Publisher Pricing Fail (in The Open RTB Market): Why Dynamic Pricing Hurts More Than it Helps

by Alex Gardner, VP Platform Solutions

What is your value to buyers in the open market? Hint, it’s not your floor CPM.

Most publishers aren’t in a position to confidently answer this question, and yet as more and more inventory is being accessed via real-time bidding (RTB) exchanges, the answer is becoming increasingly important. The digital ad market is still seeing double-digit growth, and more specifically, RTB is booming and projected to keep growing.

Clearly, it’s incumbent upon publishers to develop more intelligent pricing strategies to ensure their inventory’s price matches its worth.

Early on, characterizing RTB as a “race to the bottom” wasn’t just a clever jab — it reflected how publishers and their technology partners thought about inventory pricing in an emerging model.  Invariably, the conversation came to an oversimplified question: “What’s your floor?” – the lowest initial bid price that a publisher would accept. And it’s extremely rare now that a publisher will actually yield anywhere above that minimum acceptable rate.

As programmatic has evolved to afford publishers market data insights to match the buy side’s audience data insights, publishers can now set their value appropriately, not arbitrarily.

Although commonly applied as a solution to the publisher pricing challenge, dynamic price floors, soft floors, or otherwise automated pricing methods are not the answer. Despite the allure of a systemized tool designed to close the winning bid / clear price gap that most publisher are acutely aware of, it’s a flawed approach. Dynamic pricing promises short-term gains for maximizing publishers’ open market yield, but its true impact is often detrimental to a publisher’s bottom line. The fact is that buyers don’t like it.

Tracking an individual advertiser’s spending habits and automatically adjusting rates accordingly not only appears bias against bidders, it often backfires. According to Ruth Rafalovich, director of supply at Rocket Fuel, “Our system can detect a pattern of floor pricing that seems to follow an advertiser’s bid prices, and we can respond by reallocating the budget elsewhere.”

Furthermore, rather than using independent yardsticks (publisher data, 3rd party data, inventory and placement segmentation, exchange-wide platform benchmarks) to price media, the dynamic approach relies solely on using a buyer’s bid against them. If buyers price a publisher at a discount, which many often do, the publisher’s media goes out at a discount.

The good news is, publishers are in a position now to observe certain buyer behaviors and trends, and to set intelligent pricing strategies via applied insights derived from consensus market data, rather than an individual buyer’s bid history. Here’s how:

1. Audience type – Is the impression tied to a cookie with data? Comparing audiences with both cookies and data to audiences with neither, we see dramatic differences in bid activity.  The former typically yields three times the value of an unmatched user with no data.

2. Demand density – Find the sweet spots. If bid density is high on a particular segment of inventory or audience band, there’s a significant opportunity to price it appropriately.

3. Keep current – Efficient and timely access to market data will ensure that you’re in a position to respond and adjust to constantly evolving market dynamics. “Set it and forget it” doesn’t work.

Despite meaningful advances that further programmatic’s growth, the market still struggles with some inefficiencies. The good news is that publishers have tools available to help them avoid a pricing fail. Just as audience data is gold to the demand side, market data is gold to the sell side. Make sure you maximize your visibility in the fluid marketplace you operate: Know your value and win the market!

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