Bid Shading: The Basics

Bid shading is a technique used in programmatic advertising, specifically in real-time bidding (RTB) auctions, to optimize the price at which an advertiser is willing to bid for an ad impression. The goal of bid shading is to strike a balance between securing the ad impression and not overpaying for it. Here’s how it works and how it can affect your campaign:


How Bid Shading Works


  1. Auction Dynamics: In an RTB auction, advertisers bid on ad impressions in real-time, and the highest bidder typically wins the impression. However, the winning bidder pays the second-highest bid price (the second-price auction model). This means that if you bid too high, you might end up paying more than necessary.


  1. Bid Shading Algorithm: Bid shading involves using a specialized algorithm to adjust your bid price. This algorithm takes into account various factors, including the auction dynamics, the competition, historical data, and predictive modeling. It calculates a bid price that’s lower than your original bid but still competitive enough to win the impression.


  1. Winning at a Discount: The goal of bid shading is to win ad impressions at a price that’s lower than your initial bid, which results in cost savings for the advertiser.


Effects on Your Campaign


  1. Cost Efficiency: Bid shading can lead to cost savings for your campaign. By avoiding overbidding, you can maintain cost efficiency while still securing valuable ad impressions. This is particularly important in highly competitive and costly auctions.


  1. Optimal Pricing: Bid shading helps you find the optimal bid price for each impression. It takes into account various factors, including the likelihood of conversion, ad quality, and auction competition, allowing you to tailor your bids to each specific situation.


  1. Improved ROI: By paying an adjusted, more accurate price for ad impressions, you can improve the return on investment (ROI) for your campaign. This means you’re getting better value for your advertising spend.


  1. Winning More Impressions: Adjusting your bid with bid shading can increase your chances of winning more ad impressions. This can be especially advantageous in situations where you might have been outbid without bid shading.


  1. Real-Time Optimization: Bid shading is part of the broader trend of real-time optimization in programmatic advertising. It enables advertisers to adapt their bidding strategies to the changing dynamics of each individual auction, making it more responsive to market conditions.


It’s important to note that the effectiveness of bid shading can vary based on the specific algorithms and technology used, as well as the sophistication of the bidding strategy. Additionally, the impact on your campaign will depend on the competition in the ad auctions, the quality of your creatives, and the relevance of your targeting.


As bid shading is a complex process that often requires specialized algorithms and technology, it’s essential to work with experienced programmatic advertising partners or platforms to implement bid shading effectively in your campaign. When done correctly, bid shading can help you achieve better results and cost efficiency in your programmatic advertising efforts. Take a deeper dive into your DSP Buying efforts with our DSP Buyer Guide:


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