Marketing on the quantitative side can be treated essentially as investment management. Thus there are parallels marketers can learn and apply from the investment world.

In the investing world, there are two competing approaches –

1. Index investor. Believes you can not beat the market, so buy a piece of every stock in an index (e.g., S&P 500).  Your return thus tracks the overall return of the stock market index. A key driver for the index investor is aversion to risk. They do not want to under perform the market even in the short term.
2. Alpha investor. Believes you can beat the market by careful selection. While a whole lot of people think they can be alpha investors, less than 10% realize alpha returns over long term (e.g., returns that beat the market averages such as S&P 500). A key risk alpha investors embrace is volatility – possible short term under performance for superior long term over performance.

If you treat media buying similar to stock market investment, you can also put the approaches into two camps –

1. Index marketer. Goes for average returns to ensure they don’t under perform. When you use the recommendations from media companies on what to buy, their default optimization is to achieve average performance for every client. Let’s take Google as an example. If you did a campaign with Google Display Network (GDN), they would recommend a CPC (Cost Per Click) based campaign with specific publisher categories and user interests to target, that are optimized for average performance across a large inventory. Thus you would get the reach you need for an average performance. For a typical 0.10% CTR, if you bought at $1.00 CPC, 1,000 impressions translate into 1 click at a cost of $1.00 to you. Thus it is equivalent to a $1 CPM as well.
2. Alpha marketer. Aims for superior returns by leveraging data or insights about their audience and the specific media. In the GDN example above, buying based on CPM instead of CPC would help you achieve superior performance, provided you have superior targeting and/or creative. For example, if you bought 1,000 impressions at $1 CPM and had superior CTR at 0.2% (due to better targeting), you essentially got 2 clicks for the same price of $1, resulting in $0.50 per click. Note that dropping the bid to $0.50 CPC above would not have gotten you the same result. You would just get much less impressions (or none at all). Why does this work? Any ad network such as GDN buys impressions from publishers and sells you at CPC typically arbitraging the CTR you are expected to get with the purchase price from the publisher. Buying on CPM essentially bypasses the default optimization (index marketing) for superior returns (alpha marketing).

A rule of thumb is if you are not sure what you are doing, index marketing is the route to go. If you are in the 10% that really knows what you are doing, venture into the world of alpha marketing. Be prepared for the bumpy ride that this approach will give you!