Friday, April 06, 2007

Advertisers Must Help Marketers To Build Relationships

Today’s New York Times reports that cable TV networks are balking at an eBay-built auction site to sell their advertising (“For Cable TV, No Interest in Selling Ads The eBay Way”, page C3, The New York Times, April 6, 2007). The networks’ justification is that many ads are now sold as part of larger packages, rather than simply on price. The article quotes Cabletelevision Advertising Bureau President Sean Cunningham as saying, “The grand majority is about idea-driven packages that have got multiple consumer touch points.”

Mr. Cunningham has access to more information than I do, but I somehow doubt that the “grand majority” of cable TV ads are part of multi-touch point packages. The very fact that, according to the article, the online exchange was sponsored by large advertisers including Hewlett-Packard, Home Depot and Intel who committed up to $50 million, suggests that those advertisers felt many of their purchases could be made outside such packages. Even an amateur cynic would suspect the networks’ real concern is that an auction would result in lower prices.

The article also mentions efforts by Google and DoubleClick to create online exchanges for advertising purchases, and suggests these may also face resistance from media companies. (Although the article doesn’t mention it, other reports have stated that Google is indeed having trouble gaining cooperation from radio stations.)

The obvious story line here is “new technology tries to reduce costs and the old guard resists”. But maybe things aren’t so simple. After all, integrated, multi-touch point marketing is a Good Thing in my personal universe, and I think in the customer experience management world in general. If an auction model does prevent more sophisticated marketing programs from happening, perhaps it really is a bad idea. Even though the core concept of the Customer Experience Matrix (delivering the highest value message possible for each communication opportunity) sounds very auction-like, it requires more information about those opportunities than would be available in a typical auction situation. If I may pontificate a bit (and who’s to stop me?), markets in general are only as good as the information known to their participants—so if closer buyer/seller relationships make information more accessible, they may actually result in a more efficient use of resources than a freer but less informed auction.

This doesn’t mean auctions are useless. Certainly eBay, Priceline and various price comparison sites work well for consumers who making one-time purchases (not necessarily of commodities) primarily on price. Even in the advertising world, price-driven purchases can work for campaigns that don’t require on-going relationships with customers (say, viewers of a particular TV show) or media (say, cross-promotion on TV, radio, Web and print venues with a common owner).

There’s a general theory in here somewhere, that the value of a communication opportunity can be increased by having more information available but only if the information is usable. In an advertising situation, it’s the medium owner (TV station, Web site, newspaper, list owner, etc.) who must provide the information and the advertiser who must be able to use it. For internal situations, the medium owner and advertiser are the same company but the separation between exposing and exploiting information is still relevant.. The general theory would also need to account for the fact that the same communication opportunity can have more value within the context of a relationship, or even within a particular contact stream, than outside of that context. This means creating a relationship actually creates a more valuable communication opportunity—a sort of “sweat equity” if you will—although this value only exists for the relationship owner.

Media owners will naturally want to share in the value created by their advertisers’ relationships. Their negotiating position is weak since no alternative buyer can benefit from the relationship (and thus, alternative buyers will not pay a premium for the same contact opportunity.) What media owners can do is to negotiate up front when they are giving advertisers the opportunity to start building the relationship. Really clever media owners would go a step further and make it easier for advertisers to build relationships, both by making more information available and by helping advertisers learn how to make use of it.

None of this really justifies the cable TV networks’ refusal to participate in advertising auctions. Advertisers who have relationship-based programs would not use the auction-based ad exchange even if it existed. Advertisers who can be more flexible in their purchases are the ones who stand to gain. If the cable networks reject the auction approach because they think they can make more money selling ads the old way, that’s their privilege. But I would respectfully suggest that they put their efforts into adding value to their media instead of the defending the status quo. Advertisers have too many other contact opportunities to pay a premium where none is justified.

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