Raise prices where and when you can
Publishers, particularly of newspapers, face an advertising market that is changing daily. Programmatic buying and selling of advertising inventory is adding new sales channels that require new business practices and analytics. Similarly, changing advertising practices are placing more emphasis on targeting and audience metrics. This article introduces the pricing strategies and tactics that publishers can use to maximize the revenue they receive for their advertising inventory.
Use it or lose it
Advertising inventory is perishable, meaning that it has value during a definite lifetime with zero value afterwards. It shares this feature with airline seats, hotel rooms, rental cars, movie tickets and sporting events. Companies with perishable inventory often use historical sales patterns to adjust prices. If an airline has typically sold 50 percent of the seats on a flight 30 days prior to departure, it may lower the price of tickets if only 40 percent of the seats are purchased at that time. Airlines also use time of purchase as a means of segmenting their customers. Leisure travelers often buy tickets far in advance, while business customers purchase much closer to the date of travel. Publishers can analyze prior sales patterns for comparison with current sell-through rates. Raising or lowering prices on a weekly or monthly basis as the date of delivery approaches can increase yield as well as create a sense of urgency in customers and the sales force to get the purchase order completed.
All inventory is not the same
Advertising inventory can be segmented using defining criteria such as geographic location, demographics of the audience, time of delivery and behavioral characteristics. Each of these targeting dimensions can add value for advertisers who are continually focusing their message on specific audiences. Understanding how much value is created from audience targeting and to whom that targeting is valuable is the key to pricing the inventory for sale. Unfortunately, scarcity in the digital advertising inventory market is scarce. Publishers who can define inventory using unique attributes have the best chance of earning a premium price since they can differentiate their inventory from the vast amount of impressions for sale. First party data, that information that the publisher collects directly on its audience, is the best opportunity publishers have for differentiating their inventory and creating an opportunity for premium rates. Third party data, that information which is purchased from data providers, is often expensive and of questionable accuracy. And it is difficult for publishers to earn a premium on inventory using third-party data.
The market price for advertising inventory should reflect its effectiveness in generating incremental sales lift for advertisers. As advertising messages are targeted with greater specificity, the logic follows that the sales lift from this audience will be higher and the price-per-impression should increase. Historically, digital advertising impressions yielded a much smaller increase in sales than a print advertising impression. This is likely due to the quality of the average impression in each medium. Many digital impressions are never displayed on the screen or are created through fraudulent traffic. These factors tend to decrease the effectiveness of digital impressions, and thus the price of these impressions reflect the diminished value to advertisers. Highly targeted, verified impressions will command higher rates than typical impressions, and this is the direction many publishers are heading. It is important to earn a premium sufficient to cover the extra costs of targeting and verifying the impressions.
All advertisers are not the same
Advertisers have characteristics that can be used for segmentation, including content adjacency preferences, purchase quantity, seasonal fluctuations, trade styles and national vs. local customer bases, among others. A key objective of yield management practices is to segment the audience so that different prices can be charged to customers, and this holds true for advertisers as well. The same impression can be sold to different customers at different prices, depending on how much they are willing to pay for them. Understanding your advertising customer base and setting prices that reflect their price elasticity is necessary for maximizing total advertising revenue.
The emergence of programmatic sales channels has added another aspect of yield management strategies for publishers. These channels are effective in selling inventory that would be difficult to market through a direct sales channel. The challenge is to limit the downward pressure on the rates received by the publisher from these platforms. The minimum price limit that can be set by publishers should be a dynamic rule that reflects what those impressions could yield through an alternative channel.
Yield management in the advertising market is a relatively new but growing opportunity for publishers. Using pricing strategies and tactics employed in other industries with success is a good way for publishers to start down this path. If airlines can do it, publishers can, too.
Matt Lindsay has more than 20 years of experience in helping businesses improve performance and grow revenue through economic modeling. In consulting roles over the past 15 years, he has shared this expertise and developed pricing strategies and predictive models for clients, including the Intercontinental Exchange, Gannett, The Home Depot, NRG Energy, Tribune, IHG, McClatchy, the Everglades Foundation, Walton Foundation, Dow Jones and The New York Times.
Lindsay can be reached at matt@mathereconomics.com or (770) 993-4111.
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