Fun stuff: ANA media buying reach and frequency targetability
by Kloprogge
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Sell value, not eyeballs
A couple of interesting articles I read the last couple of weeks. An ANA survey showed that only 1% of the advertisers their agencies compensate on the value they deliver. Time Inc. is partnering with Starcom Mediavest Group to guarantee that magazine ads will work and today on adage a statement that media owners need to join the compensation discussion. So there is a trend going on but moving like a heavy weight truck. Slow to start but will be hard to stop. But I would like to tell media owners, embrace this as it provides a wonderful opportunity!
Ok, so today’s reality is that media owners sell reach (eyeballs, impressions, exposures, opportunities-to-see, etc) and the agencies try and reach those relevant for the brand through the most effective and effcient media. Right? Not really!
The real reality is that media owners sell reach because agencies buy them and agencies buy them because advertisers hardly see the value difference between 1000 targeted exposures here versus 1000 targeted exposures somewhere else (and agencies and media owners have a hard time making the case differently). But the trade being based on reach and exposures has led to a significant decrease of value delivered. And the reason is simple, agencies want cheap exposures and as a result media owners try and optimize the amount of exposures they can deliver; and nobody is really concerned about the value that is being delivered. Result: clutter, ads in irrelevant environments, lack of demand towards quality media, etc.
So much will change if media owners would start to optimize their inventory based on the added value they create for their clients. For example, I truly believe that a well positioned 1-minute ad in a 1-minute commercial break (pod) could easily deliver more added value to the one client compared to the total value creation towards 10 clients with the current practice of 10 ads in a five minute break. In theory this means that clients would be willing to pay more than 10x as much for a uniquely owned one minute break than having 30 seconds in the cluttered environment. Makes sense?
So the media owner would increase revenue, the client gets more bang for its buck and this would also be great for consumers. Instead of having five minute intervals they only get a 1 minute break with an ad that is much more likely to be relevant. So this is a win-win-win!
The reason this is currently not happening is the fact that agencies and media owners have not been able to fully quantify value ad(d) in a credible way. A media owner would of course not be trusted with the argument, spend more than 10x as much in my medium as we have commissioned research that shows that you get more for your buck. Also, quantifying the added value is quite technical and specialist and not an easy subject to engage clients with.
But the changes will happen when media owners start to sell value. If a media owner would, for example, guarantee a certain increase in brand recall they could find out for themselves (and not for their clients) that delivering a 1 minute exclusivity in a break is the fastest way to deliver on the guarantee while minimizing usage of inventory. At the same time they’ll see ratings go up (less annoying breaks) and the decrease of supply would further increase prices.
New media: Still all about technology
Words I’ve been hearing a lot the last couple of weeks: Java, HTML 5, Flash, Android Applets, etc. So did I talk with our developers? Did I go to a technology conference? No, I visited a couple of marketing and media conferences.
We can feel it coming. In a couple of years from now we’ll be talking about the old media like search, display, widgets and the new media where location is key and virtual/social lives are influenced linking those behaviors to what people do offline. We know it’s coming, we know it will shake the industry (perhaps more than web 1.0 and even 2.0) but nobody knows exactly what is coming. For now it’s in the hands of those that understand and influence technology.
It’s just like the introduction of the internet. Innovative startups with strong believes in certain technologies will lead innovations and one or two will get it right to become market leaders.
My personal prediction of the big success story: “Suggest marketing”. People are going to be so distracted that serving up relevant suggestion to consumers based on where they are and what they do. No need to search, find it before you’re looking. I actually like the idea of my mobile phone telling me: “If you want to purchase something for your wife on this business trip, you might want to try this book as she has shown interest in this subject lately.”
What we can learn from the traveling salesman?
For those that have worked in the area of operations research, mathematics or computer science the traveling salesman is an intriguing and well known problem. The problem sounds very easy, what is the shortest route traveling from one destination to the next and returning to the place you started. What makes this problem intriguing is that no mathematical algorithm exists that guarantees the shortest route in an acceptable amount of time (to be precise: it’s an NP-Complete problem and as such the most efficient algorithm to date – and probably forever – solves the problem in a time that increases exponentially with the number of cities). In practice this means that normal CPU’s would need days or even years to solve problems with a relatively small number of cities (e.g. 100).
Applying marketing data includes many optimizations for which we can prove that no efficient algorithm exists. Examples are television reach optimizers or allocating inventory towards brands. For these problems, as a real optimal solution cannot be guaranteed, mathematicians need to develop heuristic algorithms; an algorithm that tries to get to the best possible solution in a limited amount of time.
And that brings me to the key subject of this blog. The deflation I’ve seen on what it means to optimize. Ten years ago, my clients asked me about how our optimization techniques work; they even got independent mathematicians to audit our methods. Nowadays this doesn’t happen anymore. To have a button in software that says “optimization” seems to be enough to convince prospects. And this is a slippery slope as some optimization routines I’ve seen has moved towards simply users clicking (with some basic information) what they think is best. And let me guarantee, users are not able to optimize as good as good old-fashioned mathematical optimization techniques.
Don’t believe me, please download a little piece of software I wrote many, many years ago. This software allows you to try and find the best route for a traveling salesman before the computer gives it a go. With about 40 cities, on average – in my case – the computer does 8 to 10% better. That’s a lot if it is a 10 mln dollar decision!
And yes, as the computer algorithm cannot guarantee the best solution, you might be able to beat the algorithm. Do let me know (with screenshot!) if you’ve been able to do this.
Fun stuff: creative insights return on investment ROI
by Kloprogge
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Is ROI killing creativity?
There are many discussions out there about the future of the agencies and the consensus seems to be that analytics will get a more prominent part in marketing departments and agencies. The discussion than seems to revolve around the tension between ROI and creativity and I remember having done some master classes in Europe with the title “Is ROI killing creativity?”.
I’m obvious happy with more analytics, it’s Pointlogic’s core business. However, as I mentioned in my first blog post, I’ve always specifically enjoyed the tension between numbers and creativity. But my true believe is that these two could and should go hand in hand. If ROI is killing creativity, the only good reason would be if creativity indeed doesn’t deliver a better ROI. I’m guessing most would disagree.
The key problem is, I believe, that most marketers and agencies are comfortable with ROI in a historical sense. How well did this piece of creative perform? How well did this media plan perform? Then the strategic application of the ROI insights are to redo what worked and to stop what didn’t. And yes, this is like glue for creativity as creativity is about new and fresh and not about redoing.
But the solution is relatively straightforward although I know in my daily practice that it is out of the comfort zone of many. But analytical thinking and ROI should be applied in forward looking programs. Demand that analytics provide answers to expected ROI of campaigns before they happen. You might find that it could really transform the way you look at and apply research (with more assessments based on the unknown and more focus on how to monitor and adjust in real time). It’s only then that you’ll find that ROI helps creativity and that creativity helps ROI. And finally, it makes our job as analysts more fun!
Fun stuff: comparitive business environments diversity international business
by Kloprogge
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Business in the US & Europe, let’s set the score
Nearly five years ago I started Pointlogic in the US, this was after spending my career of more than ten years in Europe. So let’s set the score of comparing the business environment in Europe and the States:
Openness of doing business
This is an absolute no-brainer, the US is by far more open to do business. In Europe there are no legal or political restrictions to do business throughout the continent, the European Union guarantees freedom for any citizen to work anywhere and money may freely flow through the union. However, culturally there are real barriers in doing business. The larger European markets are more closed, meaning that French prefer doing business with the French, the Britons with the Britons, etc. I’ve always appreciated doing business in the US and I never felt any barrier as coming from Europe and representing a Dutch company. So it’s clear, it’s 1-0 for the US!
Competitiveness
There is no doubt that the US is more competitive than Europe. I actually think this is an underappreciated trait of business in the US and it certainly helps leverage the openness of the market. The openness means that if you have a good product, you’re accepted and you win business. The competiveness assures that you need to remain on top of your game as it’s easy come easy go. In the US you have to be good and stay good. This is not true in Europe where relationships matter more. Once you’re in and you whine-and-dine with the client, you’re pretty safe to retain the client even when the product is under delivering. So it’s 2-0 for the US.
Legal
Europe has a very different legal environment than the US (with the exception of the UK – but then even the Britons don’t refer to themselves when they say Europe). The main difference is that the US holds more freedom in writing your own agreements while in Europe there is simply more pre-arranged by the legal framework. Another difference is that, in case of litigation, European judges will consider what’s reasonable and what was the likely intent of the agreement while judges in the US will take the written agreement more literate. The effects are many but although the European system has some disadvantages it does work better. Two main advantages: (1) There is less possibilities for harassment and (2) the legal system would consider the fact that business realities change during the lifetime of an agreement (which changes the intent of the agreement). So the overall score is 2-1 for the US.
NDA’s
During more than ten years in Europe I don’t recall signing any non-disclosure agreement (only non-disclosure paragraphs as part of a larger agreement). In the US, I’ve probably signed about thirty/forty of them. It seems like a small point, but I actually like a formal statement that says “we’re going to do something together but what we share is confidential and you’re not allowed to solicit associates and we’re not yet in business as partners.”. It’s 3-1 for the US.
Sales process
This is a tough one. I’ve found it easier in the US to get the appropriate meetings and having a sense of your products being genuinely considered. On the other hand, a first sales meeting in the US is quite often for a complete commission and they expect a sales pitch. In Europe a first meeting is, in most cases, an hour that you get acquainted with the representative of the company with more of a discussion where needs and capabilities are shared. This is not yet the sales meeting and the second, real sales meeting, can be much more customized towards the needs and requirements of the prospect. So both get a point for this: 4-2.
Employment
In Europe it can be very hard to ‘let people go’ and there is no such thing as at-will employment. Severance payments are normally automatically ruled at two months for every year of employment and, as such, if someone had worked for you for six years it takes one year of salary to let them go. This is a real burden to businesses and in the end I also don’t believe this is beneficial for (especially young) employees. The automatic severance leads to a hurdle of leaving a job, even if you’re unhappy and as such it stops some of following new dreams. I also believe, quite controversially, that the difficulties of letting people go is very harmful for those that are unemployed. With employment rotation being low it’s much harder to get into a job and it gets worse, getting fired in Europe is such a big deal that employers would be very careful to hire someone that was laid off (it must have been really bad). As such it’s 5-2 for the US.
Fun of business travel
Perhaps not the most important point for business but I do want to give Europe another point! I remember the days of having a one to two hour flight with on-board service and then landing in a different world, different culture, language, food, etc. There is simply no comparison between the fun of doing business in places like Prague, Madrid, Moscow, Istanbul, etc and to compare this with Houston, LA, Dallas and Detroit. The final score is 5-3!
To summarize, I do believe the US has a better business environment than Europe and that this environment spurs innovation, growth and flexibility. The good news for Europe is that some of the barriers of doing business are being closely looked at and legislation is slowly changing to adapt. Perhaps, in a couple of years, Europe can draw.
Fun stuff: agent based modelling simulation modelling
by Kloprogge
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Agent Based Modelling
People sometimes ask me what I think about “agent based modeling”. As a mathematician it’s actually somewhat confusing that during my studies I learned about Markov processes, simulating queuing processes, Bayesian statistics. But it seems that the good old world of mathematics has caught up with the world of branding: genetic algorithms, neural networks, agent based modeling, etc.
So let’s put agent based modeling in the box it belongs. It’s nothing more (or less) than simulation. I’ve studies queuing processes by applying simulation models. People would come into the process, each would determine which queue to select and the time it takes to serve a person was based on some random distribution. Without me knowing it, I was applying agent based modeling.
For marketing purposes, simulation I do believe has great potential. We can research individual behavior and decision rules but a system to aggregate these individual characteristics and to allow for scenario planning based on such an aggregation would be far too complex to execute without a simulation model. But with a simulation we could have ‘agents’ seeing ads, using the internet, going shopping, etc. If current researched behavior leads to current brand outcomes, it seems like a credible step to change the environment of these agents and to see how they would react. It’s like creating a virtual environment where you can give virtual consumers stimuli and to see what and when they’ll purchase.
So what’s next? Consumers learn and change their behavior and decision rules based on historical stimuli. This means that in our simulation model we would need to allow our agents to learn. So the next big thing is “agent based artificial intelligence”! Just googled this and very disappointed to see this already gets 62,000 hits. At least I do believe I can claim to be the first to bring this idea to the marketing community.
By the way, even though I’ve studied queuing process, I too always elect the wrong queue!
Case-study: The Toyota Recall
Toyota has a massive recall and for all of us in automotive marketing this means an incredible case study to understand volatility of markets, how fast consumers’ perceptions can change and how a dominant brand can influence the whole market place.
First of all, when the recall started, I was surprised that Toyota themselves made this into a trust issue. The message was basically, sorry we didn’t live up to the trust you gave us but we’ll fix the problems. I thought an approach of “Some of our vehicles have safety problems but with Toyota these problems are in good hands as we’ll fix the problem and make sure you’ll drive in safe cars again.”. Safety is easier to fix than trust!
Ok, this was before I knew that the first recall would be followed by a second, a third and now even a fourth. Obviously, there was no way around this; having to recall four times for problems that seem unrelated is massively going to damage the image of Toyota. I don’t think anybody can now predict the amount of damage. If I look at our own M3 study (M3 Automotive from 2009) and looking at the medium/large car segment, 68% of consumers think Toyota performs well on making reliable cars, 66% trust Toyota as a manufacturer and 56% believes Toyota scores well on safety. Compare this with, for example, the largest Detroit brand Ford: 30% for reliability, 36% for trust and 30% for safety. Summary: trust, reliability & safety are traits that define Toyota as a brand.
So what will happen now that Toyota brand essence is being shaken. How low can the perceptions of trust, reliability and safety drop? Will these percentages drop to the level of the average car, will it remain higher as a result of decades of building equity or will it drop even lower? I don’t think I’ve ever seen such a case that we can see how far such a strong brand can fall. The future will tell.
But now something that I think is even more interesting. How will the good shake Toyota is getting, shake the automotive industry in general. Will consumers start to distrust the other big brands or brands they associate closely with Toyota (e.g. Honda)? Will consumers start to distrust hybrids or cars with many electronic features? Will this grow the second hand market (I’d rather drive a car that hasn’t accidently accelerated in at least five years)? Etc.
With our M3 study we can project where customers moving away from Toyota are likely to land and we can even help these brands to leverage their messaging and media towards optimizing the number of consumers flipping from Toyota to their brand. But how the overall market will turn out after Toyota is no longer on the front page, one can only guess.
Agencies and Performance Based Incentives
Last week I spoke with my first international client and a good friend. Loved the discussion we had as I realized a major change in the industry that is happening. Let me explain.
The old model is that agencies work on behalf of their clients and use their resources to optimize added value for these clients. But the contracts between agencies and clients didn’t include a lot of incentives for the agencies to really deliver (except for CPP’s which one could argue lowered the quality of media buys). The result was/is that a large part of the R&D budget from agencies go into how to look better instead of how to be better; a subtle difference.
We know that clients and agencies are now including performance based metrics in their contracts, which I believe is appropriate (would love media owners to get on board on this trend as well). But the other change is that agencies will now optimize their own value instead of the clients value. I believe this is a win/win for both the agencies as the clients as agencies understand media better and are better able to increase value, in ways that are not even on the radar of clients (and as such haven’t been implemented – don’t do what your clients can’t understand).
I expect that performance based incentives will slowly create a better incentive for media buys to deliver quality and value instead of buying cheap. And once the demand for quality increases, so will the supply and personally I think we’ll all benefit (media, advertisers, agencies and the consumer).