Bridging the Gap: Hybrid Pricing Models

I know there’s been a lot of talk and excitement lately about changes in the industry — about new ways of looking at success, new technologies to help us look at alternative data points, and new ways of presenting old ideas. The most recent ripples in the pond came from the stone thrown by CBS MarketWatch.com last week when it announced to the press that it was going to stop reporting on clicks as a matter of course.

By the time you are reading this, you will have heard plenty about this new move, so I don’t wish to dwell too much on it here; others have dealt with the move and its implications in more detail (for example, see the ClickZ article by Tom Hespos).

But I do want to make the point that this suggests a move away from response-oriented data as the default metric for success as far as the publisher community is concerned. Agencies, too, are becoming eager to move their analytic eyes away from the click and other performance-based metrics as the sole indicators of success. This is a good thing — I do believe that. This medium needs to find better ways to demonstrate its efficacy as a marketing tool, and taking things such as clicks and deposing them from the throne of successful online advertising is a good thing. We should all applaud the move CBS MarketWatch has made.

That said, the question that now must be asked is whether clients will buy into it. Certainly it is our jobs, as buyers and sellers of this media, to make the case to those whose money is being spent that their advertising is accomplishing goals beyond simply impulse responses to messaging.

But many clients are still looking at their online advertising efforts as a direct-marketing tool that’s being used to promote immediate sales or product/service inquiries. These clients want online to be the instant return-on-investment (ROI) medium it touted itself as being back in the beginning. Clients want causal, demonstrable evidence that their advertising is accomplishing something, and they want to see it broken down in “dollars and sense.” This isn’t because they are being unfair to online or don’t believe (though some don’t) in the adjuvant effects online advertising can have beyond just message engagement. It is because they can. If broadcast or print could be tracked in the same way, clients would eventually ask that they be tracked so.

Sure, it wouldn’t be exactly the same: The media are different and have had different histories. But clients would give their firstborns to Rumpelstilstkin if they could do the kinds of ROI analysis on their advertising in the offline space as is possible in the online space. As long as pay-for-performance media opportunities exist out there, clients are of course going to ask for them, and we media buyers are going to try to find them.

One of the ways we might, as an industry, bridge this gap between direct-response wishes and branding possibilities is with hybrid media buys (I once called these “Mendel buys,” after the Austrian botanist and plant experimenter who gave us modern genetics). To alleviate the anxiety borne of moving from an actual world to a potential one, we need to be more creative in the way that we price and buy media.

According to Forrester Research, hybrid deals made up 23 percent of online buys made in 2000. It projects that hybrid deals will be 31 percent by 2003. Now, I’m not one to lend a lot of credence to Forrester reports when it comes to projective analysis (has it ever been right about any of its predictions?), but I think that it makes an interesting point: Committing buys that blend both direct response and branding pricing models is more than just a fantasy.

The hybrid deal is the right way to go with the online medium at this time. For one, it allows the efficiency-minded, direct response marketer to “fix” prospective acquisition costs on the one hand while rewarding publishers for having the appropriate audience on the other. Both sides manage potential downside risks by covering half their butts. The pay-for-performance component forces the publisher to pay more than just lip service to the quality of its audience, while the cost per thousand (CPM) protects the publisher from bad creative or an undesirable product/service offering.

Next time you are in the market for a buy, ask the sites on your request for proposal (RFP) list if they would be amenable to putting together a hybrid package. If you’ve got $10,000, try to get the site to split it 50/50, pay-for-performance/CPM. You will have to have your metrics, and the method for verification of action, sorted out beforehand, but other than that, it’s just like any other buy.

Clicks or no clicks, clients are going to continue to demand proof of value on their investments, even if it is an investment in something as ephemeral and “qualitative” as advertising. If we can’t give it to them, they are going to find someone who can.

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