Using Advertising Futures To Weather Economic Storm
ADOTAS EXCLUSIVE — With economic uncertainty showing, the financial implications to the brand advertiser, agency and publisher ecosystem are top of mind to many of us. In past times, we had few systematic controls in place to mitigate the financial risks that lay ahead and were forced to accept the pre-destined trend of shrinking brand marketing budgets, publisher sales forces and agency creative departments.
Indeed, as much as I hate to be a pessimist, consumer wallets are going to be tighter, creative budgets are going to be slimmer, and all sorts of buying and selling efficiencies will become paramount.
However, we too are faced with a substantial opportunity to manage through the cycle – advertisers’ brand reach can actually grow in volatile times. Advertising spend in this scenario represents an investment in mindshare. Brands that choose to ignore this opportunity can lose the longer term battle of gaining and locking mindshare with consumers. This spend is an investment, not an expense. Brand value is an intangible asset on the balance sheet of every corporation, and the great brands find ways to leverage this asset to their advantage, especially during lean times.
Advertising “futures” provide the ability for advertisers, publishers and agencies to stabilize financially and ensure consumer mind share reach, all with economic efficiency. By creating a priced option to spend on future strategic ad space, advertisers can protect and grow future brand reach whilst publishers stabilize revenue visibility and reduce operational costs. An advertising futures contract can take the form of either an exercisable future option, or a straight future obligation of spend, the latter format being non-cancellable between buyer and seller.
Advertising futures are not quarterly game plans, but rather, longer term, six-month and yearly, positions on market reach. Every agency can advise their clients on the viability of taking advertising future positions today to ensure that brand mindshare does not dilute, but, rather, grows within the constraints of a smaller marketing budget. This future spend visibility in turn also provides guidance to agencies on their financial expectations and operational margins.
There is a significant difference between preferred pricing programs that most agency holding companies profess to and advertising futures. Preferred pricing programs are upfront agreements that scale pricing for media against actual spend achieved. That is, publishers will provide a preferred rate provided that agencies achieve a threshold spend with them. Whilst there are advertiser spend pooling effects that agencies can extract in negotiating preferred pricing, these are limited by the upfront pricing scale agreed upon.
Instead, a “rolling” upfront or futures marketplace model is more beneficial to both parties than preferred pricing programs, as, over the long run of these marketing investments, buyer and seller advantages are fully realized. However, note the word “upfront” above – revenue, profit and reach for both parties is only secured through an upfront agreement, not through discrete pricing discrimination that occurs at the point of buy, which is how most agencies operate today.
In the lean times ahead, the thrust of expected brand spend is geared towards the online medium, but can only be truly efficient with the use of an automated futures marketplace. The union of advertisers, agencies and publishers coming together within this context on a futures option or obligation creates depth, stability and economic efficacy to existing ecosystem relationships and objectives.
Reader Comments.
A very relevant and intersting article on how exchanges and marketplaces are poised.
I wonder how these will impact networks in the down turn.
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