Deals Pricing 101: 3 Golden Rules for Publishers
This is the second post in our Deals 101 series. In each installment, a different AppNexian will offer a lesson on a different strategy for publishers to succeed with Deals. This week, AppNexus Lead Solutions Consultant Alex Collier will tell you about how publishers should be pricing their Deals offerings.
Perhaps the most common question we’re asked when it comes to deals is, “How do I price these things?” Getting it wrong has major consequences: publishers either leave money on the table by not recognizing the true worth of their inventory, or set themselves up to fail by pricing too high for their most likely buyers.
Pricing may not be the sexiest topic, but it plays a huge role in determining how much money you’ll make from deals and how easy it’ll be for you to sell them. It may seem like a complex process, but by following our three golden rules, you can come up with a scalable pricing scheme that helps you meet your goals.
1. Define your business goals to determine your pricing model
Before you even start thinking about what inventory you might sell through deals, you need to define the business goals for your private marketplace (PMP). For most publishers, this comes down to increasing yield, increasing fill, or finding a revenue optimal combination of the two.
For example, publishers who sell most of their inventory programmatically are usually focused on fill. For them, deals are a tactic they can use to charge a premium on particularly valuable pieces of inventory or unique audience segments. These publishers often find success with a layered approach to pricing, in which they seek 20-25% higher CPMs than what they get on the open market through private auctions, and then 40-50% higher CPMs on inventory sold to a single buyer through preferred deals or programmatic guaranteed arrangements.
On the flip side, publishers who sell the majority of their inventory direct are usually focused on protecting the rates they get through that channel. For these sellers, deals can be a way to test out a programmatic sales model by providing a priority offering via open RTB. They may also use PMPs as a way to offer their best buyers a discount in exchange for a spend commitment, bringing more stability to their overall fill rates.
But no matter what kind of publisher you are, your deals pricing model needs to flow directly from your larger business goals and needs.
2. Define your PMP value proposition
In order to price any kind of product or service, you need to think long and hard about the value it provides – not the value you see it as providing, but rather the value the customer sees. For publishers, this is often an exercise in testing how much they really know about why advertisers buy their inventory.
When you step into the shoes of an advertiser and look at deals from their perspective, you’ll see that the value deals provide to buyers generally falls into one of five categories:
- Audience data for better targeting. One way publishers have monetized through deals is by offering buyers access to more audience data to better target their ads. The key drivers of value for the buyer here are the scarcity of the data – that is, how many other publishers can offer comparable information? – and the alignment between the data itself and the participating buyers. For instance, a review site like CNET.com would be able to provide data on readers’ level of interest in different electronics products. A company like Best Buy would presumably pay a big premium to advertise against that data.
- Exclusive access to premium inventory. Many publishers hold back some of their best inventory for deals in order to charge a higher premium. This inventory can include special arrangements like a home page takeover, or pieces of inventory that align well with specific buyers – for instance, a newspaper selling ads from its sports section to a ticket provider like StubHub. The value for the buyer here is driven in part by how exclusive the offering is. A preferred deal to a single buyer would be the most attractive option to the buyer, as it would allow them to lock in lower competition at a fixed rate. However, even a private auction between a few buyers would add value in that the buyers would likely see less variance in what they pay given the lower competition. Publishers should generally price preferred deals at a premium to private auctions, and private auctions at a premium to open exchange given the additional value they provide.
- More favorable auction mechanics. Sellers can put buyers into private auctions with special auction mechanics, such as lower (or nonexistent) floors, a fixed price on certain pieces of inventory, or even a discount in exchange for the buyer meeting a specified spend threshold. In most of these cases, the value for the buyer is that they’re getting the inventory for a lower price or a lower entry level price than they would on the open market.
- Greater transparency. Given the prevalence of issues like ad fraud and opaque programmatic fees, many buyers see deals as a way to ensure they get what they’re paying for when they buy programmatically. That’s why some publishers have created Deal IDs that don’t actually signify any kind of special inventory – they simply act as an authenticity stamp. These are the lowest value deals you can offer, especially with the advent of ads.txt, but they allow for broad enough targeting that they can still drive some additional yield.
- Less work for buyers. Most of the deals described here do more than simply give the publisher a unique offering. They also save the buyers work they’d otherwise be doing if they bought on the open exchange. For example, buyers ordinarily have to use their own audience data to target users – but if they buy a specific audience through a deal, they no longer have to do that. This is a crucial concept for understanding deals pricing. Many publishers often wonder why they can’t charge the same premium on deals that they do when they sell direct. The answer is that with direct, the publisher’s sales team is usually working with the buyer to make the transaction happen smoothly – that’s a big value add for buyers that they may not always get through a deal.
When you price your deals, think about the extra value you’re providing and compare it to what buyers could get if they just bought your inventory on the open exchange. That should be driving the premium you charge.
3. Keep it simple
As we discussed in the last section, one reason buyers like deals is that it saves them work they’d otherwise have to do themselves if they bought on the open exchange. Of course, it’s not like that work just disappears. It gets transferred to you, the publisher.
Deals mean more work for you, so as a rule of thumb, you should keep your pricing scheme relatively simple. For one thing, we recommend giving everyone a standard menu of options rather than coming up with bespoke pricing for the different buyers you work with. Having a different starting point with all of your buyers will significantly lengthen the negotiation process. Unique pricing can also wreak havoc on your auction mechanics. For instance, if you give a buyer a low rate in a fixed price deal, they’ll have a difficult time competing for impressions in the ad server.
Another way to keep deals pricing simple is to limit how often you renegotiate with buyers. The highest frequency renegotiation schedule we’ve seen publishers pull off successfully is once a quarter, but even this only works for publishers who offer a relatively small number of deals. Large publishers selling a significant portion of their inventory programmatically should look to renegotiate no more than once or twice a year. With a considerable focus on Q4 when low Priority Deal rates can be harmful to overall revenue as open RTB buyers often increase their bids substantially during the busiest time of the year.
If you’d like to learn more about how AppNexus can help you succeed with deals, contact us here.