How Much Should a Behavior Cost?

  |  July 5, 2006   |  Comments

Is behavior a tradable commodity? If so, how should it be sold and purchased?

A recent Atlas Institute study finds online advertising during lunch and evening hours yields much higher conversions than other daypart periods. Though encouraging, the finding isn't earth-shattering. The stats reflect something media planners have long suspected.

The study does confirm adverting is most effective when it caters to consumer behaviors. Perhaps the higher conversion rates have less to do with actual "lunch" and "evening" times, and more to do with consumers breaking from work and spending more time on themselves. Thus, they're more receptive to relevant advertising.

The study validates online behaviors can be segmented and potentially purchased with offline methodology ("dayparting" is historically a broadcast media term). It also shows the virtual world still depends on the rules of the real-life environment (consumer online behaviors are unquestionably and deeply affected by the conditions in the physical world).

But is behavior a tradable commodity? If so, how should it be sold and purchased? Further, if online behavior fluctuates according to the physical environment, should the cost dynamically reflect the changing conditions in the physical world?

How Much for a Financial Elite?

The concept of "buying" a behavior is fascinating, but can a behavior be traded as a commodity?

A commodity is a generic, largely unprocessed good that can be processed and resold. It's traded in the financial markets for immediate or future delivery based on a futures contract, which is the agreement for delivery of a specific commodity on a particular date. Commodities and contracts are standardized so an active resale market will exist. This is similar to how behavioral targeting is purchased in online media today.

Presently, just about all behavioral targeting vendors offer either predefined or customized behavioral categories. In their current state, behaviors are used as proxies for consumer segments. If a financial marketer wants to reach the ideal target, for example, he can buy a "financial elite" behavioral group, consisting of online users who exhibit predefined financial-related online browsing activities.

However, marketers must make a pivotal distinction: in increasingly audience-centric communications, a behavior can be a proxy for segment identification, but buying a behavior doesn't buy you an audience in absolute means.

The real question then isn't whether behaviors can be traded as commodities, but what the most appropriate way to monetize such commodity and its pricing structure is.

A Dynamic Pricing Model Based on Behavior?

Behavioral targeting is primarily sold on a CPM (define) basis. Despite somewhat uniformed media-pricing methodology, there are inherent price variations, as some publishers have higher general costs than others (some sites are simply more exclusive than others).

Not all audience segments are created equal. Marketers are aggressively shifting into a lifetime-value (LTV) model, in which a consumer's loyalty, retention, and long-term purchase ability are factored into CPA (define) goals. Certain behaviors, when used as proxies to segment target audiences, are worth more than others due to their LTV with higher acquisition allowances.

If the acquisition cost is really a reflection of total sales, should the behavior cost dynamically adjust to these economic, social, and real-life conditions?

Imagine a dynamic media pricing model based on local conditions in the physical world (weather, gasoline prices, etc.). Would the CPM be dynamically priced higher for a home-loan segment when the Feds lower the interest rate? What if the cost for a frequent traveler segment increases or decreases to match the airlines' ticket sales? As marketing (online especially) becomes more performance- and result-driven, does this trend suggest higher-performing media placements should cost more?

A dynamically priced CPM is still far from reality, but the basic premise is similar to that of the existing affiliate program structure. Affiliate performance is affected by how much an advertiser is willing to pay for an action.

What Does This Mean for Online Media?

Media and consumer behaviors are changing. The entire gamut of media consumption habits is changing. For those of us entrenched in this behavioral revolution, we know these alterations have fundamentally transformed the way advertising and marketing are done.

Online advertising is most effective when the context is relevant. As people spend more time on the Web, marketing strategies must adapt to stay relevant. This is one of the founding premises of behavioral targeting -- an audience-centric view rather than the historic obsession marketers have with editorial adjacency.

Jim Spanfeller, president and CEO of Forbes.com, was quoted as saying he isn't convinced behavioral targeting is right for the financial sites. Sites such as Forbes.com "tend to be homogeneous" and "behavior targeting is better for a larger, multifaceted site."

Perhaps Spanfeller overlooks the fact that regardless of whether a user is a business decision maker or not, if he's a frequent online user, he probably uses online for more than financial and investment. Whether the user is a CEO or not, other products and non-business messaging can still be relevant to him.

If behavioral targeting is truly poised to receive a sizable portion of the online media budget, perhaps we must rethink the way behavior segments are bought. If sites can develop a system that dynamically monetizes their behavioral inventory and audience segment (reflecting the business landscape in real time), perhaps online media will one day be as complex and respected as commodity trading.

Maybe then, Spanfeller will change his mind about who the homogenous business decision makers are online.

Andy is off this week. Today's column ran earlier on ClickZ.

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ABOUT THE AUTHOR

Andy Chen

Based in London, Andy Chen is vice president of digital solutions for Viacom Brand Solutions(VBS) International. Prior to Viacom, Andy was the media strategy director at Carat International/Isobar, which handles global media and digital strategies for Philips, Renault, Adidas, and various other multinational clients.

A true advocate for global integration and strategy, Andy has lived and worked in Copenhagen and Stockholm, where he was a management consultant for the Swedish Advertising Association. He received his BA from University of California, Berkeley; and a MBA in international marketing and global management from Stockholm University, School of Business. Named one of the "20 Rising Media Stars to Watch in 2004" by "Media Magazine," Andy is a frequent international conference speaker on digital and interactive media. He published his first collaborative book, "The Changing Communication Paradigm," in November 2005.

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