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Basically, Smart Pricing is a discounting scheme that Google applies to AdWords advertisers who are not having a sufficient return on investment for some of the ads in their campaign.

According to Google

Smart pricing feature automatically adjusts the cost of a keyword-targeted content click. So if our data shows that a click from a content page is less likely to turn into actionable business results - such as online sales, registrations, phone calls, or newsletter signups - we reduce the price you pay for that click.

According to Jensense, the AdSense expert reporter

He summarizes it like this: “Google’s smart pricing feature automatically adjusts the cost of a keyword-targeted content click. So if our data shows that a click from a content page is less likely to turn into actionable business results - such as online sales, registrations, phone calls, or newsletter signups - we reduce the price you pay for that click.“

The example of smart pricing is like this, consider there are two websites, each related to cat.The first page features cat website reviews, while the second offers cat safegurading tips. Clicks from the page of cat safeguarding tips might be charged less, because they are expected to convert into sales less frequently, resulting in lower value for advertisers. Google data determines that clicks from the cat website reviews convert better, so clicks from this page are not discounted.

Features of Smart pricing

• Smart pricing affects an entire account. It is not on a per page or per site basis.
• One poorly converting site can result in smart pricing impacting an entire account, even sites completely unrelated to the poorly converting one.
• Smart pricing is evaluated each week. So removing ads from sites you suspect are converting poorly could result in seeing an adjustment to a higher smart pricing percent in as little as a week.
• Smart pricing is tracked with a 30 day cookie, so you could be rewarded for new conversions that saw the initial click from your site up to 29 days earlier.
• Image ads are also affected by smart pricing.
• With smart pricing, an advertiser could end up paying less than their minimum bid, which would theoretically include the minimum bid price available, meaning publishers earn less for even the minimum valued clicks.
• Conversions for smart pricing publisher accounts are tracked by those advertisers who have opted into AdWords Conversion Tracking

Google has tool that can track a conversion of a contextual click.When an AdSense ad is clicked, Google will place a conversion tracking cookie on a user’s computer. The conversion tracking cookie will be stored in the user’s computer for 30 days. It is used to track a conversion for Advertisers.

Finally Google Smart pricing system will use the information that they collected to make price adjustment for an ad. When the click generated from its contextual network is less likely to turn into business for advertisers, the smart pricing system will reduce the price advertiser pays for that click.

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