Does Driving Efficiency Drive Profit (A Contrarian View of RTB)

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Online display would be like this, if branding metrics took profit into account.

I’ve always loved the notion of programmatic RTB. As a data hound and an early adopter of Appnexus , the notion that advertisers can achieve highly granular levels of targeting and utilize algorithms to impact performance is right in my wheelhouse. Today’s ad tech, replete with 300 companies that enable data-driven audience segmentation, targeting, and analytics is testament to the efficiency of buying ads one impression at a time.

But what if driving efficiency in display actually does more harm than good?

Today’s RTB practitioners have become extremely relentless in pursuit of the perfect audience. It starts with retargeting, which uses first party data to serve ads only to people who are already deeply within the customer funnel. No waste there. The next tactic is to target behavioral “intenders” who, according to their cookies, have done everything BUT purchase something. Guess what? If I have searched 4 times in the last three hours for a flight from JFK to SFO, eventually you will get last view attribution for my ticket purchase if you serve me enough ads. Next? Finding “lookalike” audiences that closely resemble past purchasers. Data companies, each of whom sell a variety of segments that can be mixed to create a 35 year-old suburban woman, do a great job of delivering audiences with a predilection to purchase.

But what if we are serving ads to people that are already going to buy? Is efficiency really driving new sales, or are we just helping marketers save money on marketing?

It seems like online display wants to be more and more like television. Television is simple to buy, it works, and it drives tons of top funnel awareness that leads to bottom funnel results. We know branding works, and even those who didn’t necessarily believe in online branding need look no further than Facebook for proof. With their Datalogix offline data partnership, Facebook conclusively proved that people exposed to lots of Facebook ads tended to grab more items off of store shelves. It just makes sense. So why are we frequency capping audiences at 3—or even 10? I can’t remember the last time I watched network television and didn’t see the same car ad about 20 times.

The other thing that RTB misses out on is profit. RTB drives advertising towards lowering the overall cost of media needed to drive a sale. Even if today’s attribution models were capable of taking into account all of the top-funnel activity that eventually creates an online shopping cart purchase (a ludicrous notion), we are still just measuring those things that are measureable. TV ads, billboard ads, and word of mouth never get online credit—yet I believe they drive most of the online sales. Sorry, but I believe the RTB industry creates attribution models that favor RTB buying. Shocking, I know.

So, what is true performance and what really drives it? For most businesses, performance is more profit. In other words, the notion that a sales territory that has 100 sales a day can generate 120 sales a day. That’s called profit optimization. If I can use advertising to create those additional 20 sales, and still make a profit after expenses, than that’s a winner. RTB makes it cheaper to get the 100 sales you already have, but doesn’t necessarily get the next twenty. Getting the next batch of customers requires spending more on media, and driving more top-funnel activity.

The other thing RTB tends to fumble is how real life sales actually happen. Sure, audience buying knows what type of audience tends to buy, and where to find them online, but misses with frequency capping and a lack of contextual relevance. Let me explain. In real life, people live in neighborhoods. The houses in those neighborhoods are roughly the same price, the kids go to the same school district, the people have similar jobs, and their kids do similar activities and play the same sports. The Smiths drive similar cars to the Joneses, they eat at the same restaurants, and shop at the same stores. If the Smiths get a new BMW, then it’s likely the Joneses will keep up with a new Audi or Lexus in the near future. When neighbors get together, they ask each other what they did on February Break, and they get their vacation ideas from each other. That’s how life works.

What media most closely supports this real-life model, where we are influenced most by our neighbors?  Is it serving the Jones family a few carefully selected banners on cheap exchange inventory, which is highly targeted and cost effective? Or is it jamming the Smiths and Joneses with top-funnel brand impressions across the web? The latter not only gets Smith, the BMW owner, to keep his car top-of-mind and be more likely to recommend it—but also predisposes Jones to regard his neighbor’s vehicle in a more desirable light. That takes a lot of impressions of various types of media. You can’t do that and remain efficient. The thing is—you can do that and create incremental profit.

Isn’t that what marketers really want?

[This post originally appeared in AdExchanger on 5/20/13]

Leveraging the Influence of Neighbors

Neighbors-family-guy-15674073-638-483Christopher Skinner sold a search marketing company called Performics to Google as part of its Doubleclick acquisition. He now runs a software company called MakeBuzz that is on track to spend almost $100 million in media this year. Clients include Google, Target, and Oreck.

Its premise is simple: People buy the stuff their neighbors buy. By starting wide with media that builds a brand halo and then, optimizing into specific geographic areas where buyers are found, MakeBuzz optimizes against profit only.

Most marketers are obsessed with reaching individuals, but Skinner’s concept is almost contrarian: Spend more media up front, target by neighborhood and city, and be completely media-agnostic. The MakeBuzz code guides the optimization process until profitability KPIs are met. I recently sat down with Skinner to learn more.

The CMO Site: What’s the big idea here?

Christopher Skinner: Most people online today can measure a brand, but they can’t grow it. The methods to measure are not the same as those used to grow. You need a different framework and nobody is talking about that online.

Digital media agencies today are being handed money — money from traditional budgets — and asked to perform and hit the business targets but they don’t know how because they’ve lived inside the efficiency world for so long. It relates to neo-classic economic thinking: What you can’t measure, just ignore it.

On average we increase media spend by six times or more because we install a framework and technology that justifies the complete customer journey. We tie marketing to the economics of the business.

The CMO Site: Is profit optimization real, or are you just adding some process to what should be the CMO’s primary KPI?

Skinner: Both. It’s real and it is a formalized process. The software shows you how to tip the scales in favor of revenue by spending the right amount on media directed to the right group of customers. It helps you achieve maximum profitability on a market-by-market basis.

The CMO Site: You take a rather contrarian view. Most folks are buying audience by the impression, but you carpet-bomb geo-targeted areas with impressions. Which method is right? Can they be used together?

Skinner: Hyper-audience targeting based on cookies will deliver incredibly efficient sales, but you’re not going to see massive volume from this. You’re not going to move the needle on the business. I wouldn’t call what we do “carpet-bombing.” We’re delivering a large volume of impressions to areas that have a reasonable volume and high density of the target customer. We are looking at real social circles and matching media to these audiences, down to small pockets when needed. This is going to get you a little less efficiency but a lot more sales — a lot more profit volume. And isn’t that what matters?

The CMO Site: So, if I find the right neighborhood for a certain type of vehicle, I should just buy lookalike neighborhoods. How does that scale?

Skinner: Instead of drawing circles around virtual groups online, we draw the circle around concentrated groups of people that we know are likely to be interested in what we help market. And the fact that they are influenced by each other — they see what their neighbors wear and drive and what kinds of phones they use — means they are more likely to be influenced by media that reinforces and re-suggests those choices.

Scalability is about testing your way in. Identifying high-value areas, testing media to discover your profitability, then scaling to similar areas.

The CMO Site: What kind of media works best? It would seem that the more granular the geo-target, the better the performance.

Skinner: You need media that addresses the entire customer journey, from early awareness branding media to direct response purchase phase media. Most businesses are fine with the direct response online media, but they are missing brand-creating media. Our methods do a really good job of justifying media that helps drive direct response. The earlier phase media tends be display, mobile, and video, but can also be search (SEM).

As far as geo-targeting granularity, as long as the density of our target segment is good in each area and we’re hitting them with the right media plan, it works great. Think of each step as a filter: 1) Choose the right segment, filtering out all the less valuable potential customers; 2) Choose an area they live in high in density and volume, filtering out the neighborhoods they don’t live in; and 3) Pick the media they’re likely to be engaged with, filtering out wasted impressions. You can’t pull this off without a platform and it will not work unless the manager has a fast and simple way to buy in.

[This post was originally publisher in The CMO Site, on 4/11/13]