Randall Beard, EVP & General Manager, Nielsen IAG
A Brief History of Flight
In the mid-1980s, the highly regulated airline industry was relatively unsophisticated about how to price its main product, seats, until Peoples Express burst onto the scene. Peoples’ low fares quickly gained customers and market share. The big airlines took notice and responded in two ways–one obvious and one less so.
American Airlines responded with deep discount “Supersaver” fares, essentially matching Peoples on key routes. This was the obvious response. The less obvious response was the introduction of “yield management,” which gradually brought a level of sophistication and a data-driven pricing model that yielded a 3-8% revenue improvement, according to industry analysts. Yield management quickly spread to the hotel, car rental and other industries.
Yield management is an approach to maximizing revenue when a business has a fixed, perishable resource and can segment customers into groups willing to pay different prices for the same resource. In airlines, a seat is “perishable” as the revenue potential disappears once the flight has flown.
Simply stated, the airlines want to sell the right seat to the right passenger at the right time at the right price. Doing so requires sophisticated algorithms which account for capacity utilization, route scheduling, fuel prices, competitive pricing and the like. All those yield management algorithms are what’s behind the minute-to-minute price changes happening every time you book a flight.
Yield Management… For Marketing?
From an advertiser perspective, yield management is the ideal model: place the right ad in the right program against the right target at the right price. In concept, it’s the same as selling airline seats, but on the buy side.
Making it Work
What’s required for yield management to work for advertisers?
- Digital – Digital is more easily measurable and therefore more usable in a yield management model.
- Cross-Media Measurement – Marketers must be able to measure viewership across TV, web and mobile to optimize media allocations.
- New Measurement Tools – Marketers must be able to target viewers based on any segmentation dimension, buy media based on ad effectiveness by program, and measure ROI.
- Real Time Data – All three of the above are needed in real time – 24/7/365.
- Accountability – Advertisers must demand greater accountability for every media dollar spent.
For some, the surprising news is that all of the above are either in place or rapidly becoming so. The future is closer than you think.
New Measurement Tools
Two new measurement tools are critical to moving to a real-time Yield Management Marketing Model:
- TV Program Engagement – TV Program Engagement is a measure of how involved consumers are in a TV program. Is it really a surprise that viewers are more involved in “Desperate Housewives” than “America’s Greatest TV Stars?” Who cares? Marketers should, because TV program engagement is highly positively correlated with ad recall. Higher engagement = higher recall. So, buying ads in high engagement shows instead of low ones is more effective.
- Advertising Effectiveness – Ads are more relevant to consumers if the equity of the ad fits the TV program they sit within. Is it any doubt that an ad for SlimFast is more effective on the “The Biggest Loser” than a program with different content but similar audience size and demographics? Now advertisers can buy media based on their brands Purchase Intent by program or genre.
The advertising and media industry has had decades to build systems and processes to support the traditional media model. The systems for planning, buying and allocating media for brands won’t change overnight. But the trends are there to see, and the Marketing organizations with the most foresight and vision will see that reengineering these will yield great benefits.
So… When Do We Take Off?
There’s no doubt — all of the Yield Management puzzle pieces are now in place. In the future, advertisers will be able to:
- Target the Right Audience – Targeting will move from simple demographics to more sophisticated psychographic and behavioral targeting. And Marketers will be able to drive these segmentation schemes thru most of their marketing contact points.
- Identify the Right Program – Viewership will be supplemented with TV Program Engagement data. Marketers will become more sophisticated in identifying high engagement / high ad recall programs to improve their ad recall effectiveness.
- Match the Right Ad – Marketers will care about and measure the impact of program fit with their brands. This will enable them to match ads to programs based on purchase intent data, for optimal impact.
- At the Right Time – Media planning will move from an annual, exception-driven exercise to a real-time, algorithm driven process, fueled by continuously updated effectiveness metrics.
All of this will be connected to purchase panel data. So all of the buying, planning and allocation decisions will be held to simple question: did I get an acceptable ROI?
This is the coming “seismic” shift in Marketing—real-time ROI Marketing. Those who don’t get on board will be grounded in the new economy.