Value-Based Bidding (VBB) tackles a long-standing challenge in the business world. While most companies traditionally optimize their ad spend for total conversions, VBB introduces a more refined approach. It allows marketers to go beyond the basics and consider factors like profit margins and customer types, enabling a more sophisticated budget allocation. Value-based bidding, Pmax campaigns and smart bidding, to name a few, have emerged as a result of the integration of AI and machine learning in ad automation.

Successfully implementing VBB can significantly boost Return on Advertising Spend (ROAS) by precisely identifying prospects and segments. Rather than just focusing on media performance, VBB aligns bids with tangible business outcomes.

Before adopting this strategy, advertisers struggled to allocate ad spend based on customer value, often overspending on low-value users, and underspending on high-value ones. With value-based bidding, the business value of a customer guides ad spend allocation.

In this blog, we will be discussing some frequently asked questions in relation to value based bidding including:

• What is value-based bidding?
• How does value-based bidding work?
• What are the benefits of value-based bidding?
• How does value-based bidding affect your ad spend?
• What campaigns can use value-based bidding?
• Why use value-based bidding?
• Who is value-based bidding for?

What is value-based bidding strategy?

Value-based bidding is a strategy that prioritizes the worth of conversions over their quantity, emphasizing quality over quantity in ad campaigns. It considers the specific value of conversions at different stages rather than treating all conversions equally. This smart bidding strategy optimizes ad campaigns for maximum conversion value (with an optional Target ROAS), a departure from traditional pay-per-click bidding where each click is considered a final conversion.

With the integration of AI and machine learning in ad platforms, you can now assign different values to various conversion stages, giving higher value to those closer to the final conversion. This approach ensures that Google Ads bids more aggressively for high-value conversions; as a result, Google recommends that advertisers regularly maintain higher budgets when using the maximizing conversion value bidding strategy.

How does value-based bidding work?

Assume you are a real estate agent who wants to purchase some properties to sell for profits.

In a real estate auction, you the buyer might bid aggressively on a property in a sought-after neighborhood where they anticipate a higher resale value, while being more conservative in their bidding for a property in a less desirable area where they anticipate lower resale value. This is exactly how value-based bidding works. The algorithm will understand the conversion value you have fed into Google Ads. Correspondingly, it will increase its bids for conversions with higher value and reduce bids for conversions with lower value at the same time.

Through analysis of historical data from earlier campaigns in the account, audience signals, and the first-party data that you feed into the ad platform, the algorithm can adapt itself to the advertiser’s business. It combines these signals to optimise your campaigns for the best Return on Ad Spend (ROAS), while simultaneously figuring out what works best for you and what does not.

What are the benefits of value-based bidding?

• Increased efficiency: Value-based bidding is an automated bidding strategy that adjusts your bids in real-time based on a wide range of signals such as device, location, time of day, remarketing list, language, and operating system. It allows you to spend less time managing your campaigns and more time focusing on optimising other aspects of your account such as developing new audiences and testing different assets in your ads.
• Improves performance with advanced machine learning: In bidding, machine learning algorithms train on data at a vast scale to help you make more accurate predictions across your account about how different bid amounts might impact conversions or conversion value. As a result, value-based bidding can help you achieve better results and drive more conversions at a lower cost.
• Better insights: Bid strategy reports can help you understand how your Smart Bidding strategies are performing and in turn help you make more informed decisions. In addition to this, there are also alerts and notifications that flag issues with conversion tracking and provide clear steps for fixing them.

How does value-based bidding impact my ad spend?

Value-based bidding is designed to assist you in accomplishing your desired outcome at the best possible cost, therefore it may impact your ad spend in a few ways:

• Increased Ad Spend: Your advertising budget may see an increase when bids are tweaked to align with your ROAS objectives. However, the extent of this increase relies on factors like auction competitiveness and the quality of your ad campaigns.
• Decreased Ad Spend: Conversely, your ad spending might decrease when the algorithm deems your existing bids as excessively high. In such cases, it will adjust your bids to a lower level to facilitate a more efficient way of achieving your desired outcomes.

What campaigns can use value-based bidding?

Value-based bidding can be selected for several campaigns in Google Ads, including:

• Search ad campaigns
• Shopping ad campaigns
• Display ad campaigns
• Video campaigns

Nonetheless, it is important to recognise that this bidding strategy might not be a universal fit for all campaigns and businesses, hence why it is recommended that you conduct periodic testing and performance monitoring to determine if this strategy aligns with your business.

Why use value-based bidding?

Marketers who have adopted value-based bidding and have incorporated first-party data effectively are gaining positive results. For example, advertisers that switch their bid strategy from target CPA to target ROAS experience an average 14% increase in conversion values.

Who is value-based bidding for?

Smart Bidding works successfully for both large and small businesses. Smart bidding can optimise based on data from all your campaigns, so even new campaigns without data of their own may increase performance. To evaluate results accurately, we recommend measuring performance over longer time periods that have at least 30 conversions, such as a month or longer (50 conversions for Target ROAS). Relevant keywords can be added to low volume campaigns to expand targeting and increase conversions.

In conclusion, with the depreciation of third-party cookies in consumer targeting, the need for value-based bidding is becoming increasingly evident as we step into a future that will be centred on first-party data. As a result of this brands must look for other ways to harness the potential of their first-party data. By collaborating with an experienced partner in VBB, like Merkle, brands can navigate any challenges within their Customer Data Platforms (CDPs) and uncover the hidden nuances and unexplored value within their customer base.

Today is the best time to make the transition to value-based bidding. The faster brands adopt this strategy, the more time they have to explore and fully grasp the capabilities of value-based bidding.If you’d like to discuss your needs around VBB, please do get in touch.