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3 Pricing Traps to avoid · The Yield Doctor with James Deaker

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  If you are responsible for setting
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  prices in digital advertising,
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  then you know how incredibly complex ad
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  operations can get. Every quarter
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  there's pressure to tweak, to optimize,
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  and to react. But today, I want to talk
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  about subtraction. I'm going to give you
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  three specific things that you can stop
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  doing immediately that will simplify
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  your processes, streamline your ad
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  operations, and honestly make your
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  advertisers thank you for having their
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  lives be easier. Before we hit number
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  one, let's address the elephant in the
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  room. The script usually plays out the
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  same way in almost every digital media
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  company. The sales demand softens. The
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  executive team then panics and suddenly
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  everybody looks at pricing as the only
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  lever that can be pulled. It's
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  asymmetric risk. The leadership team
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  wants a quick fix, but messing with your
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  core pricing structure can usually cause
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  panic and chaos rather than lead to more
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  revenue. So, let's talk about the three
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  biggest traps that you need to avoid
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  when the pressure mounts and the
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  replacement rules that you should use
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  instead.
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  Number one, do not change your prices
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  based purely on your sell-through rates.
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  I see far too many pricing and yield
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  managers and monetization teams frankly
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  scrambling to adjust their rate cards
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  just because sellthrough is tracking
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  high or more likely tracking low. And
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  here's the truth. There is natural
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  variation in market demand. If your
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  demand is down this month or this
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  quarter, it's highly unlikely that
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  pricing is the only problem. mainly
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  maybe your sales team had a lot of
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  recent turnover or some problems
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  engaging with the market or maybe there
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  was an industrywide macro shift that
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  occurred or maybe your competitor
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  launched some massive campaign that
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  you've had to deal with. But when you
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  change the underlying prices every time
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  a sell-through rate changes, it sends
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  ripples through your organization and
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  out to your competitors and to your
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  advertisers.
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  You aren't really managing yield at this
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  point. You're like a dog chasing its
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  tail. You confuse your sales team and
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  you teach your buyers to just wait out
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  your pricing cycles for the next time a
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  discount's going to occur.
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  So instead, use this as your placement
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  rule. Use the sell through rate as a
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  diagnostic signal, not as a pricing
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  trigger. If the sellrough rate drops,
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  treat it as a cue to audit your product
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  packaging, to talk to your sales leads
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  to ensure that you understand what is
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  going on, and to check the market
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  health, but don't instinctively slash
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  prices.
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  If you do need to support a special
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  promotion to help sales clear a
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  temporary inventory glut, make sure that
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  it is time bound. Make sure that is
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  framed as an incentive and completely
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  decoupled from the underlying value of
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  the core product. At all costs, you need
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  to protect the floor. All right, that's
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  number one. Number two, when you are
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  updating your rate cards, do not waste
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  your time calculating cross elasticity.
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  For the non-economists out there, cross
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  elasticity is the idea that changing the
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  price of product A in your portfolio
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  will dramatically shift the price demand
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  over to product B within your portfolio.
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  It is a tremendous idea. It's elegant
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  and economists love to get in the weeds
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  in this on academic papers. But outside
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  of university lecture halls, trying to
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  model cross elasticity in a fastm moving
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  digital landscape is a massive time sync
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  that rarely drives value in a real world
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  situation.
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  Digital ad portfolios are influenced by
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  way too many external variables by
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  audience shifts, seasonal budgets, and
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  performance fragmentation.
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  So, here's the replacement rule. Price
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  each product based on the customer
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  value, buyer alternatives, and sales
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  clarity. Forget the academic matrix.
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  Price each product independently.
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  Look at their unique intrinsic value and
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  the value that it delivers to the
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  client. What is the client's ROI? What
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  are their other options in the market?
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  Is the price point crystal clear to your
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  own sales team? If product A delivers
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  the performance, price it at that
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  performance and keep your portfolio
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  process simple.
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  Number three. Number three is going to
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  sound a bit counterintuitive from
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  somebody who literally goes by the name
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  the yield doctor and spends most of his
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  life talking about the strategic
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  importance of good pricing. But here it
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  is. Don't change the prices for your
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  sales team unless you absolutely have
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  to. There is operational friction cost
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  associated with altering the product
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  pricing. So every time that you roll out
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  a new rate card, you have to retrain the
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  sales reps. You have to update internal
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  collateral. You potentially have to
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  reconfigure your MS. And you potentially
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  disrupt active long-term client
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  relationships.
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  So if you're shifting the prices by a
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  mega 2 or 3% for the sake of just
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  optimizing, the operational friction
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  will eat your marginal gains alive.
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  So the replacement rule here is review
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  your prices and your rate card quarterly
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  but only change it when the move is move
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  is large enough to justify the roll out.
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  To be absolutely clear, you should
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  review your direct prices on a regular
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  cadence and a quarterly review is the
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  sweet spot for most publishers.
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  During that quarterly review, you're
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  going to look at the market conditions.
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  You're going to assess the competitive
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  shifts. You're going to evaluate updates
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  based on your own data and your own
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  product portfolios. And you are going to
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  ask yourself, is a product change
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  genuinely warranted? And if the answer
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  is yes, ensure that the change is
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  significant. Don't put your sales teams
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  and your customers through the headache
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  of a roll out for an insignificant
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  tweak. If you move the needle, move it
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  significantly.
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  And remember, this rule applies strictly
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  to products sold by a human sales team.
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  In practice, your programmatic flaws
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  operate under an entirely different set
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  of rules. These flaws should be
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  evaluated, tested, and updated on a much
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  more frequent automated cadence to
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  ensure that they are responding to open
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  market demand.
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  When you stop panicking and stop sending
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  ripples,
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  then you uh and you stop overineering
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  based on academic self and and cross
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  elasticity models and you stop micro
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  tweaking your rate cards.
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  Something beautiful happens. Your
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  internal operations get incredibly
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  simple. your sales team gets focused and
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  your advertisers will actually thank you
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  for providing predictable transparent
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  value because at the end of the day good
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  pricing is not just about constantly
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  changing prices. It is about knowing
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  when a price change is justified, making
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  it clear and giving the market a
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  predictable sense of that value.
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  To my friends out there in the digital
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  media pricing and yield management
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  community, I hope you're finding these
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  types of breakdowns useful. If you are
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  managing these exact trade-offs right
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  now, drop a comment below. I'd love to
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  hear feedback on how you're managing the
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  balancing act between rate cards and
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  programmatic and thinking about how to
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  update prices. Until next time, I am
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  James Deika. I am the yield doctor.