Performance Marketing : Meaning, Types, Strategy, Benefits & Examples

What is Performance Marketing?

Performance marketing is a form of digital marketing that is used to advertise products and services through mediums such as social media, search engines, videos, or any other digital method. Organisations that want to capture a large consumer market, adopt performance marketing as a strategy. The payment for advertisement is done based on how consumers respond to the content. In other words, organisations contact marketing agencies to advertise their products and services through various mediums. The organisation in return pays the agencies when consumer actions in the form of leads, clicks, or sales are generated in specific quantities.

Types of Performance Marketing

1. Banners/Display Ads: Banners or display ads are generated as clickable links in the form of texts, videos, images and graphic designs mostly found in social media newsfeeds which when clicked, take the users to another website where they can find additional information about the product. Banner/display ads are lately losing their effectiveness because of the growing effect of ad blockers or banner blindness.

2. Native Advertisement: Native advertisements are paid advertisements that appear naturally alongside social media newsfeeds. YouTube is one of the most used native advertisement mediums. The recommended videos or “watch next” option lets users view the sponsored ads. There are high chances of Click-Through Rates in native advertisements.

3. Content Marketing: Content marketing is the process of creating and sharing content through social media, blogs, vlogs, Emails, and newsletters with the main aim of attracting a large number of viewers who can convert themselves into potential buyers. Content marketing increases online brand visibility, helps generate more leads, and improves brand loyalty as well as authority.

4. Social Media Marketing: Social media marketing makes use of social networking platforms such as Facebook, Instagram, and Twitter to advertise and promote their products and services online. In today’s generation where people spend more time on social media, marketers utilise it as a powerful tool to market their products. Using social media as a tool is the most cost-effective way of advertising for business.

5. Search Engine Marketing: Search engine marketing is a form of marketing wherein businesses bid on keywords that have the highest probability of generating results when searching for certain products and services. Search engine marketing is also known as Pay-Per-Click Ads. Search engine marketing enables improvement of the website’s visibility on search engines such as Google and Bing.

6. Affiliate Marketing: In affiliate marketing, businesses look for affiliates who create links on their websites, blogs, or social media platforms and whenever the consumer clicks the links and makes a purchase, the transaction is recorded. The affiliates earn a commission on a certain percentage of sales generated.

7. Email Marketing: Email marketing is a form of direct marketing where marketers collect the Email addresses and update them with newsletters, discounts, and offers. In this way, the organisation targets subscribers where they can get more information on the product and company. Organisations try different content, subject lines, click-through rates, and conversion rates to improve their strategy.

8. Influencer Marketing: With the rapidly growing usage of the internet and social media, there have been an increasing number of influencers as well. Such influencers retain a large follower base on their social media platforms. What marketers do is sell their products through these influencers by generating links. The frequency of clicks, views, shares, and sales are measured and compensation is provided accordingly.

9. Search Engine Optimisation: While search engine marketing targets optimising the websites by bidding on keywords, search engine optimisation is an unpaid form of advertisement that concentrates on ranking the website at the top whenever an individual search for the product on the search engines. Here the click-through rate is higher than search engine marketing.

10. Retargeting and Remarketing: Retargeting and remarketing involves targeting past website visitors or existing customers who have or have not made purchasing decision. They release online ads to either convert them to potential buyers or retain past consumers by convincing them to re-purchase their products.

How does Performance Marketing Work?

1. Setting Up of Objectives: The business that wants to adopt performance marketing first sets up a specific objectives that it wants to attain. The objective might be growing website traffic, creating leads, or improving sales.

2. Targeting Audience: Since performance marketing is based on market conditions, it identifies potential customers and targets that particular segment of consumers in the market.

3. Choosing Appropriate Digital Channels: Until now, we have come through various performance marketing channels such as social media, influencers, search engines, or Emails. After recognizing the target audience, the next step done by the advertisers is to select the most appropriate channel among the rest that best suits the purpose.

4. Creating Ads: The latter job of the advertisers is to create content in the form of texts, images, videos, or graphical designs. The content should focus on creating such needs that hit the minds of the buyers.

5. Bidding and Budgeting: Bidding is the amount that the organisation is willing to pay to the advertisers for the services availed. Budgeting is calculating the total amount of investment that a company can spend on the marketing campaign. Proper bidding and budgeting are done before moving forward to the next step.

6. Launching Campaigns: In this particular step, the advertisers finally launch the ad to the targeted consumer through the advertisement channels chosen by them with the aim that the particular ad fulfills their company objectives.

7. Performance Tracking and Analysis: After launching an ad, the advertisers measure the success rate of the campaign by calculating the click-through rate, conversion rate, cost per acquisition, and return on investment using specific tools and techniques.

8. Optimisation: Once the performance of the ad campaigns is measured, the advertisers can change or improve the campaign if found ineffective.

9. Payment: The last step is initiating payments based on actions taken such as clicks and conversions.

How to Build a Performance Marketing Strategy?

A business can build a performance marketing strategy by the following steps:

1. Build a Goal: A performance marketing strategy aims to attract more people to the website, creating large audiences, or generating higher returns. Hence, the business must try and understand which goal will be more beneficial for the business.

2. Recognise the Targeted Customers: It is advisable to study the entire market to understand the demand for the product and then identify which segment of consumers will mostly be interested in the same.

3. Identify the Best Channel: Identify and implement the best possible channel to advertise the product. These channels may be in the form of banners or display ads, native advertisements, content marketing, social media marketing, search engine marketing, affiliate marketing, Email marketing, influencer marketing, search engine optimisation, or retargeting and remarketing.

4. Keyword Research: Keywords are specific phrases and words that consumers use while looking for a product in search engines such as Google. Thus, the advertisers should make use of the most used keywords in their content so that the product appears as and when searched for the same.

5. Create the Final Content: The content generated should be new, relevant, and exciting and serve the purpose of grabbing the customer’s attention. Such content might be in the form of blogs, videos, or vlogs.

6. Monitor and Analyse the Data: Once the content is released in the decided platform, continuous monitoring and analysis are required to measure the impact and success of the advertisement. The advertisers may use tools such as Google Analytics to fulfill the purpose.

7. A/B Testing: A/B testing or split testing is a method used to compare two variations of a webpage or application to find out which is the most effective either of the two.

8. Budget Allocation: Spend the accumulated budget as such that it does not get wasted and provides the maximum returns. Proper planning and experience are required to decide the best channel, medium of advertisement, and customer recognition.

9. Optimise Conversion: Work on improving the website’s user-friendliness, efficiency, and engagement to boost the success of the business.

10. Key Performance Indicators (KPIs): Measure the success of the KPIs such as cost per mille, cost per click, and cost per action.

11. Scale the Campaigns: After successfully launching the campaigns, scale them to facilitate higher reach and engagement.

12. Search Engine Optimisation: The business must advertise its products on search engines to improve its brand awareness and existence. Paid advertisements are not enough for global recognition.

13. Market Automation: Market automation is software that helps the business to generate leads and improve operations without the help of a human workforce. Insider, Braze, and Klaviyo are some of them.

14. Keep an Eye on the Competitors: The marketing strategies should be such that it gives tough competition in the market. This is possible by continuously reviewing and improving the tactics.

How to Measure Performance Marketing?

1. Cost Per Mille (CPM): Cost Per Mille is also known as Cost Per Thousand. As the name suggests, for every thousand views or impressions, the advertisers are being paid. An important point to be noticed is that cost per mille does not focus on purchasing actions rather it focuses on the price required to display an ad every 1000 times.

2. Cost Per Click (CPC): Cost Per Click is also known as Pay-Per-Click (PPC). In a cost-per-click model, the advertisers get paid for every click on the ad made by the users. The higher the number of clicks, the higher the amount, provided that the advertiser does not exceed the maximum cost per click. Google Ads are a common form of cost per click.

3. Cost Per Action (CPA): Cost Per Action is also called Cost Per Acquisition. Unlike cost per mile, cost per action concentrates on the actions taken by the users. Such actions may be in the form of subscription, registration or purchase of the product. Cost per action is an effective way of advertising since the business pays only for the actions taken by potential buyers rather than wasting it on passive consumers.

Advantages of Performance Marketing

1. Return on Investment (ROI) can be Measured: Since performance management can quantify the actions taken by the users, i.e., the frequency of views, impressions, leads and sales can be tracked, it justifies whether the objectives are met. In this way, they can identify the amount of ROI as well as decide if they can invest further in similar channels.

2. Enhances Audience Reach: Performance marketing uses online media to market its products. The increasing number of technological users enhances brand awareness, promotes traffic, as well as reaches a large audience base.

3. Cost-Effective and Flexibility: Advertising through performance marketing cuts costs as it requires less amount of resources and the products are marketed through digital media. Such marketing techniques are flexible as businesses can change and adapt new strategies in a short period.

4. Provides Better Results in Less Time: Performance marketing enables faster reach to audiences as compared to other marketing models. The marketing channels have proven to be more flexible.

5. Only Pay for Results: Unlike traditional marketing, performance marketing only pays the advertisers when a specific action is taken by the users. In this way, the businesses save their budget by investing it in only potential buyers.

6. Affiliates Put in More Effort: Because affiliates earn commissions only based on sales they can generate, they put in more effort to advertise and promote the products by introducing new trends in online campaigns.

7. Better Planning: Performance marketing requires proper planning because the company needs to identify and forecast its objects, and techniques to target specific market segments, choose the appropriate marketing channels as well and decide on bidding and budgeting amount.

Disadvantages of Performance Marketing

1. Hard to Find Leads: Initially, performance marketing might find it difficult to accumulate leads as the brand might lack testimonials and reputation.

2. Social Media Issues: At a certain point in time, social media might stop releasing the ads or disapprove of the same. Also, users have a high probability of blocking ads or reporting them as scams.

3. Low Profitability at the Initial Phase: When at the beginning stage, the company might fall short of leads resulting in lower profit margins.

4. Clients Might Stop Ordering: At any time, clients might get disinterested in the products when a similar better product gets newly launched in the market. For this purpose, the business might need a brilliant R&D team.

5. Requires Experience and Training: When a product is marketed online, it requires a substantial amount of experience and skills to study the market analysis.

6. High Level of Competition: Businesses promoting similar kinds of products face tough competition in the global market. It depends on the organisation how they design their product in the best possible way compared to the rest.

7. Feedback and Reviews: Negative feedback and reviews can wrongly impact the business as today’s consumers are smart enough to purchase products that gain the utmost trust.

Examples of Performance Marketing

1. Google: Google releases ads based on cost per click. Google’s main source of revenue is through advertising products and services online. With every click or conversation, it enables the advertisers to earn compensation.

2. Amazon and Booking.com: Amazon as well as Bookings.com make use of affiliates to market their products. With every sale an affiliate makes, they are rewarded with a commission based on the percentage of sales done.

3. Facebook: Facebook encourages display ads to promote products in a user’s newsfeed. Here also, with every click or action a payment is being initiated.

4. Uber: When a new user installs or uses the Uber app on the recommendation link of some other person, both of them are liable to avail discounts and offers on their respective rides.

How is Performance Marketing Different from Traditional Marketing?

Performance marketing is a recent form of digital marketing and it differs from the traditional forms of marketing in many ways.

Basis	Performance Marketing	Traditional Marketing
Objectives	Performance marketing aims at attracting a large audience base.	Traditional marketing aims to improve brand loyalty, awareness and trust.
Targeting	Performance marketing targets specific segments of consumers who are more likely to get interested in a particular product based on market demand.	Traditional marketing targets large demographic areas.
Variations	Performance marketing releases advertisements on social media platforms, search engines as well as Email marketing.	Traditional marketing uses conventional methods such as television, radio, print, live events and sponsorships.
Cost Structure	Performance marketing is dependent on return on investment. It pays the marketing agencies only when they get profitable results, i.e., the quantity of clicks, leads and sales.	Traditional marketing does not measure the impact of sales on consumer psychology. Here, the profitable results are not guaranteed.
Innovation and Brand Development	Performance marketing focuses on innovation and immediate results rather than long-term growth.	Traditional marketing concentrates on improving brand image and storytelling.
Marketing Channels	Affiliate marketing, influencer marketing, social media marketing and search engine marketing are some common channels of performance marketing.	Traditional marketing depends on physical outlets or distributors.