spiked as a result of a more digitally focused consumer base. In order to make advertising budgets more effective in this changing landscape, VBB should be adopted, and adopted quickly.

In this article we’ll discuss the importance of transitioning to a VBB strategy now, and how to implement it.

The Importance of Value-Based Bidding as a Future-Proofing Strategy

Given the changing sentiment of consumer expectation with respect to their personal data as well as increased regulations, all brands are going to need to shift strategies away from third-party identifiers going forward. Browsers including Safari have already moved away from third-party cookies, further establishing the need for brands to operate with a focus on first-party data in browser environments. VBB provides an opportunity for brands who may not have the deepest pockets to compete in the increasingly competitive auction-based landscape by spending their ad dollars in a way that maximizes efficacy.

Part of what makes VBB such a valuable strategy is its pivot away from the reliance on these third-party identifiers, instead leveraging a brand’s existing first-party consumer data. What’s more, most brands already have valuable stores of consumer data in existing CRMs or other customer data platforms just waiting to be made actionable.

Advertisers need to examine their current setup and discover opportunities to increase durability across their targeting, data usage and measurement. They need to work with media and data teams to A/B test bid strategies and measurement capabilities to find the right mix for them. Once tested, they can begin transitioning their plans to bolster use of first-party data across their campaigns to sustain and improve media performance. Testing these durable bid strategies against third-party cookie data will ultimately help to prepare for the inevitable third-party cookie deprecation. 

Even though VBB has existed for years with clear benefits to brands and advertisers, barriers to VBB adoption still exist. Challenges such as sourcing and connecting to suitable input data for use with VBB, having low confidence in the new approach or underwhelming initial test results, or a lack of clarity around best practices when using VBB signals that aren’t revenue.

By putting a clear plan in place and laying out a roadmap to transition to VBB, brands are able to set the wheels in motion, test the system, and optimize its efficacy before third-party identifiers go away in 2024. Though two years may seem like a long time, these transition months are critical for putting a plan in place and adequately testing desired business outcomes so they’re ready when the sunset occurs.

How to Implement a Value-Best Bidding Strategy

Foundationally, VBB relies on identifying your most valuable customers in order to reallocate your budget across customer segments. In a traditional flat-spend model, all customers are treated equally. For example, without implementing VBB, advertisers may bid for customers that were already going to purchase, therefore wasting spend that could have been allocated to customers that needed to be nurtured through the funnel.

The key to VBB is determining the right inputs: finding the lowest- and highest-value customer segments, and the right business outcomes, whether it be top-of-funnel leads or deal closing. Having implemented implemented VBB projects for a wide range of customers throughout the years, we at Incubeta have laid out three options for a business to begin its journey towards value-based bidding:

In-platform VBB (Most Basic) 

  • For brands just getting their feet wet with VBB, an in-platform implementation is a strong first step to understanding the capabilities of the strategy.
  • This VBB strategy can be implemented using either the existing or a modified set-up of a brand’s on-site tracking (e.g Google’s Floodlight tag) and data layer.
  • While not future-proof since it still relies on third-party identifiers, it can serve as a fertile testing ground for audience segmentation with the richest spread of variables and smart bidding based on desired business outcomes.
  • Example: VBB based on product margin

Integrated VBB (Intermediate)

  • This intermediate mode of VBB begins to integrate a brand’s first-party data stores.
  • It leverages multiple brand data connections such as their product feed, CRM or CDP, lowering the reliance on third-party identifiers.
  • One interesting thing about integrating a product feed is understanding the value of a product in the same way a customer is valued. If certain products yield higher margins, they can be prioritized in VBB to drive ROAS.
  • Example: VBB based on lead scoring within a client’s CRM

Intelligent VBB (Advanced)

  • The most advanced level of VBB brings in all forms of data from on-site to all offline sources and leverages them to provide predictive insights.
  • This iteration of VBB is the way of the future: providing as many points of data as possible and using machine learning to maximize the value of bids on the most granular level.
  • Example: VBB based on predictive customer lifetime value

Bringing in a Partner to Make Sense of Value-Based Bidding

The imperative for VBB is clear. As we move into a more first-party data-centric future where third-party cookies can’t be used as the bedrock in consumer targeting strategies, brands will need to explore ways to make their stores of first-party data actionable. By bringing in a partner with experience in VBB, brands can work to remove the barriers and silos within their CDPs to find the nuance, and the value in their existing customer base.

There is still time to make this transition, but the window is closing. By acting quickly, brands will have more time to test and familiarize themselves with the possibilities VBB has to offer. With these strategies in place, the success stories speak for themselves. One global cosmetics client leveraged first-party audience segmentation which led to an 86% reduction in cost-per-acquisitions. One partner in the travel industry implemented VBB and generated 77% more holiday inquiries when they optimized targeting toward offline booking value.

These results are not an anomaly; VBB is a proven strategy that has the capacity to transform business outcomes. It’s not a matter of if, but when.

To get started on your journey with value-based bidding, speak to the experts at Incubeta today.

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