Why is digital advertising so confusing? It's the pricing!

Business owners tell me that they find digital advertising to be very confusing. I get it and one of the main reasons for the confusion is the way digital advertising is priced.

Remember the days when buying a car, especially a used one, was a nightmare? Those were the days when sellers controlled information about pricing so they could place the buyer at a disadvantage. That’s where we are with digital advertising today. Buyers of digital advertising- business owners and marketing executives- know much less about its pricing than the sellers do.

There are two main factors contributing to this situation.

Digital ad pricing is complicated and varied

Media pricing used to be a relatively simple calculation. Audience x Rate = Cost

Of course, unit sizes figured in along with the added value of special occasions or unique placements, but, for the most part, that calculation describes media pricing for most traditional, offline advertising.

Enter digital advertising. Brace yourself, because there are a multitude of ways its priced.

· Cost-per-thousand impressions for digital display advertising.

· Keyword auctions for Google’s Ad Words.

· Completely arbitrary pricing for ads on some B2B websites.

· And for Facebook and Instagram, a very complicated calculation based on buyer demand, ad location, audience targeting, ad relevance, seasonality and campaign goals.

Confused yet? It gets worse.

Seller mark-ups and bundles make it blurrier

Understanding the foundational costs of digital media is confusing enough, but then sellers make it more complicated when they add in their markups and create bundles.

As an aside, I support the right of marketing agencies and media companies to get paid for their expertise so I believe that markups are justified. But, sheeesh, they sure make it confusing for buyers especially when different digital advertising tactics are bundled together into a marked-up package with one total price.

This kind of bundle makes it impossible for a buyer to compare pricing with other sellers and it makes evaluation of the component parts within the bundle impossible. (That’s the idea, duh!) It also makes it very difficult for buyers to calculate ROI accurately because they can’t tell which parts of the buy are delivering high value-to-price.

So, what’s the solution?

A better relationship between media seller and buyer

I believe that the relationship between an agency or media company and the business owner who is their client should be one of partnership and shared accountability. And that means shared information about digital media pricing. So, here’s a proposed pact between digital media sellers and buyers.

Media Sellers' Responsibility

· They should be open about what their markup is and explain the value they deliver in return for those fees.

· If they bundle media packages, when asked, they should be clear about the component costs of the bundle.

· They should deliver campaign reporting which shows the costs and performance of the individual parts of the media buy.

Media Buyers' Responsibility

· They should be willing to pay a fair markup on media costs in return for expertise and exceptional campaign performance.

· They should educate themselves on fair market value of different digital media costs so they can be a smart buyer. Then they should ask for detailed information about pricing like: How much do different keywords cost within their paid search buy? What special targeting parameters are being used in their Facebook buy that might drive up the cost? Are they paying a premium for special targeting of digital display ads? Do they need to?

The reality is that digital media sellers and buyers are largely pursuing the same goals- accurate targeting, efficient delivery and audience impact. When that happens, they both win, and blurry pricing is ultimately not helping anyone.

This post was written by John Walker, Principal at J. Walker Marketing. Contact John directly to discuss your marketing challenges. John@JWalkerMktg.com.