Tuesday, October 28, 2008

Treating Commercial Creation As An Investment Rather Than A Cost.

A funny thing has happened with digital data. Different parts of the advertising business, which, up to now, have not been accountable, suddenly are.

Take the cost of commercial creation and production as an example. This used to be considered a sunken cost, part of the price of doing business. Advertisers did not look for a particular return on the money they spent on making commercials, except down the road, through sales.

And while we’re not saying that sales aren’t important, we are saying that sales are part of the overall marketing budget’s ROI. What we’re talking about here is a commercial production budget’s ROI.

All advertisers have a production budget. In the past it used to be 10% of the media buy. Spend $20M in media and the agency would have $2M for production. There was no immediate return expected on that $2M. It was all buried in the overall marketing budget’s ROI.

But the fact is, there is an immediate return on a commercial. Once a commercial is placed in front of people, there are three options. They watch all of it, some of it, or none of it.

Of the three options, which offers the greatest return?

Commercials cost money to create. And while we all know that the overall job of the commercial is to convince people watching that one product is better than another, its immediate job is to get people to watch.

In other words, to spend time with the commercial.

Now, I’ve been in many meetings where advertisers said they don’t care about time-spent with the commercial. All they care about is sales. What they want to know is the correlation between time-spent and sales. Unfortunately, the correlation between time-spent with a commercial and sales varies, depending on how an individual commercial is crafted.

That said, there is one given. A sale can’t happen if people don’t watch.

Which is why knowing how long people are involved with a commercial is important. Not to mention that every second produced costs the advertiser money. (The average thirty-second national commercial costs some $366,000 to produce. Or, $12,200 per second.)

So what if advertisers told their agencies that they wanted to treat commercial creation and production as an investment rather than a cost? In other words, the longer the data showed that viewers paid attention to the commercial, i.e. the greater the return on involvement for seconds created, the more the advertiser would be willing to pay those that created it.

The lower the return on involvement, the less the commercial will cost the advertiser.

It’s called Viewer Time-Spent Compensation—a new model designed to work off the digital data that's now available. Yes, it does require that creative agencies take on some of the risk of creating commercials.

But they shouldn’t mind too much.

After all, with so much digital data now available, creative agencies have no choice but to be held accountable for something. If they don’t want to be held accountable for the creativity of their advertising, then perhaps they should find some other line of work.

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