Online Advertising

Data-Driven Pricing: Biting the Hand that Feeds

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Data-driven-pricingWe hear the claim all the time: Online shopping gives you the best opportunity to find the best pricing on goods.

But here’s the rude reality: Developments in “data-driven pricing” is putting the lie to that assertion.

Although it’s a turn of phrase that hasn’t received very much play – at least until now – data-driven pricing is the latest method by which sellers are hankering to extract every last dollar they can from buyers.

Think of it as the digital version of global zone pricing in the petroleum industry, wherein gas companies charge filling stations in well-heeled areas more for the exact same gasoline product that they sell for less elsewhere.

But in the digital realm, online retailers like travel sites are keeping track of customer IP addresses and recording past shopping activities in order to serve up higher prices to the people who are interacting with their sites.

These retailers are taking customer loyalty … and standing it on its head.

Using browsing and shopping data collected about each customer – including every time a site is visited via Google search results – retailers can determine in real-time if they can get away with charging a higher price.

And that may well be why you paid $75 more for your air ticket than the person seated next to you on the plane who also purchased their ticket online on the exact same day.

Now, this scenario isn’t universally true. When there are many retailers to choose from on a particular item, along with ample supply of a good, the consumer can usually hold out for the lowest combination of price, shipping (hopefully little or none), and sales taxes (hopefully none).

But on items ranging from airline tickets to concert tickets, the online consumer is often up against a stacked deck.

Believing that online shopping is the slam-dunk way to extract the lowest price from the retail channel is a notion that’s out of date at best … and naïve at worst. Simply put, data-driven systems have gotten a whole lot “smarter.”

Some consumers might respond by hesitating before buying – no longer assuming that the price they’re being offered is the “lowest available” one.

So here’s a question: When consumers become more cautious about buying online, who’s hurt more?

The consumer? Or the suddenly smarter retailer?

When “Push” Comes to “Pull” in Marketing

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Push versus pull marketing. "Push" has the upper hand now.
"Push" vs. "pull" marketing: Does "pull" have the upper hand now?
It’s clear that social media is delivering a wide range of interesting and beneficial online experiences for people. One that’s among the most highly valued is the ability to “vet” products, services and brands through reading reviews posted by “real people.”

According to a survey of ~3,330 consumers conducted in late 2011 by Deloitte’s Global Consumer Products Group, a large majority of consumers report that they rely on user reviews to guide their purchase decisions, rather than merely being influenced by brand advertising.

The Deloitte survey found that nearly two-thirds of consumers read consumer-written product reviews online. Of that group, 82% report that their purchase decisions have been directly influenced by these reviews – either confirming their decision to buy or causing them to switch to an alternative product or service.

Because of the perceived value of these consumer reviews, most people begin their search for information via a search engine query or by going to blogs, e-commerce sites such as Amazon that also feature consumer reviews, or review sites like TripAdvisor and Yelp.

By contrast, the incidence of people beginning their information quest at a company or brand website is far lower.

These dynamics are part of the reason why so many companies and brands are looking to increase their engagement with the online public. They’re particularly keen on ferreting out their natural allies – people who have a strong positive opinions about their brand – and turning them from armchair advocates into vocal cheerleaders.

For many marketers, this means going well-beyond collecting “likes” and similar “trophy counts.” They’re also continually monitoring comments in the social sphere concerning the quality of their products and customer service in order to make sure they deal with any issues or complaints expeditiously in order to minimize negative fallout in the “review” environment.

There’s also a powerful impulse for brands to offer “incentives” to customers in exchange for posting positive reviews. Those incentives can range from the small or innocuous – offering discount coupons or inexpensive product samples – all the way to incentives that seem more like bribes. (Here’s the latest example of this, courtesy of Honda.)

The keen attention companies are paying to social platforms reminds us that we’re in the midst of a migration away from traditional “push” marketing into a land of “pull” marketing.

There have always been “push” and “pull” aspects to marketing, advertising and PR, of course. But the balance of energy these days appears to be shifting quite sharply in the direction of “pull.”

There’s no reason to think that pattern will change anytime soon.

Digital Advertising Growth Forecasts: Rosy Scenarios on Steroids?

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Ad spend forecasts lower than projected.Isn’t it interesting how industry growth forecasts for emerging digital segments always start out looking stupendously stellar? Terms like “swelling demand” … “robust growth” … and “tipping point” often accompany these breathless predictions.

And of course, the business media are highly prone to report the news, as it underscores the fact that highly interesting things are afoot in the marketplace.

What’s done much less often is to go back at a later date and compare the growth forecasts to the actual performance.

But digital media company Digiday has done that, and if you think you remembered industry growth predictions that were a bit high on hyperbole … Digiday’s analysis reveals your memory is right on the money.

One market prognosticator – eMarketer – is often cited for its digital ad market predictions. But how accurate are they? Here’s how it forecast annual mobile ad spending in the United States:

 Prediction by eMarketer published in 2008: $5.2 billion in 2011
 Revised prediction from eMarketer restated in 2011: $1.2 billion
 Percent off-target: ~77%

And here’s how eMarketer forecast U.S. annual video ad spending:

 Prediction by eMarketer published in 2007: $4.3 billion in 2011
 Revised prediction from eMarketer restated in 2011: $2.2 billion
 Percent off target: ~49%

Granted, it is a challenge to forecast growth rates in digital advertising activity early on in the developmental cycle. But being off by such a dramatic degree makes the forecasts essentially worthless – and laughably so.

Another phenomenon may be at work as well. Invariably, the initial growth forecasts are too aggressive rather than too timid.

Why? Rosy forecasts tend to spark more interest from journalists, venture capitalists, publishers and others – and hence have a greater propensity to be published. So there may well be subtle pressure to “err on the plus side” when formulating the forecasts.

Digiday’s Jack Marshall poses that question, too, and then writes: “It’s important to think about where new markets and technologies are headed, but the ad industry often gets preoccupied and overexcited with what are essentially just guesses.”

As for the latest crop of (downwardly revised) growth estimates, Marshall adds: “Let’s reconvene in four years for the inevitable update.”

If you’re a betting person, you’d best wager on the revised figures being lower.

Internet advertising: Blue smoke and mirrors?

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Online advertising spurious claimsIn today’s online world, marketers can’t afford to do advertising the old fashioned way. They need to rely on automated programs that serve ads to the right audiences in cyberspace.

One question I hear often from business leaders is to what degree of confidence should they place in these automated programs to actually deliver what is promised. There’s a nagging concern that some of the promises might be a bit more like “blue smoke and mirrors.”

As it turns out, some of that concern may be well-placed. Here’s one recent example of problems along these lines. And Trust Metrics, an online media rating firm, has studied more than 500,000 unique web domains – in effect, “taking inventory of the ad inventory.” And what it’s found is pretty sobering.

For starters, the online ad inventory supply is marked by dynamic change and constant evolution. Approximately 20% of the domains studied by Trust Metrics in late 2010 don’t even exist anymore as of the end of 2011. Tens of thousands of sites that may have once been vetted by agencies or networks are gone. There is no content at these domains … or they’re simply “ad farms.”

Trust Metrics claims that never have so many marketers purchased so much online ad inventory in an environment that is so degraded, a significant portion of the domains might not even be around a few months from now.

Moreover, approximately 10% of the domains Trust Metric evaluated that sell ad impressions in scaled buying environments (e.g., exchanges and networks) are actually non-English language sites – hardly valuable places to advertise. Plus, that represents more domain names than those identified as pornographic, or containing significant profanity or hate speech.

Trust Metrics’ evaluation also found that well over half of the sites available in large ad networks are what it classifies as “substandard environments which don’t adhere to even the barest minimum in publishing or editorial principles.

The bottom line on this is that of for 1 million domains that sell ads … most advertisers wouldn’t want to be on ~600,00 of them!

Of course, the flip side of this is that there are thousands of sites that do perform for advertisers – and those “good” sites drive valuable clickthroughs, sales and brand building.

But clearly, advertisers would be well advised to adopt a “buyer beware” stance in the current online advertising environment.

The Google+ Social Network: Net Plus or Net Minus?

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Google Plus, Google+What’s the latest with Google+? The big splash predicted when the new social platform hit the web has been more of a ripple instead.

Underscoring this, recent news reports have suggested that Google basically missed the boat on social media … and that rival Facebook is far too well-established to face anything more than just token competition going forward.

It’s true that many people find the prospects of building and engaging in yet another social media channel a wearying thought, to say the least. There are, after all, only so many hours in the day.

But Google doesn’t want to cede the social media marketplace to Facebook without a fight. That’s understandable, considering the billions of dollars in potential advertising revenues that come from being able to serve ad messages to people who are connected to others who “like” a product or service.

The results charted to date on Facebook confirm that displaying friend “likes” adds an extra measure of credibility to advertising. That’s manifested in a clickthrough rate that’s three times what’s typical for other advertisements on the social platform.

The launch of Google+ this past summer hasn’t resulted in huge user adoption, that much is clear. The Google+ social platform has managed to nab ~40 million users, which isn’t a shabby number in and of itself. But it pales in comparison to the more than 800 million active users on Facebook.

But despite this less-than-stellar performance, we see clues as to where Google is going with its social platform. That’s because Google’s equivalent of the “like” button – the “+1” notation that shows up on Google’s search engine results pages – goes further than simply communicating the news to those in someone’s own Google+ network. Google is also mapping that information through to its Gmail account base.

Google’s Gmail service has hundreds of millions of users, and those who use the site regularly have accumulated dozens or hundreds of contacts. So when a user clicks +1, Google can show that result not just to the user’s social friends on Google+, but also to his or her contacts in Gmail.

[For those who cry “foul” on privacy grounds, Google maintains that clicking the “+1” button is a public action and therefore not subject to privacy considerations.]

The jury’s still out on what the social map will look like in a couple years. There’s little doubt Facebook will still be the biggest guy on the block. The question is, to what extent will Google have taken the 600 pound gorilla down a notch? Stay tuned …

Social Couponing and “Daily Deal” Sites: Storm Clouds on a Blue Horizon?

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Daily deals and other online couponsI’ve blogged in the past about the risks and rewards of social couponing. Recently, we’ve been getting some conflicting reports about the online couponing phenomenon.

On the positive side, according to a new market forecast by local media expert and advertising firm BIA/Kelsey, American consumer spending on coupon “deals” – including daily deals, instant deals and flash sales – is expected to grow at a healthy compound annual growth rate of ~37% between 2010 to 2015.

That would mean that Americans will be spending ~$4.2 billion in this segment by 2015. And that’s an increase of ~$300 million over BIA/Kelsey’s earlier 2015 forecast, released by them just this past March.

The BIA report also makes the following observations and prognostications about the segment:

Groupon and LivingSocial – the leading players in this market – have expanded rapidly. With low barriers to entry, more participants have entered as well, including vertical sites and local media companies.

 There’s been substantial growth in the number of registered users who are active in buying coupons.

 More specialization in deal sites – by market segment and by geography – is leading to more activity by registered users.

 An increase in both the number of transactions and the average price per transaction will occur.

Counterbalancing this rosy report is the experience of market leader Groupon in its attempts to take itself public. That endeavor has been accompanied by the release of financial figures that show company performance well below expectations.

And the challenges go well beyond Groupon: The Wall Street Journal’s Shayndi Raice is reporting that a shakeout has already begun among the ~530 daily deal sites that have been formed in recent times. So far in 2011, nearly one-third have shut down or been sold (~170 of them), according to daily deal site aggregator Yipit. Even sites like Yelp and Facebook have pulled back from their daily deal coupon activities.

According to reporter Raice, at the root of the challenge is the cost of acquiring registered users for the couponing services. At the outset, the novelty of the segment and the resulting PR buzz made it relatively easy to attract “early adopter” consumers and participating merchants, so only a relatively modest sales promotion budget was needed.

But, Raice notes, “It now takes more spending to get to remaining consumers and to cut through the noise created by so many competitors.”

Groupon’s own statistics from regulatory filings in connection with its bid to go public illustrate this dramatically. Here’s how the average cost to acquire a new custom jumped over the span of just one year:

 March 2010: $7.99 average acquisition cost-per-customer
 June 2010: $20.93
 March 2011: $30.74

Groupon was forced to spend nearly $380 million in marketing initiatives during the first half of 2011, compared to only around $35 million a year earlier. In the heightened competitive environment, not only must companies vie for new consumers, they need to sell new merchants on the program as well.

Those marketing and selling requirements translate into nearly 1,000 Groupon sales employees in North America alone, while second-ranked LivingSocial has ~700 … each of whom earns an average $100,000 in salary plus commission.

Considering these daunting dollar figures, it’s hardly a surprise that there’s a shakeout happening, with the less-heeled participants having to exit the market or sell themselves off.

In hindsight, it appears that many entrepreneurs and investors may have been tempted by the deceptively low barriers to entry into the “online deals” coupon game – basically a website … a few merchants offering coupon discounts … and some e-mail offers to consumers. But the real costs come with trying to scale operations so that the individual coupon offers result in sufficient income and fees that will offset the relatively labor-intensive operating model.

Obviously, many have yet to find the sweet spot in this business.

Getting a Read on Viewer Engagement with Online Advertising

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Online advertising effectiveness -- findings from Casale Media (2011)One of the great aspects of online advertising is that every jot and tittle of users’ experiences can be tracked and analyzed.

Much of the findings confirm what we might already suspect in terms of the ways people interact with online advertising … but having confirmation and quantification helps in planning and carrying out advertising program tactics.

Take new research conducted by Casale Media, a Canadian-based online advertising network which specializes in promoting brands via banner, rectangle, tower, hover and pop-up ads. The company analyzed nearly 2 billion ad impressions generated during the first quarter of 2011.

Based on this research, Casale has come to three key conclusions:

 Online display ads appearing “above the fold” – in other words, in the area that’s visible before the user starts scrolling the page – are nearly seven times more effective in generating clickthroughs compared to ads appearing below the fold.

 Viewers are three times more likely to “act” on an ad if it is the first or second one they encounter during their web session.

 The more times someone sees a particular ad, the more likely he or she will be to click through and take action. Casale finds that ads served five times to a user are 12 to 14 times more effective than ads shown less frequently.

The Casale conclusions support the findings of other studies utilizing eye-tracking data, where it’s been found that site visitors spend the vast majority of their time looking at information positioned within the web page’s initially viewable zone.

As for the finding that ads served to users later in their browsing session are much less likely to get attention and be acted upon … industry practitioners refer to this as “banner blindness.” It’s a phenomenon that has an antecedent in the print magazine world, where “far forward” positions were often the place everyone wanted to be.

And as for greater ad frequency generating more viewer actions, this also mirrors the offline advertising world, where multiple ad exposures are needed to achieve a degree of familiarity and to “register” with users.

Awareness and familiarity are the first steps in generating action. Of course, too much frequency can be counterproductive – but again, the tracking capabilities of online advertising enable marketers to experiment with different exposure levels to determine the optimum frequency that’ll generate the best level of engagement.

Online Display Ad Effectiveness: Skepticism Persists

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Online Display AdvertisingAs the variety of options for online advertising have steadily increased over the years, the reputation of display advertising effectiveness has suffered. Part of this is in the statistics: abysmal clickthrough rates on many online display ads with percentages that trend toward the microscopic.

But another part is just plain intuition. People understand that when folks go online, they’re usually on a mission – whether it’s information-seeking, looking for products to purchase, or avocational pursuits.

Simply put, the “dynamic” is different than magazines, television or radio — although any advertiser will tell you that those media options also have their share of challenges in getting people to take notice and then to take action.

The perception that online display advertising is a “bad” investment when compared to search engine marketing is what’s given Google its stratospheric revenue growth and profits in recent years. And that makes sense; what better time to pop up on the screen than when someone has punched in a search term that relates to your product or service?

In the B-to-B field, the knock against display advertising is even stronger than in the consumer realm. In the business world, people have even less time or inclination to be distracted by advertising that could take them away from their mission at hand.

It doesn’t take a swath of eye-tracking studies to prove that most B-to-B practitioners have their blinders on to filter out extraneous “noise” when they’re in information-seeking mode.

This isn’t to say that B-to-B online display advertising isn’t occurring. In fact, in a new study titled Making Online Display Marketing Work for B2B, marketing research and consulting firm Forrester Research, Inc. reports that about seven in ten B-to-B interactive marketers employ online display advertising to some degree in their promotional programs.

And they do so for the same reasons that compelled these comparnies to advertise in print trade magazines in the past. According to the Forrester report, the primary objectives for online display advertising include:

 Increase brand awareness: ~49% of respondents
 Lead generation: ~46%
 Reaching key target audiences: ~46%
 Driving direct sales: ~41%

But here’s a major rub: Attitudes toward B-to-B online display advertising are pretty negative — and that definitely extends to the ad exchanges and ad networks serving the ads. Moreover, most don’t foresee any increased effectiveness in the coming years.

That may explain why Forrester found that fewer than 15% of the participants in its study reported that they have increased their online display advertising budgets in 2011 compared to 2010 – even as advertising budgets have trended upward overall.

When you look closer at display, there’s actually some interesting movement. Google has committed to a ~$390 million acquisition of display ad company Admeld. And regardless of the negative perceptions that may be out there, Google’s Ad Exchange and Yahoo’s Right Media platforms have created the ability for advertisers to bid on ad inventories based on their value to them.

Moreover, new capabilities make it easier to measure and attribute the impact of various media touchpoints — online display as well as others — that ultimately lead to conversion or sales.

But the negative perceptions about online display advertising continue, proving again that attitudes are hard to change — even in the quickly evolving world of digital advertising.

Click Wars Opening Round: Plaintiffs 1; Facebook 0

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I’ve blogged before about the issue of click fraud, which has many companies wondering what portion of their pay-per-click campaigns are simply wasted effort.

Until now, Google has been the biggest target of blame … but now we’re seeing Facebook in the thick of it also.

It’s only been in the past year that Facebook has made a real run for the money when it comes to paid search advertising. There are some very positive aspects to Facebook’s advertising program, which can target where ads are served based on behavioral and psychographic factors from the Facebook profiles of members and their friend networks. This is something Google has had a difficult time emulating. (Not that they haven’t been trying … which is what the new Google +1 beta offering is all about.)

But now, Facebook is the target of a lawsuit from a number of advertisers who contend that there are major discrepancies between Facebook’s click volume and the companies’ own analytics programs which suggest that the purported clickthrough activity is significantly inflated.

As an example of one company that is a party to the lawsuit, sports fan site RootZoo alleges that on a single day in June 2010, its software programs reported ~300 clicks generated by Facebook … but Facebook charged RootZoo for ~800 clicks instead.

While contesting the allegations vigorously, Facebook’s attorneys have also argued against the company having to disclose the source code or other details of how it calculates clickthrough activity, citing fears that the proprietary information could be leaked to outside parties (competitors) as well.

But that argument fell on deaf ears this past week. Instead, Facebook has been ordered by the U.S. District Court in San Jose, CA to disclose a wide range of data, including its source code for systems to identify and filter out invalid clicks.

In making this decision, Magistrate Judge Howard Lloyd stated, “The source code in this case implemented Facebook’s desired filtering, and whether that filtering [has] lived up to Facebook’s claims and contractual obligations is the issue here.”

This ruling appears to call into question the sweeping terms and conditions that Facebook advertisers are required to sign before beginning a media program. The relevant language states: “I understand that third parties may generate impressions, clicks or other actions affecting the cost of the advertising for fraudulent or improper purposes, and I accept the risk of any such impressions, clicks or other actions.”

[This isn’t the only incidence of Facebook’s broad and restrictive stipulations; another particularly obnoxious one deals with “ownership” of content posted on Facebook pages – basically, the content creator gives up all rights of control — even if the content came to Facebook through a third-party source.]

But in this particular case, evidently the terms and conditions language isn’t sweeping enough, as Judge Lloyd ruled that the plaintiffs can sue on the basis of “invalid” clicks, if not “fraudulent” ones.

Touché! Score one for the judges against the lawyers!

Of course, it’s way too soon to know how this particular case is going to play out – or whether it’ll even get to court. It’s far more likely that Facebook will settle with the plaintiffs so as not to have to disclose its source code and other “trade secrets” — the very things that cause so many marketers to see paid search advertising as a gigantic black hole of mystery that is rigged against the advertisers no matter what.

But one thing is easy to predict: This won’t be the last time the issue of pay-per-click advertising is brought before the courts. Whether the target is Facebook, Google or Bing, these skirmishes are bound to be part of the business landscape for months and years to come.

More Insights on Online Display Ad Effectiveness

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Ad clickthrough rates
Clickthrough rates are only part of the story in online display advertising.
Last week, I blogged about the low level of clickthroughs on online display ads – basically a cipher at 0.09%.

In a conversation with a business colleague of mine who is with one of our healthcare client accounts, she mentioned that it’s also important to consider the branding aspects of online display advertising. The idea that people may not click through at that precise moment in time, but are favorably disposed to pay a visit later on.

This got me to looking for additional research into the matter. What I found from several advertising digital media marketing and data reporting companies – MediaMind (Eyeblaster) and comScore – confirms this impression.

An analysis by comScore of consumer clickthrough behavior covering ~140 online display ad campaigns found that only about 20% of the conversions came after clicking on a banner ad. The remaining 80% of conversions happened among those who had seen the ad but not clicked through at the time. Instead, they converted at a later date.

Other interesting points from comScore’s analysis include:

 Online display ad campaigns yielded nearly 50% improvement in advertiser website visits as measured over a 30-day period.

 Users who were exposed to the online advertising were ~38% more likely to conduct an advertiser-related “branded” keyword search in the subsequent 30-day period.

 Users who were exposed to the online advertising were ~17% more likely to make a purchase at the advertiser’s retail store.

Similarly, MediaMind’s analysis of ~100 million conversions from thousands of online ad campaigns has found concurring results – namely, that only ~20% of conversions are the result of a clickthrough, while the vast majority of the conversions happen at some point after viewing the banner ad without clicking on it at that moment.

The takeaway from all this: It’s a mistake to consider online advertising clickthrough rates in a vacuum. Because at best, it’s only a partial measure of the effectiveness of an online ad program.