While the industry has looked hard at measurement and effectiveness, it has not asked itself whether the current pricing models incentivize participants appropriately. For example, cost per thousand (CPM) pricing ignores the value of engagement, while cost per engagement (CPE) ignores the value of the teaser. Both have their strengths, but still stifle creativity and targeting advances.
I believe developing a new hybrid pricing model that combines the incentives of CPM and CPE pricing may be a good place to start.
Each player has different goals. Brands, for example, want to deploy their best creative asset -- video -- at scale and across multiple screens, but support it with interactive elements to capture active attention from people who look something like target customers.
Publishers need to manage the trade-off between maximizing their revenue per page and minimizing the intrusiveness of ad formats to their user experience. Agencies must demonstrate creativity to their brands and deliver on key metrics, while managing the price between plan participants, minimizing the operational load of campaign deployment.
Finally, technology providerswant to make enough of a margin at scale to maintain investment in research and development to continue to innovate, which means generating effective CPMs higher than standard unit options.
A streamlined pricing model could help everyone get what they need.
The Problem With Current Models
CPE pricing was originally intended to address the issues faced by these various players. Brands pay when a user engages with a standard video teaser unit by clicking on it or rolling over it for a period of time, usually two to three seconds.
However, while CPE is now easy to transact, it can incentivize media owners and technology providers to apply wayward tactics to chase engagements, such as ad designs that can fool the user; disruptive ad placements that cause accidental engagement; or the targeting of users who engage, but don’t look like a customer. One way to address these issues is to set a deeper engagement point, such as charging only for more-qualified users, but this requires higher pricing and an uphill battle to justify the offering.
Meanwhile, unlike CPE, CPM pricing values the teaser experience, but only incentivizes a provider to hit an engagement benchmark, not to outperform, because outperforming requires investment in creative, inventory selection, and audience optimization choices. Again, setting a high CPM rewards the right behavior, but smart buyers then ask why they are paying the higher CPM for people who don’t engage.
A hybrid CPM and CPE model, which I’ll call CPME, works by charging a competitive CPM for the teaser video only, along with a consistent, competitive CPE between screens.
When compared to CPM or CPE, CPME has several potential benefits. It automatically values each exposure correctly to the passive impression or active engagement of the user, which incentivizes optimization to engagees most likely to look like customers.
CMPE protects advertisers from unreasonably high effective CPMs that could result from otherwise successful CPE campaigns delivering high engagement rates. Also, the creative gets the optimal mix of delivery.
Highly engaging teasers will skew towards fewer impressions, while teasers more appropriate for broad awareness will be optimized to the right audiences without forcing engagement rates. Finally, agencies would be able to scale and optimize campaigns between display, in-stream and mobile more easily.
But CPME isn’t without some challenges. It doesn’t guarantee a set number of engagements or impressions. And, as with any new pricing mechanism, it needs to be built into agency buying and reporting models to scale.
However, many buyers are willing to experiment, so once publishers and brands start to see that they can achieve their objectives while encouraging creativity, then pricing support will quickly follow.
online advertising has used pricing model innovations to overcome industry challenges in the past.
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