“On TV And Video” is a column exploring opportunities and challenges in programmatic TV and video.
Today’s column is written by Justin Eisenband, director, corporate finance, TMT, at FTI Consulting and contributor to FTI Journal.
As linear television viewership and MVPD subscriptions have declined recently, many TV ad sellers have been slow to react and are witnessing stagnant ad rates. Today, while many TV ad sales organizations are using a robust digital tool chest to optimize sales, many others have failed to do so.
At a time when they need it most, more TV ad sales groups should leverage their enormous knowledge of customer behavior and volumes of data to get better value from ad inventory.
To combat secular headwinds, TV ad sellers might look to another industry that has successfully harnessed the power of its customer knowledge and big data: the airlines. By adopting a more sophisticated approach to maximize value of inventory like the airlines have, TV ad sellers may find growth in a challenging environment.
TV ad sellers face the same pricing issues as airlines, which are burdened by high fixed costs and perishable inventory. Broadcast and cable networks are on air 24/7, and ad sellers need to fill time slots or slots will “fly empty” with house ads.
Yet despite possessing abundant sales data, some TV ad sellers still rely on outdated practices, such as static rate cards, which undervalue inventory and lower customer retention.
Differentiate Inventory And Value it Appropriately
Airlines have recently moved to differentiate flyer experience and charge premiums for added benefits, such as seat classes, boarding priority and extra legroom.
TV ad inventory should be similarly distinguished by the network, time slot and size of designated market area, which all impact an ad’s effective reach. Rate cards, by contrast, are often set by network tier and daypart, which may not capture vastly different network ratings or differences in viewership by time of day. And while ad sellers often price premium sports and event programming separately from the rate card, little data is used to inform these decisions.
Often, TV ads are sold as “rotators,” which are ads that can be placed in long-duration windows that may air in any time slot throughout the day, with the understanding that the advertiser will receive valuable prime-time placement some of the time and less valuable overnight or daytime placement at other times.
While this affords the traffic system scheduling flexibility, the probability of placement in valuable slots results in deep discounts to the advertiser versus ads sold by the daypart – discounts that may sometimes approach 80%. The frequency of long-duration rotators varies from ad seller to ad seller, but usage is pervasive throughout the industry. To maximize inventory value, TV ad sellers should “sell by the seat” rather than sell “lottery” tickets that can randomly place customers into first class for the price of a budget economy seat.
Price To Demand
Perhaps the most sophisticated feature of the airline industry’s pricing model is the ability to change price in response to demand. Airlines are able to use customer habits and search history to maximize prices whenever demand outstrips inventory.
Similarly, TV ad sellers can respond to changes in demand to capture the most value for inventory. As sellout increases and inventory becomes scarce, TV ad sellers should raise rates. While this is a generally accepted principle within the industry, it is not always successfully implemented in practice.
In fact, other confounding factors can cause unintended consequences. For example, I know of one instance where a TV ad seller saw price drops at the end of every month because account executives sacrificed rate for volume in an attempt to increase their personal compensation.
Segment Customers Based On Willingness To Pay
When establishing pricing, airlines look at total demand and the characteristics of each individual customer. Airlines often adjust pricing and services accordingly, segmenting customers based on whether they are business or leisure travelers.
The TV ad seller who can discern and cater to a customer’s willingness to pay will be more likely to achieve optimal levels of price and volume. Many TV ad sellers implement this strategy on a limited basis as evidenced by higher rates in political years and higher rates for national advertisers than for local counterparts.
However, many fail to capture premiums from customers willing to pay more. Empowering a sales organization with data insights can allow salespeople to better segment customers, understand customer preference and determine willingness to pay for different inventory.
Value Your Best Customers
The airline industry defines best practices by encouraging fierce customer loyalty to a brand family with various incentives. TV ad sellers need to do more to sustain existing customer business, starting with price. In my experience, advertisers that spend the most total ad dollars with a seller more often pay higher rates than lower-spend advertisers for the same inventory.
With customer churn sometimes reaching 40% in a single year, account executives are left scrambling to make up lost volume by providing lower introductory rates. Rewarding big-volume spenders with more attractive rates can help ad sellers generate more repeat business, limit customer churn and reduce reliance on the low introductory rates needed to attract new customers.
TV Advertising Is Still the Best Option
Ultimately, both the airlines and TV advertising offer the best alternatives for many of their customers. Just as airlines remain the most viable mode of transport for fast mid- to long-range travel across the world, TV advertising provides a combination of audience engagement and reach that cannot currently be replicated today using other advertising mediums.
Despite declines in viewership and subscriptions, TV ad sellers can extract better value from their ad inventory by leveraging their knowledge of customer behavior and the volumes of data that support it.
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