Eliminating the fear factor of programmatic buying in China

In China, there are many models of programmatic trading. A common mistake made by advertisers, is confusing programmatic with real time buying (RTB).

RTB for instance is mostly associated with remnant inventory due to the way programmatic and ad exchanges in China have evolved as an extension of traditional ad networks.

It means programmatic has largely developed as a way to increase publisher fill rates from a centralized inventory repository. And, as a result of this origin, the inventory associated with programmatic buying is the same as traditional ad networks: remnant.

Remnant inventory

This type of inventory mainly attracts performance-based clients from the e-commerce, online gaming, and travel sectors. Performance clients are more focused on conversion metrics such as sale and registration, hence they do not care much about inventory quality.

As long as an ad results in a sale, then it doesn’t matter if the ad is in a premium homepage position, or a remnant inner-page position.

Here is an example of a gaming ad on a pre roll for V.QQ.Com – Tencent’s video arm. (It’s also worth noting that consumers cannot tell the difference between a programmatic ad, so in the below example we are not 100 percent certain if this is being delivered as a programmatic ad.)

Point of sale

For brand advertisers, it is a very different scenario. The key difference being the lack of point of sale (POS) control. For performance-based advertisers, their ads and sales channels are all online forming a complete loop.

So they can measure from an impression all the way to the final sale or conversion. For most other brand advertisers, they have almost no control of their product’s point of sale, and therefore cannot directly measure the impact of online ads on offline sales.

Even though more and more brand advertisers are establishing an e-commerce presence, an overwhelming majority of their sales still comes from offline. Hence, for brand advertising on digital, they can only try to cover as much of their target audience as possible, helping the consumer maintain product top of mind and increasing the chance of a sale at the last mile.

Here are the main reasons why brand advertisers are afraid of programmatic:

1. Inventory quality is long tail

Brand advertisers are very sensitive to media inventory quality. For example, in video advertising, most advertisers prefer to place their ads on popular channels such as drama shows from the U.S. or movie channels.

They will be a lot more worried about placing ads on user generated channels (UGC), because the risk of brand safety is higher. This is because UGC content is less predictable and also, reputable brands don’t want to be associated (or placed) alongside less well-perceived or smaller-performing brands that dominate remnant inventory channels.

Hence, brand safety risks greatly outweigh the pricing efficiency that programmatic brings.

Here’s an example of pre-roll ads from a top-viewed segment on one of China’s biggest video platforms, Youku Tudou. (Bear in mind we cannot be certain which ads are programmatic – this is just a guess). Here, a pre-roll ad for an Omega watch is followed by a pre-roll ad for a Huawei smartphone, followed by an ad for a gaming app.

Omega:

Huawei:

Gaming app:

2. Media procurement pricing lacks transparency

Programmatic brings in quite a few new participants to media procurement. These include demand side platforms (DSP) and ad exchanges, investment flows from advertisers to publisher through to brokers.

In western markets, pricing transparency issues aren’t as common because these participants charge a transparent tech fee with no actual markups on media costs.

In China however, many DSPs have evolved from traditional ad networks, hence their business models still focus on mark-ups. In these kinds of market conditions, brand advertisers will lose pricing transparency if they opt-in for programmatic.

3. Loss of the direct publisher relationship

For big brand advertisers, media investment with publishers is usually done in the form of an annual contract. This contract signifies the publisher’s responsibility in ensuring inventory quality as well as advertising KPIs.

On the publisher side, internal priorities are set based on the annual contract’s volume. But in programmatic buying in China, the broker – such as a DSP or ad exchange – is actually in charge of media procurement. Hence, brand advertisers lose that direct relationship with publishers. This in turn reduces the amount of control they have on publisher inventory quality.

4. Non-fixed media share of voice

The targeted advertising that programmatic brings is a benefit for a lot of brands, but it’s not the most important media KPI. Instead, share of voice is the most important metric, especially when compared with competitors.

Research shows that share of voice has a direct correlation to share of market. Advertisers therefore have to balance targeted ads against mass ads.

That means if advertisers are only buying ads through programmatic models, they will decrease their share of voice.

Moving forward with programmatic

These issues merely describe one model of programmatic trading: the open exchange or RTB inventory. Because of market hype, advertisers often equate programmatic to RTB, which in turn is associated with remnant inventory. Many don’t know that there are multiple types of programmatic trading models.

For example, RTB inventory is best suited for performance advertisers, while programmatic guaranteed/direct is a reliable model for non-performance brand advertisers. This guarantees inventory quality on a fixed price, making it a safer starting point for brands trialing programmatic for the first time.

*Images: Screenshots and Flickr.