Programmatic And The Quarterly Budget Dump

budgetIt’s a tradition as revered as turkey on Thanksgiving and baseball in the summer: ad agencies dumping budget at the end of each quarter so they won’t lose it at the beginning of the next.

“There’s an artificial market dynamic that resets every month in programmatic where at the end of every quarter, we see a ton of demand and a ton of budget being dumped,” said Andrew Casale, VP of strategy at supply-side ad tech provider Casale Media. He noticed this trend again when he put out the company’s Q1 2014 report on the state of programmatic in the United States (download it here).

Additionally, a report from ad tech company Turn also noted spending spikes in March across telecom, travel and financial services verticals.

While quarterly budget offloading is not a new practice, nor is it one relegated to the ad industry, Casale is irritated that this antiquated tradition continues to infect the automated ad buying space.

“It goes against the progress of programmatic,” he said. “What we’re so excited about is we can optimize every conceivable element to make sure we’re maximizing the return on every dollar.”

The good news is that this practice is beginning to change. Casale noted the budget dumping wasn’t as egregious this year as it was in 2013. In many ways, the tendency to unload budget at the end of each quarter is a very human reaction to the advertising environment, one that is going through significant changes due to the proliferation of ad tech.

In the past, media planners would split marketing spend across various advertising and messaging channels. Transparency enabled by programmatic buying – which makes the spread of available inventory visible to buyers – lets media planners better understand what they are buying and where, and make impromptu budgeting calibrations depending on external factors.

“Programmatic buying tools give the planner visibility into the landscape into which they’re buying,” said Bosko Milekic, co-founder and CTO of ad platform AdGear. “Before, they had to trust what the network was pitching in terms of volume and budget suitable for that campaign. Nowadays the ability to see what’s suitable is shifting closer to the media buyer.”

Most importantly, this affects client finance departments – the guardians of the purse strings. Greater accountability and transparency generates metrics that the finance department can understand, said Christian Juhl, North America CEO of the digital agency Essence.

Finance departments can focus on long-term objectives instead of quarterly spend.

“That allows for annual budget planning or, better yet, getting the finance team to understand objective-based finance plans instead of dollar-based,” Juhl said. In other words, coming up with budgets that are based around advertising goals rather than hard dollars that can be taken away if not spent within the quarter.

But that vision is not yet reality. One reason, according to Milekic, is the rise of branding campaigns in programmatic environments. He noted that while metrics and correlations around direct response are clear, branding campaigns are more ambiguous. “The idea of valuing one channel or another becomes more arbitrary,” he said.

This mindset appalls Juhl. “That’s crazy,” he said. “Why would you take old-school brand metrics and bring it into the programmatic world?” Juhl referred to the idea of dumping budget at the end of each quarter in the hopes of making a sudden (and random) push in awareness.

“I do see that,” he added, “but great marketers are trying to integrate brand marketing with direct-response marketing to create a new metric, to actually understand how those two things work together.”

Juhl’s ideal measurement is all-encompassing, factoring stats like viewability and brand recall. “Good digital marketers should pull those things together, so you’re sliding dollars against an overall quality score,” he said.

Notably, Milekic sees the greatest shift away from budget dumping coming from the agencies.

“The agencies need more control and want to affect change, not just trusting the entity they’re buying from is going to do the right thing,” he said. “With branding, picking the seller you’re buying from is more relevant than in a direct-response campaign, where that’s a secondary element.”

For Casale, however, true change will have to be driven by the brand clients. As consumers are always connected and consuming content, brands must follow. While Casale acknowledges that spending all the budget all the time isn’t realistic, and that brands will naturally want to increase budgets around peak shopping seasons like holidays, it makes little sense to halt spending during parts of the year in order to get a budget approved.

“That process is a fragment of the past,” he said. “If we’re optimizing a campaign, we shouldn’t think the quadrant to optimize is May 1 to May 31. Those dates are irrelevant. We should be optimizing based on the most accurate information we have we can project forward. Those calendar dates recede into the background.”

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