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Dynamic Pricing - An abused technique · The Yield Doctor with James Deaker

• 0:00
  If you ask me which is the tactic that
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  is the most overrated in programmatic
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  yield management, it is dynamic pricing.
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  Not because it doesn't work. It
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  absolutely does. But because the teams
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  that try it try it way too early. They
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  try it without the right data, without
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  the right governance, and without the
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  right strategy to support it. So today
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  I'm going to walk through why dynamic
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  pricing often backfires, what you should
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  be doing before you even think about
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  trying to change your flaws dynamically.
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  So first we need to discuss what is
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  dynamic pricing and define it. Uh one
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  might think that it is simply changing
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  your rate card prices on a regular
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  cadence in response to some market
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  signals. However, in practice, it
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  usually means constantly changing your
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  pricing or pricing flaws in a
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  programmatic environment. And as you
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  might have guessed, it is a relatively
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  advanced technique. As such, I don't
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  usually recommend it to teams starting
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  out. When people come to me, I first ask
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  whether they have the right components
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  in place. For example, do they have a
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  rate card that their sales team believes
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  in? Is that rate card being updated on a
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  regular basis? Is there a deal desk in
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  place to ensure price credibility? Do
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  you have strong ad product segmentation
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  strategies? If the answer to these
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  questions is no, then you really
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  shouldn't be thinking about dynamic
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  pricing. It is the cherry on top of a
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  Sunday. And if you don't have the
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  underlying functions in place, then it's
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  going to be at worst a distraction or a
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  source of revenue leakage.
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  So without a good strategy in place,
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  dynamic pricing often devolves into
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  let's just raise the floors and see what
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  happens or potentially blindly saying
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  let's do whatever our SSP's algorithm
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  says that we should do.
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  But good yield management requires that
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  you have a clear hierarchy in place uh
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  between your different types of ad
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  products. It requires that you have
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  guard rails around your most sensitive
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  brand sensitive sections.
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  It requires that you understand why
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  demand operates in the way that it does.
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  And it requires that you are able to do
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  modeling before you do experimentation.
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  In short, dynamic pricing is a tactic
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  and without a good strategy in place, it
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  can become a random walk. There are also
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  inherent risks. Algorithms might learn
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  your flaws and adjust downwards. Private
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  marketplaces might become less
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  competitive as agencies shift their
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  dollars. or marketplaces might adapt and
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  dynamic pricing can invert in
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  inadvertently
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  create a negative spiral. Or to put it
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  another way, you might squeeze more
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  revenue in the short term, but as your
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  buyers start to value your inventory
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  less because they are seeing lower ROI
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  or lower rorowaz, they begin to optimize
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  away from your supply. And that is
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  exactly the kind of thing that a good
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  yield management team needs to monitor.
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  So given that dynamic pricing is not
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  where most organizations should start,
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  then when should you explore it? There's
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  a couple of specific use cases. The
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  first is if you already have a solid
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  yield management function in place. You
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  have rate cards that you believe in. You
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  have a deal desk process that works. you
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  have products, strong product
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  segmentation and a clear ad product
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  strategy and that you are ready with
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  proactive messaging for your customers
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  when they inevitably get annoyed by your
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  dynamic strategy. So at that stage and
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  then yes dynamic pricing can make you
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  more money. The second case is if you
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  want to be completely handsoff. You
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  remember that I said that one of the
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  concerns about dynamic pricing is that
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  it can be a distraction. Well, one
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  option is to outsource it completely to
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  another organizations.
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  The the problem with this is that there
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  are a lot of intermediaries whether
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  they're SSPs, exchanges or managed
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  service providers who would love to
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  provide this functionality. But a word
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  of caution, you need to ensure that that
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  third party is capable of doing the
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  dynamic flooring, but also that the
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  products that they are optimizing are
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  discrete and differentiated from the
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  products that you sell in your managed
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  or your PMP channels so that you don't
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  unintentionally
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  devalue your overall brand. So yes,
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  here's the summary on dynamic pricing.
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  Yes, there is upside, but it comes with
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  real cost and real complexity, and you
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  need to be reasonably far along in your
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  yield management journey before it's
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  justified.
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  I'm James Deer. I'm the yield doctor,
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  and these are exactly the type of
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  problems I work with my clients on. If
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  you're having these types of issues,
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  give me a call.