A Brief History of Flight
Prior to the mid 1980s, the airline industry was relatively unsophisticated in pricing seats. When Peoples Express entered the scene in 1981, its low-price strategy quickly gained customers and market share -- and the big airlines noticed.
American Airlines responded with "Supersaver" fares, essentially matching Peoples on key routes. Secondly, airlines adopted yield management, which brought data-driven pricing yielding +3-8% improvement in revenue by most estimates.
Yield Management -- What is it?
Yield management is appropriate when a business has a perishable resource and can segment customers willing to pay different prices for the same resource. In airlines, a seat is perishable as revenue potential disappears once a flight has flown.
Airlines want to sell the right seat to the right passenger at the right time at the right price. This requires algorithms accounting for capacity utilization, route scheduling, fuel prices, and competitive pricing.
Yield Management -- For Marketing?
Yield management is a good model of what an advertiser would like to do: place the right ad in the right program against the right target at the right price. What's required for yield management to work for advertisers?
• Digital - Digital is more easily measurable, more timely, and therefore more usable in the yield management model.
• Cross-Media Measurement - Marketers must measure viewership across TV, web and mobile to optimize media allocations.
• New Measurement Tools - Marketers need to target viewers based on segmentation dimension, buy media based on ad effectiveness by program, and measure ROI.
• Real Time Data - All three of the above are needed in real time - 24/7/365.
• Accountability - Advertisers must demand greater accountability for every media dollar spent.
For some, the surprising news is that all of the above are either in place or rapidly becoming so.
New Measurement Tools
Two new measurement tools are critical to moving to a real-time yield management marketing model:
1. TV Program Engagement TV Program Engagement is a measure of how involved consumers are in a TV program. Not surprisingly, viewers are more involved in "Desperate Housewives" than "America's Greatest TV Stars." Higher engagement = higher recall.
2. Advertising Effectiveness Ads are more relevant to consumers if the ad equity fits the TV program it sits within. Is there any doubt that an ad for SlimFast is more effective on the "The Biggest Loser" than in a program with different content but similar audience size and demographics?
So ... When Do We Take Off?
The processes for planning, buying and allocating media for brands won't change overnight. But all of the yield management puzzle pieces are now in place. In the future, advertisers will be able to:
• Target the Right Audience Media targeting will move from simple demographics to more sophisticated psychographic and behavioral targeting.
• Identify the Right Program As Marketers supplement viewership with TV Program Engagement data, they will become more sophisticated in identifying high engagement / high ad recall programs to improve their ad recall effectiveness.
• Match the Right Ad Marketers will measure the impact of program fit with their brands. They will match ads to programs based on purchase intent data for optimal impact.
• At the Right Time Media planning will move from an annual, exception-driven exercise to a real-time, algorithm driven process, fueled by continuously updated effectiveness metrics.
All of this will be connected to purchase panel data. So all of the targeting, buying, planning and allocation decisions will be held to simple question: did I get an acceptable ROI?
This is the coming "seismic" shift in Marketing -- ROI-based advertising and media. Those who don't get on board will be grounded in the new economy.