Introduction to performance marketing: basics and evolution

Unlimited growth, endless visibility, and of course, unlimited revenue: We've all heard such lofty promises from marketers at some point. But how much impact do these marketing efforts really have in the end? Unfortunately, that's often quite unclear.

This is exactly where performance marketing comes in. No more imprecise and opaque campaigns! Results are visible, measurable and quantifiable at all times.

What is Performance Marketing? Performance Marketing, also known as Performance Advertising, is a form of online marketing where the implementation, evaluation, and optimization of advertising efforts are based solely on data and metrics. This allows for an accurate determination of how effective the marketing tools truly are.

Sounds interesting? We'll explain what Performance Marketing is all about here.

Basic Understanding of Performance Marketing

The main principle of Performance Marketing can be summed up quite easily in a single sentence: Everything is measurable. Guessing, speculating, or hoping has no place here—Performance Marketing is all about solid metrics and key figures.

What is the definition of Performance Marketing?

Performance Marketing is a specialized marketing strategy aimed at generating immediate visible metrics such as leads or sales. It is a purely results-driven discipline of marketing, where success is measured based on predefined Key Performance Indicators (KPIs).

For companies, this offers a crucial advantage: you only pay for actual results achieved. This allows for precise cost accounting based on measurable variables such as clicks or conversions—accurate real-time tracking of such information is essential in this process.

In contrast to traditional marketing, the following differences can be identified:

• Performance Marketing is quantifiable: The impact of performance marketing efforts can always be translated into numbers. This is a significant advantage over other strategies, such as print advertising. Companies pay a set price for an ad, but how many customers actually see the ad? How do they interact with it? Such information often remains hidden in traditional marketing.

• Performance Marketing is optimizable: Continuous evaluation of KPIs allows for real-time adjustments of all advertising efforts to maximize their effectiveness. This differs from, for example, a TV commercial: once it's produced, it can't be changed. Even if it receives poor feedback during broadcast, improving the campaign is hardly possible.

• Performance Marketing is modular: In Performance Marketing, it's not just a single channel that's used. Instead, the toolbox consists of various marketing instruments that can be optimized independently. From our extensive experience as a Performance Marketing agency, we know that social media advertising and Google Ads are particularly efficient and effective. However, other channels like search engine optimization (SEO) or email marketing can also be part of a successful Performance Marketing strategy.

Here are some examples of measures in Performance Marketing:

• An e-commerce startup for sportswear uses keyword-based Google Ads to direct users to its online shop. The goal is to increase traffic and conversion rates. Through continuous measurement of these metrics, keywords and ad texts can be adjusted in the short term.

• A hotel chain runs targeted social media ads featuring appealing vacation images and special last-minute offers on Instagram and Facebook. By tracking the click-through rate, they can assess which images and slogans work best.

• A large real estate company regularly sends out newsletters to inform potential customers about attractive properties for sale. A performance marketing manager then checks how often the email and the call-to-action buttons are clicked.

How has the concept of Performance Marketing evolved?

Did you know that advertising clips have been around since the 1910s? Even back then, ads were shown in cinemas. The first paid radio advertisement aired in 1922, followed by the first TV commercial in 1941.

Marketing has always been closely tied to technological progress. The development of Performance Marketing can therefore be traced back to the emergence of digital technologies in the 1990s. The introduction of the internet and the subsequent digital revolution enabled entirely new forms of advertising. A significant milestone was the first clickable web banner in 1994—a small rectangle on the website HotWired.com, purchased by the telecommunications giant AT&T. This tiny button, in a way, marked the beginning of targeted online advertising.

With the establishment of search engines—particularly Yahoo and Google—the first forms of search engine marketing emerged at the end of the 1990s. Google AdWords, later renamed Google Ads, was launched in 2000 and revolutionized marketing through targeted ad campaigns. Suddenly, advertisers only had to pay when their ads were actually clicked.

The rise of social media in the new millennium led to further significant changes in Performance Marketing. Thanks to platforms like Facebook and later Instagram, companies could now segment and target their audiences even more precisely. Improved technical tracking tools also enabled the accurate measurement of actions such as clicks, downloads, or sales—laying the foundation for today's Performance Marketing.

In the meantime, the understanding of the customer journey has significantly evolved, making multi-touch attribution increasingly important. This technique allows for the precise tracking and evaluation of all steps in the funnel. The modern era of Performance Marketing is characterized by increasingly comprehensive data analyses, enabling marketers to react quickly to market changes and adjust their measures accordingly.

Key Elements of Performance Marketing

With effective Performance Marketing, measurable results can be achieved very quickly. But which elements are crucial for its success? Here, you'll learn all about the key objectives, essential channels, measurement methods, and optimization strategies in Performance Marketing.

What goals does Performance Marketing pursue?

Performance Marketing is ideal for companies that want to increase specific, measurable metrics through marketing measures. Typical goals include:

• Increasing click-through rates: No revenue without visibility—high click-through rates or significant traffic are therefore the foundation of a successful online business. An important variable is also the click-through rate (CTR) of an ad, for example, which measures the number of clicks in relation to the number of impressions.

• Increasing the conversion rate: A conversion occurs when a predefined desired action takes place—such as a purchase, registration, or download. The conversion rate indicates the percentage of users who have completed this desired action.

• Generating leads: Leads are prospects who have provided their contact information, making them potential new customers who are already quite advanced in the customer journey but still need to be encouraged to make a purchase decision. Leads are especially important in the B2B business.

• Generating sales: Ultimately, revenue is what counts—especially in e-commerce, where sales are a key metric that should be continuously increased through targeted marketing measures.

The specification and measurability of these goals are crucial, as they allow companies to accurately assess the success of their campaigns and optimize them strategically. The specific goals a company pursues always depend on the individual case. However, it is essential that decision-makers clearly define in advance which KPIs are relevant and what benchmarks are considered a success.

Performance Marketing, however, is not a rigid framework but an ever-evolving process in which goals are continuously evaluated and adjusted if necessary. Companies should (re)define these goals within a strategic process that includes the following steps:

1. Defining KPIs: Initially, companies must define their goals and then determine how best to translate these goals into measurable figures. They need to decide which indicators are important and how they should be collected.
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2. Implementation of marketing measures: In the next step, a concrete marketing campaign is tailored to the defined KPIs and implemented accordingly.
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3. Performance evaluation: Based on the previously established KPIs, the achieved results are reviewed and compared with the set goals. This KPI monitoring is not a one-time process but occurs regularly and continuously.
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4. Campaign optimization: Depending on how effective the measures have been, the strategies are now adjusted and optimized based on the results of the evaluations.

Which channels are essential for successful Performance Marketing?

Performance Marketing utilizes a variety of channels to achieve measurable results. This modularity, in particular, provides a high degree of flexibility and versatility.

Here is an overview of the most important channels:

1. Social Media Marketing (SMM): Platforms like Meta (Facebook, Instagram), LinkedIn, and TikTok are ideal for reaching specific demographic groups with personalized messages. Targeted advertisements on social media are particularly effective, as the goal is to directly encourage the target audience to make a purchase—this approach is often referred to as push marketing.

SMM beschränkt sich aber nicht nur auf Ads: Beispielsweise landete Coca-Cola mit der „Share a Coke“-Kampagne einen durchschlagenden Erfolg. Dabei wurden Flaschen mit zahlreichen unterschiedlichen Vornamen bedruckt. Kunden wurden dann dazu animiert, Flaschen mit ihrem Namen zu sharen, was zu einer enormen viralen Reichweite führte.

2. Search Engine Advertising (SEA): When people search for something online, they typically use Google or Bing. SEA is therefore especially important, with advertisers bidding on influential keywords that directly target users' purchasing intentions. For example, a travel agency might focus on tourist-related city names as important keywords, reaching customers who are currently planning their vacations.

3. Search Engine Optimization (SEO): Unlike SEA, SEO focuses on unpaid, organic traffic. This is achieved through a high ranking in search engine results. Keywords also play a major role here, but this channel is more long-term than SEA. Additionally, the goal is not necessarily a direct conversion but rather increased visibility and reach. The target audience consists of consumers who actively search for content—this is referred to as pull marketing.

For instance, high-quality blog content can help achieve this. A travel agency could publish an article about popular day-trip destinations in Italy. The higher this text ranks on Google, the more travel enthusiasts will find their way to the website.

4. Email Marketing: This channel is especially effective for fostering customer loyalty and retention. Nearly every company now has a newsletter, as it allows for a trusted and direct connection with customers and prospects. Through personalized communication and regular updates, companies can build long-term relationships with their customers and inform them about new offers and products. WhatsApp marketing now serves a similar function.
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In its newsletter, the travel agency might highlight attractive vacation packages and city trips that are currently available at a discount.

5. Affiliate Marketing: In this channel, companies pay other website operators or bloggers a commission for referred customers or sales. This channel is excellent for expanding reach and leveraging existing networks and partnerships to strengthen brand presence.
For example, the travel agency could collaborate with influential travel bloggers. These influencers would regularly post affiliate links that lead to a booking page.

Conclusion: Performance Marketing offers a variety of relevant channels, each with its own functions, target audiences, and strategies. These unique aspects must be taken into account when implementing marketing measures.

At Grannel, we are convinced that paid ads on search engines and social media are particularly effective and cost-efficient. These platforms allow businesses to reach a broad audience while still targeting specific campaigns. Additionally, our clearly defined cost structure is highly advantageous for companies, ensuring precise budget control and success measurement.

How is measurement and control conducted in Performance Marketing?

To determine whether a marketing measure is working, continuous monitoring of relevant metrics is essential in Performance Marketing. Specific Key Performance Indicators (KPIs) are used to assess progress in relation to the established marketing goals.

There are dozens of potential KPIs, so it’s crucial to select a clearly defined set of relevant metrics in advance. Here are five KPIs that we consider particularly important:

• Marketing Efficiency Ratio (MER): This metric provides a comprehensive assessment of the efficiency of marketing spending and is calculated as the ratio of total revenue to marketing expenses. The higher the MER, the better.
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• Lifetime Value (LTV): LTV estimates the total revenue a customer will generate over the course of their entire relationship with the company. This metric is especially useful for understanding the long-term value of customers.
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• Customer Acquisition Cost (CAC): This metric indicates how much it costs to acquire a new customer by dividing marketing expenses by the number of new customers gained. CAC is crucial for budgeting purposes.
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• Cost per Order (CPO): Similar to CAC, but it shouldn’t be confused with it. CPO relates marketing expenses to the total number of orders.
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• Return on Advertising Spend (ROAS): ROAS measures the revenue generated by advertising expenditures. It’s a specific form of return on investment (ROI) that compares advertising revenue with advertising expenses.
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To effectively measure these KPIs, companies rely on advanced tracking tools. Popular options include:

• Google Analytics (GA4): The classic among analytics tools. Google Analytics 4 provides detailed insights into website traffic, user behavior, and conversions, allowing for a comprehensive evaluation of marketing measures.
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• SEMrush: One of the market leaders for keyword research, competitive analysis, and monitoring search engine rankings. Whether for organic or paid traffic, this all-rounder is extremely useful when it comes to Google.
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• Hotjar: This tool offers behavioral analytics, heatmaps, and recordings of user sessions. It helps understand user behavior on websites and improve the user experience.
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• Hootsuite: The most well-known tool for social media marketing. In addition to community management and content planning functions, it also provides extensive options for ad management.
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• HubSpot: This all-in-one marketing platform combines functions for CRM, sales, and marketing automation. It enables tracking leads, analyzing marketing campaigns, and personalizing content.

How are Performance Marketing campaigns optimized?

The optimization of Performance Marketing campaigns is a continuous and ongoing process that requires in-depth data analysis and constant adjustments.

Important: These data analyses must be conducted regularly, ideally on a weekly basis—only then can campaigns remain current and effective. This includes tracking and evaluating KPIs. When statistical significance is achieved, concrete optimization measures can be initiated based on that data.

We would like to briefly introduce two particularly important techniques for campaign optimization:

1. A/B Testing: In this method, two versions of a webpage or advertisement are compared to determine which performs better. This allows you to make data-driven decisions about the most effective elements of a campaign.

2. Conversion Rate Optimization (CRO): Maximizing the conversion rate can be achieved primarily through optimizing the website or individual landing pages, focusing on content quality and keyword relevance. This increases the likelihood that visitors will complete the desired action.

Here is a simple checklist with some particularly important aspects to consider when optimizing your Performance Marketing activities:

• Continuous Testing: Testing loops are never finished; they always start anew. Regular testing is an absolute must, so at least 20 percent of your budget should be allocated for this purpose.
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• Monitor the Competition: Don't just focus on yourself—regular market and competitive analyses provide valuable insights!
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• Review Keywords: A once-relevant keyword can quickly become outdated. Therefore, always check the quality of all keywords and adjust them as needed to improve the effectiveness of your ads.
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• Optimize Landing Pages: Good keywords are useless if your website has low-quality content. Ensure an engaging and user-friendly presentation, and also prioritize mobile-friendliness.
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• Utilize Remarketing: Customers who have already interacted with your brand should not be overlooked. Effective remarketing can be a crucial factor in increasing the conversion rate.

Analysis of the Advantages and Disadvantages of Performance Marketing

Is Performance Marketing right for you? In the following section, we will answer this question—here, you'll learn about the key advantages and challenges of Performance Marketing.

What are the main advantages of Performance Marketing?

Compared to other advertising measures, Performance Marketing offers several key advantages that make it an essential component of digital marketing:

• High Measurability: Performance Marketing allows for precise tracking of clicks, leads, and sales. This quantifiability of campaign results ensures a high level of transparency, enabling early insights into results.
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• Real-Time Adjustments: In Performance Marketing, things move a bit faster, as marketers can quickly see in black and white what works and what doesn't. This makes it particularly easy to identify improvement opportunities.
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• Targeted Budget Control: Marketers only pay for measurable results, which often significantly increases cost efficiency since no expenses are incurred for ineffective measures.
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• Clear Cost Allocation: There is a high level of cost transparency, which not only saves money but also ensures better planning. This greatly simplifies budgeting.
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• Versatility and Flexibility: Since Performance Marketing covers various channels, it is an extremely versatile tool that can be profitably applied across all industries.

Through targeted optimization of campaigns and continuous adjustments based on real-time data, companies can achieve higher profitability from their marketing investments. In short: Performance Marketing leads to better budget efficiency and a higher ROI.

What Challenges Does Performance Marketing Present?

Despite being highly effective, Performance Marketing comes with specific challenges. Here are some potential obstacles that, in our experience, may arise:

• Complexity of Data Analysis: With the increasing availability of information sources, data analysis becomes more complicated. Companies face the challenge of extracting meaningful insights from vast amounts of data. Good strategic planning is therefore essential to avoid aimlessly sifting through data.
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• Dependence on Technology: Performance Marketing is heavily technology-driven. Whether it's data collection or campaign automation, the success of a measure always depends on the right software and hardware. Stay up-to-date: outdated technologies can significantly reduce marketing efficiency.
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• Creativity vs. Data: On one hand, Performance Marketing relies on data-driven decisions. On the other hand, creative thinking is equally important to stand out from the competition. Mere repetitive iterations are insufficient; a healthy balance between analytics and creativity is crucial.

These hurdles should not be ignored, but they can definitely be overcome with the right approach. Here are important solutions to address these challenges:

• Invest in Skilled Personnel: Performance Marketing is a highly complex specialty that requires specialized experts.
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• Continuous Training: Even the best employees need to learn every day and adapt to the evolving landscape of Performance Marketing. Regular training is therefore essential.
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• Utilize Advanced Tools: Relying solely on Excel is not enough. Successful Performance Marketing requires high-quality analytics tools—and in the future, artificial intelligence will play an increasingly significant role.

Compensation Models in Performance Marketing

Performance Marketing is attractive to many companies due to its high cost transparency. However, there are various compensation models that need to be considered during budgeting.

Which compensation models dominate in Performance Marketing?

In Performance Marketing, there are four main compensation models. They differ in their specific focus on various marketing goals and strategies:

• Cost per Click (CPC): In the CPC model, advertisers pay for each click an ad receives. This model is particularly suitable for campaigns aimed at increasing website traffic. Ideally, it can boost visibility quickly. However, caution is needed—without appropriate conversion optimization, CPC can quickly become costly.
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• Cost per Action (CPA): Advertisers pay only when a specific action is taken (such as a purchase or registration). CPA is therefore ideal for campaigns where conversions are the primary goal. As long as the actions are clearly defined and measurable, CPA can be very targeted and budget-efficient.
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• Cost per Lead (CPL): CPL is used when companies pay for generating leads. This applies when a potential customer fills out a form or signs up for a newsletter. CPL-based marketing can permanently increase the customer base—but if it doesn't result in sales, there is a risk of lower revenues.
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• Cost per Sale (CPS): This model involves payment for each sale directly generated by the marketing activity. It is particularly suitable for e-commerce companies that prefer direct billing based on actual sales. CPS ensures that marketing expenses correspond to sales revenue, minimizing financial risk.

The choice of the right compensation model strongly depends on the specific goals of a campaign, the type of product, and, not least, the desired channel. For example, only CPC is relevant for Google Ads, while on platforms like Meta and TikTok, a different metric comes into play: Cost per Mille (CPM), where billing is based on 1,000 impressions.

Marketers should consider the following tips:

• Define Clear Goals: Clarify what you want to achieve with a campaign. The goals typically determine the compensation model—if you aim for higher brand awareness, for instance, CPC would be suitable.
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• Analyze the Target Audience: Always understand your customers. What actions are they most likely to take? The answer to this question plays a crucial role in selecting the compensation model.
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• Test and Optimize: The initial setup is not set in stone; it should be continuously adjusted. Often, it only becomes clear over time which compensation model best fits your needs.

Planning and Implementation of Performance Marketing Strategies

A carefully crafted strategy plan forms the foundation of effective marketing efforts, but equally important is the subsequent implementation. Below, we explain what to focus on during this process.

How to Develop a Comprehensive Performance Marketing Strategy?

The development of a comprehensive Performance Marketing strategy is a data-driven process that begins with clear goal-setting. Marketers must first define measurable objectives that can be quantified through relevant KPIs. A profound understanding of the market and target audience is also crucial—only then can the right marketing channels be selected. Thorough analysis is required to understand the needs and behaviors of the target audience.

Next comes the creation of a strategic plan that encompasses the chosen marketing initiatives. However, caution is advised: do not be too rigid! The plan must remain flexible and be regularly adjusted based on the latest data. Operational matters should be optimized weekly, while larger tactical decisions should be reviewed at least monthly. Flexibility is essential, but hasty actions can also be detrimental.

Fundamental strategic changes should be considered only once a quarter, as such decisions require statistically significant data first.

A critical component of the Performance Marketing strategy is also the implementation of a test-and-learn agenda based on the ICE score model (Impact, Confidence, Ease). This model helps prioritize hypotheses and decide which tests should be conducted to achieve the greatest possible insights and improvements.

The implementation of all these steps ultimately leads to a robust and data-driven Performance Marketing strategy.

How to Effectively Implement and Manage a Performance Marketing Strategy?

A robust marketing strategy is just the first step; equally important is the effective implementation of the planned measures. This primarily requires precise tracking, solid attribution, and continuous responses to dynamic market conditions.

The selection and setup of the right tools and platforms are essential for both tracking and campaign management—some popular options like Google Analytics or SEMrush have already been introduced.

From the collected data, companies can derive necessary adjustments. It is crucial to maintain a clear distinction between daily, weekly, and quarterly actions to remain flexible in response to changes without falling into pointless activity.

Here’s a checklist for monitoring:

• Daily: A brief status check is sufficient, primarily focusing on whether significant deviations have occurred. If necessary, the budget can be adjusted slightly—based on our experience, corrections of more than 20 percent are rarely needed.
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• Weekly: This is the time to iterate on creative assets and make operational budget adjustments. Weekly checks are primarily for reviewing overall performance.
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• Monthly: At the monthly interval, it's worthwhile to plan larger campaigns and events for the next 30 days. Additionally, reviewing metrics such as LTV and MER, as well as analyzing the number of new versus returning customers, is beneficial.
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• Quarterly: We recommend optimizing the overarching strategy several times a year. This includes long-term budget planning and evaluating the tools and tracking methods used.

For Performance Marketing to deliver the desired results, a clear separation of operational, tactical, and strategic decisions is essential. Both proactive and reactive actions must be taken, requiring the team to find the right balance between flexibility and consistency in decision-making.

Future Developments in Performance Marketing

We have already emphasized the importance of continuous education, as Performance Marketing is an incredibly dynamic field. To conclude, we want to highlight three developments that, we believe, will gain significant relevance in the future.

Which trends will shape the future of Performance Marketing?

• Integration of Artificial Intelligence (AI) and Automated Systems: The era of ChatGPT has also reached Performance Marketing. AI is already gradually being integrated into many aspects of Performance Marketing, from data collection to customer interaction and content personalization. This trend is expected to intensify significantly in the future. For marketers, this is advantageous—multimodal AI models offer more opportunities for processing and analyzing large amounts of data.
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• Omnichannel Marketing: The importance of a seamless omnichannel experience is steadily increasing. Companies that focus on only one channel will fall behind in the long run. In contrast, businesses that can provide consistent and personalized customer experiences across multiple channels will benefit. This also includes integrating digital and physical touchpoints to create a holistic customer experience.
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• Augmented Reality (AR) and Immersive Experiences: Speaking of customer experience—augmented reality is increasingly being used to offer customers interactive and immersive experiences. This ranges from virtual product presentations to enhanced in-store experiences that complement and enrich online shopping. E-commerce is set to change dramatically, as is the way brands interact with their customers.

Therefore, it is crucial for companies and marketers to be willing to continuously evolve and invest in new technologies. Only by doing so can they keep pace with the fast-changing developments of the future.