“Data-Driven Thinking" is written by members of the media community and contains fresh ideas on the digital revolution in media.
Today’s column is written by Tim Sims, senior vice president of inventory partnerships at The Trade Desk.
For all of digital’s promise, some marketers today still execute media buys the way they did in the old world of advertising. They pay flat rates for broad audiences, turning to private marketplaces and programmatic guaranteed deals to buy a predetermined selection of inventory. It’s a purchase process mirroring that of traditional media buys, with buyers relinquishing control over price, inventory and audience to the publisher.
Yet, while old media offered buyers few alternatives, digital media gives advertisers the power of choice. The data available through digital empowers marketers to elect how much they should pay for each impression. If data suggests one user is more likely to purchase a product than another, why would a rational buyer pay the same price to reach both people?
Yet, many brands do just that, neglecting data and control for the fixed-price alternative and paying a lump sum for millions of impressions that are simply not equal in value. The unfortunate consequence? Lower ROI due to suboptimal audience targeting, a lack of impression valuation and wasted spend.
The misconception of fixed-price buying
Many advertisers use private marketplaces to curate a group of premium publishers, assuming . they will get priority access to the best inventory. This is not the case anymore. Collapsing publisher waterfalls and competition through header bidding may cause fixed-price deals to compete alongside open-market bids, leaving price and yield optimization to sway the publisher’s decision to serve one ad over another.
The result is that advertisers overpay for a group of unequivocal impressions. Just as a nickel and a quarter are not worth the same just because they are both silver and round, nor are a single publisher’s ad impressions. Most publishers make their best inventory available for real-time bidding via the header, diminishing the power of fixed-price bundles and increasing the value of the price-discoverable open market.
For example, I know of an agency trading desk that tested the performance of fixed-price buys against open-market buys, with a whitelist. The CPM for the fixed-price campaign was nearly twice as expensive as the open-market campaign CPM. Ultimately, the open-market campaign delivered impressions within the client’s target demographic for 84% less than the cost of the fixed-price campaign, driving the most cost-effective results.
The value of RTB on the open market
Most of us in the advertising business can appreciate this fact: The open market has a bit of a reputation – but the tide has turned. Advancements in viewability measurement, fraud detection and filtering, industry initiatives like Ads.txt, and extensive whitelist and blacklist capabilities, ensure a more controlled, safe environment. Advertisers should be confident in their ability to deliver targeted advertising in premium, brand-safe environments through the open market. And best of all, the open market is price discoverable.
RTB on the open market allows advertisers to exert the power of choice throughout the ad-buying process. With guidance from the scores of data available in digital, they can select and optimize their pricing strategies in real time for the customers who matter most.
The result is hyperefficient advertising that drives significantly greater return on investment through more intelligent spending decisions.
Test the open market
Here’s my suggestion: Buyers should allocate a portion of their fixed-price spend to the open market and compare their performance. They will likely see performance gains from a more nuanced, precisely targeted and efficient ad campaign on the open market.
Still not convinced? Just consider how consumers shop on a daily basis. We make buying decisions based on the perceived value of the products we’re interested in. I certainly wouldn’t pay the same amount for an apple as I would a steak. So, why should media-buying decisions be any different?