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HOW TO PLACE VALUE ON DIFFERENT NETWORKS?

Posted by admin on Jun 15, 2011 2:35:08 AM

From time to time new networks call and ask me how much they should be charging for advertising. That is a very difficult question because there are so many different factors that contribute to how a network should be priced. First of all, I should state that we are not experts in inventing pricing for networks; rather, our expertise lies in evaluating and placing networks within media plans. Even so, how should networks be priced? What are the major considerations when placing value on a network? I believe that the answer to these questions is relatively simple: The cost of the network should correspond to the inherent strength of its message-conveying ability.

To provide an example of a medium that has very powerful message-conveying ability, let’s assume that Cinema advertising is Digital Out-of-Home. This is a rather large assumption that probably warrants its own blog post and debate; however, for our purposes we will consider it DOOH. When evaluating Cinema’s assets it becomes clear that several factors contribute to its strength:

• Dwell Time
• Captivated Audience
• Full sight, sound and motion
• Few distractions
• Measurable audience (ticket sales)
• Strong programming content

Considering these factors doesn’t necessarily mean that all networks must have the same attributes; however, it does give us a basis from which we can begin to structure an evaluation.

There is probably no particular order of importance regarding the above characteristics when evaluating a network and how it should be priced because every network is very different, but we do argue that every factor should be considered, and every factor will have a bearing on the medium’s value. Some networks will be very strong even with short dwell times, and other networks will be effective despite multiple distractions. The point is that the above factors are essential in not only our evaluation of the network as a medium but also its value in monetary terms.

Another factor that we consider is:

• Interactivity or mobile activation potential

As you can tell, some of these considerations are black & white and measurable, while others are more subjective, so there is room for individual judgment; hence, the difficulty the space is having in standardizing pricing structures. The obvious answer to this conundrum is to determine a standardized methodology of evaluating networks’ pricing across the entire industry. That would most likely involve ascribing numeric values to the above listed factors in addition to dozens of sub-factors in order to come up with a proper pricing index. Ideally, this index could also include another important factor: Recall studies. Since pricing should be inherently tied to message-conveying ability, peoples’ reactions to the advertisements on the medium would be an excellent piece of information. (This, however, creates a chicken-and-the-egg scenario in which the recall studies would affect pricing even though networks must set pricing before they can run campaigns and get recall studies).

For now, pricing in the space will most likely be correlated across particular genres. For example, if one mall vendor charges a certain rate, then other mall vendors will most likely align their pricing to their competitors’ rates. As such, the space will continue its gradual progression toward across-the-board comparative equality; however, a concerted effort within the industry to move toward standardization of pricing structures would be an enormous step for the industry and will pay great dividends in terms of advertiser trust and, hopefully, utilization.

Topics: WRITE

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