Floors are not Fraud

Hi all.  I have been thinking about cracking my knuckles and getting back to the literary salt mine for a while now and I saw an article yesterday that just I couldn’t resist.

Right off the bat, the headline “Are Artificial Price Floors The Next Iteration Of Ad Fraud?” almost audibly screamed Betteridge’s Law. (OK, I had to Google the name, but I swear I remembered there was such a thing).  So, in honor of Mr. Betteridge and his predecessors, let me state clearly that with respect to this headline, “The answer is no.

I can certainly understand why the buy side might not like price floors, but a buyer calling floors fraud is like King George III calling George Washington a terrorist.

Would it be fraud if one bought for 25¢ CPM an impression that’s worth $25 CPM from an ROI perspective? That’s a much bigger disparity between “true” value and transacted price than the example in the AdExchanger byline. Yet this sort of transaction happens all the time because, leveraging technologies like re-targeting, a buyer often knows much more about user value in the context of a particular campaign than a seller does. If they were being candid, many (if not most) buyers would tell you this is kind of the point of sophisticated, RTB-based buying strategies.

So, then, Is Precise, Data-Driven Targeting The Next (Next) Iteration Of Ad Fraud? Of course not.

What would a “true” or “real” floor price for an impression even be, as opposed to the “false” or “artificial” floor to which the author objects? Would it be the small fraction of a cent that it costs the seller to serve the impression? Would it be the seller’s operating expenses divided by its impression volume? Maybe add some margin? What’s a fair margin? Would it be opportunity cost, which the author implies would be his choice? (Second price approximates opportunity cost if one makes some reasonable assumptions.) Something else?

It’s not like I have written a book on this stuff or anything, but I have to tell you that I don’t see any reason why one of these options is more “fair” or “true” than the others. On the contrary, I see all kinds of reasons why all of them are less fair than the outcome of a voluntary transaction between two independent and accountable market participants.

To be clear, the seller has an obligation not to misrepresent what she is selling; misrepresenting what one is selling is bad (just ask Volkswagen). But where else in commerce do we even expect, much less require, a seller to disclose their reservation price transparently?

Do we get mad at the person who sold us our house because they didn’t tell us their brokers’ open was poorly attended and they really need to move immediately? Do we get mad at the car salesman who bargains harder because we forgot to take off our nice watch? Do we get mad at the movie theater because there were empty seats and so their opportunity cost on our ticket was $0? For that matter, do we even get mad at the movie theater for the $10 bag of stale popcorn? No. We expect that behavior and we do our best to counter it, but at the end of the day we decide whether the price offered is worth it to us in context and we buy or don’t buy.

The bottom line is that sellers should be free to use any and all (legal) tools available to them to manage their businesses in any way they think will meet their business objectives. Buyers are free to change bidding strategy, negotiate special terms or look elsewhere if economics on a transaction don’t work for them. Reasonable people could debate whether or not price floors are good for the efficiency of the market overall, but thankfully nobody is setting policy for the market overall – this isn’t 1950s Stalingrad.

Floors, “artificial” or otherwise, are a valuable and perfectly legitimate yield management tool for sellers.

Get The Drift

Another great post today by Doug Weaver at Upstream.  The most recent of many since I my first mention on this page this summer.

For sane, rational, objective and insightful commentary, The Drift is a must read.

There is an “I” in ROI

An interesting report came out last week looking at the relative cost and effectiveness of behavioral targeting vs. other approaches.

The headline finding was that BT cost on average 2.7 times what non-BT did and converted viewers into customers 2.4 times as well.  As the mathematically dexterous may notice immediately, this combination of numbers means that BT spend had a slightly lower ROI than non-BT spend.   I.e. BT was more effective, but not quite enough more to make up for its higher cost.  For the rest of us, here’s the calculation spelled out:

In short, according to this study, each conversion cost about 10% more with BT than without it.

This finding is doubly interesting given that it was obtained from direct response ad networks who typically focus on driving online activity.  In the pure online environment ad impact can be measured quickly and with very high resolution, enabling a tight feedback loop for improving targeting performance.  For the other 95% of sales that occur offline, however, it’s a different story.  While the online advertising environment enables powerful, accurate offline sales measurement capabilities, the same type of high-resolution, fast feedback optimization simply isn’t possible.

So if BT isn’t “earning its keep” in the pure online environment with all the data advantages that this environment provides, it’s certainly reasonable to have a healthy skepticism of how well it might perform in driving offline sales.  Indeed, the data we have seen suggest that other media approaches can be just as effective as BT, if not moreso in driving offline sales – very similar relative performance to this study.

The bottom line is simply to measure and hold your media vendors accountable to the metrics that are most important for a particular campaign’s objective.  It’s not enough that a particular targeting select has a catchy name or offers “zero waste”.  It’s not enough that campaign didn’t run next to objectionable content.  It’s not enough that X many consumers engaged with your ad.  Advertising is about changing attitudes and driving sales.  Those impacts can and should be measured and benchmarked for efficiency across all media approaches.

For most advertisers the most important goal metric is offline sales.  As approaches are compared for effectiveness in the context of cost and operational efficiency (collectively, the “I” in ROI), some buyers might be surprised to find that quality media, with well-managed frequency, high composition against the target and reasonable rates, delivers fantastic results.

…and “Go” they did!

A great blog post from Yahoo! Monday with another example of great brand work ringing the cash register.

This Quaker campaign certainly created a personal impact for me and the data from Y! proves I have *lots* of company in that regard.  Remember when this ran – March of 2009, the very blackest bottom of the financial meltdown.  The message was positive, energizing and timely.  A great combination that clearly activated customers.  According to Nielsen, the campaign generated $1.2M incremental sales.  Estimating that the 2 half-day Y! FP executions described cost ~$300K each that would yield ~100% ROI.  Not too shabby.

Yet more proof that well-executed brand campaigns efficiently drive sales where it matters: offline.

Is BT Just a Sales Tool?

Just a quick post this morning to point followers of this blog to my article in today’s AdExchanger, which was prompted by one of our customers’ observation that, “BT is a better sales tool than a success tool”.

In addition to the fundamental look-alike modeling issue that I examine in detail in the article, BT poses a variety of other important problems that brand marketers should consider carefully before allocating budget to this tactic.

More about those on this page later this week.

The Click isn’t just resting (redux)

Another great article on the shortcomings of the click as a metric this morning, this one from Josh Chasin, Chief Research Officer of comScore.  In addition to the points Josh makes in his article, I would also recall a recent post of my own where I show that CTR has been almost completely uncorrelated with ROI in our offline sales lift studies.  Since that post I heard a talk by Nielsen Online CEO John Burbank where he presented a much broader dataset (graphic below) that showed similar lack of correlation between CTR and the metric that really matters:  did your online campaign ultimately sell more product in stores.

picture1

RIP the click.

P&G focuses on the long term

Really insightful article about P&G in Ad Age a few days back. Focused on investments they are making now in long-term growth *over the next decade*. A far cry from the recent fascination with instant gratification marketing that seems to have taken hold (at least in much of the press) during “this economy”.

One of the data points cited in the article was a Consumer Edge survey of 1,000 consumers, which found 19% of Tide’s core users have traded down, at least at times, to value brands during the recession. Of them, 81% said they’ll probably stick with value brands after the recession. An example of the significant, permanent share loss possible when branding investments slip – a topic we have discussed on this page previously.

Even Wall Street likes the long-term focus – a rare occurrence at that address. The article notes that “expectations that P&G will pull back on earnings and sales guidance for next year has been sending its stock *up* in recent weeks, because they signal a more aggressive posture for the long term. Were Mr. Lafley next week to reaffirm a commitment to double-digit earnings growth he’s delivered for nearly a decade, some analysts believe the short-term focus could actually disappoint investors and hurt the stock…Deutsche Bank analyst Bill Schmitz says, ‘Share losses are a slippery slope, and we believe management understands nipping it in the bud now is a lot less expensive than trying to take it back later.’”

We couldn’t agree more and while the short-term results of effective Branding are measurable, the full effect will play out over the long term. This is strategic marketing at its best and sets an example others would be wise to follow.

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