The Consequences Of Flying Dynamic Pricing
There is no argument (here anyway) on the mathematics behind dynamic pricing. I am sure I don't fully understand the "daisy chain," but I do fly commercial airlines and can see, and often hear, that dynamic pricing solutions for publishers allows them to get the highest price for their "seats" before that inventory takes off into thin air. The parameters of dynamic pricing do reward buyers reserving inventory early with a "lower fare" -- and if their client's campaign can fly stand by, it will run at a cheaper rate but will appear only if it makes economic sense for the publisher to run it. However, those buyers calling a week before their client's campaign needs to fly, will pay a publisher more than they expect to.
Dynamic pricing works best in a truly automated buying process, and that's where Google is leading us., But today, and tomorrow, brand advertising will be created, planned, approved and bought by people.
People who have meetings, and follow-up meetings, conference calls and follow-up conference calls -- all in an effort to sign off on the allocation of marketing dollars they are paid to spend. In those various meetings, there is a media plan presented, with rates and costs. And that's where the turbulence occurs with dynamic pricing. Presenting a media plan with variables tied to the cost of the inventory and subsequently the amount purchased, defeats the purpose of putting a plan together.
More detrimental are the scars left behind when a publisher extracts the highest dollar amount from a buyer in a heightened moment of need. These scars turn into scorn, creating a roadmap to any other vendor than "this one" next time around. That's because buyers are people, and people's actions are fueled by emotions and feelings. And if you ask anyone these days how he or she feels about a particular airline carrier, their answers will be heavily influenced by the service received. They also tend to scrutinize that service more closely when the price they paid for it crosses a threshold of what the buyer had "planned" on spending.
But what about when dynamic pricing works out better for buyers? Well, for that to happen, they have to be willing to fly stand-by, purchase inventory earlier than their clients can commit to buying it, or have their pick of the litter of inventory nobody else seems to be interested in. So the benefits of dynamic pricing are harder for buyers to realize.
A recent quote from a former boss of mine who runs Google Sales (Tim Armstrong) was both brilliant and telling. To paraphrase, Tim proposed that brand advertisers treat their marketing and advertising budgets as operational budgets instead. Operational budgets (as I understood this) are more fluid in nature and can be increased or decreased along the way, based on real-time sales data. Advertising budgets are far more static. They get approved, assigned and then spent. Making this money flow through fewer meetings plays far better into an automated buying process, so I can see the barrier Tim is looking to remove. But even if advertising expenditures are hustling towards automation, there still lies a body of buying emotions underneath the engine that will resent the dynamic buying experience when it doesn't work in a buyer's favor. And building resentment is no way to develop relationships with the people that drive the brand advertising business.
Dynamic pricing works in other businesses, but not all businesses. If it did, McDonald's would charge more at the drive-through.