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A new approach to media buying

Chris Kane
A new approach to media buying Chris Kane

In a recent article, "New insights into real-time bidding," I provided statistics on the price efficiency available in the real-time bidding (RTB) marketplace. In response to those price benchmarks, advertisers are asking, "If there's so much inventory available at sub $1 rates, why am I paying such a premium?" The simple answer is that most advertisers have identified specific campaign strategies that drive high response rates and justify high CPMs. Unlike broadcast advertising models that include some degree of wasted impressions, the digital ecosystem enables advertisers to buy only the impressions that they deem valuable. Digital advertisers are willing to pay a premium to reach the right audience on the right content at the right time.

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The trouble (and opportunity) with addressable advertising is that demand tends to congregate around small supply sources, distorting market prices. Because prices are determined via an auction, any factor that increases bid density (the number of bidders in an auction) tends to drive up prices. Display advertising pricing patterns indicate that advertisers have identified a relatively narrow set of factors that drive response rates, and bidding tends to be competitive for impressions that meet these value-driving criteria. The result is a polarized market, in which a small percentage of impressions are purchased at premium rates, and the remainder are auctioned off at fire-sale prices.

A nuanced inspection of the biddable display marketplace reveals large pockets of under-valued impressions that can significantly improve campaign efficiency. When developing campaign strategies, it is important for media buyers to consider two questions: What is this impression worth to me, and what is it worth to the rest of the market? When there is a large gap between those two values, buyers can extract maximum efficiency from their advertising dollars. This game-theory based approach to advertising focuses not only on the expected value of an impression, but also on the odds of winning that impression at a price below its expected value. Advertisers should focus first on under-valued impressions, and only enter competitive auctions when additional scale is necessary.

As a specific example, consider two impressions available on an automotive website. The first impression is for a 45 year-old business traveler with a $150,000 annual income. The second impression is for a user with no known demographic data. Both impressions are good choices for a premium auto advertiser, and the first is almost certainly more valuable than the second. But the first is also valuable to advertisers in the financial services, retail, and travel sectors. Bidding will be highly competitive for the first impression. The second impression may be the better investment for the auto campaign.

Similar logic can be applied across many media buying dimensions. Frequency (the second impression tends to be cheaper than the first), geography (smaller markets have less competitive auctions), and time of day (prices are highest during working hours) all have a significant effect on bid density. Sophisticated bidding algorithms automatically consider all of these dimensions when determining whether to participate in an auction and at what price. Additionally, media buyers can implement campaign strategies that enable their campaigns to avoid highly competitive auctions. A few examples:

  • Schedule promotional events for early in the month. Bidding tends to be most competitive in the last few days of the month when advertisers are working to close out monthly budgets. A net blast on the first will be more cost effective than a net blast on the 31st.

  • Include less common ad layouts as part of the creative mix. While inventory is limited for these placements, CPMs tend to be low, as few advertisers have the creative assets to bid in these auctions.

  • For campaign tactics that target specific sites or content categories, exclude commonly-targeted third party audiences. By opting out of competitive audience-targeted auctions, the campaign's effective CPM will fall, enabling the campaign to maximize delivery of content-targeted impressions.

To be sure, targeting the right audience on the right content at the right time can significantly improve response rates. Campaigns that seek to achieve maximum scale with a proven targeting tactic should continue to pay a premium for the most desirable placements. But campaigns with hard ROI goals and modest scale requirements can benefit from a game-theory based approach to media buying. Advertisers that leverage game-theory based buying strategies can significantly out-perform the market by playing in undervalued corners of display inventory and letting their competitors fight for overvalued impressions.

Chris Kane is an account strategist at Turn.  

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