Lindsay Duran: B2B companies are facing increasingly complex business environments and disruption putting significant stress on legacy systems and methods. Taking a fresh look at how to gain strategic control of pricing and sales performance will be the differentiator between leaders and laggards. B2B Reimagined is a bimonthly podcast with a rotating host of experts.
Each brings decades of experience using data science and technology to address B2B commercial challenges. Join us as we explore the challenges in dynamics across a unique mix of industries. Walk away from each episode with practical tactics and strategic advice to reimagine the commercial approach in your business.
Welcome to B2B Reimagined, where we talk with B2B experts about [00:01:00] strategies to address pricing and sales challenges. My name is Lindsay Duran, and I'll be your host this month. I'm joined by Zilliant’s Chief Scientist, Jon Higbie, to discuss the media and advertising industry. Jon, welcome to B2B Reimagined.
Jon Higbie: Thank you, Lindsay.
Lindsay Duran: I'm excited to have you on this month to talk about media and advertising as we're all consumers of these products, and it's certainly a newer industry that Zilliant is now serving. I know you have quite a bit of experience working with companies in this space. Talk to me about your new role with Zilliant and your background with these types of companies.
Jon Higbie: Yes, Lindsay, I joined Zilliant in February after 15 years of work in media ad sales, both on the platform and agency side. One of the reasons I came to Zilliant was I saw how right for disruption this space was and how Zilliant was uniquely positioned to serve it. My [00:02:00] role at Zilliant is to advance science across the industries we serve.
And media is an important part of that.
Lindsay Duran: Thanks, Jon, can you briefly describe the industry dynamics in media and advertising, and particularly, what the ad selling and buying process looks like?
Jon Higbie: I’d be happy to. Let's take a hypothetical example. An advertiser, like Ford, works with its agency WPP to come up with a campaign. That campaign will be targeted to a specific demographic. Media platforms like NBCU have a slate of available spots that they are trying to sell. The agency takes Ford's campaign and distributes the buy to the networks and shows those fit for the campaign’s demographic.
The center of negotiation is the, between the media platform and agency is the CPM or cost per “mille” as a cost per [00:03:00] thousand impressions. An example, CPM might be $45. This amount will be guaranteed by the platform. Negotiations are generally based on last year’s CPM plus an increase. Mille can help determine the appropriate increase factoring in changes in mix agency wants to maximize reach while getting as good a deal as possible for his clients.
Lindsay Duran: How do they go about determining those prices today? Is there a fair amount of data analysis that, that goes into determining what the right price should be? Or, if not. Where do you see that additional data analysis or other types of software tools could be used to improve that process?
Jon Higbie: Yes. I mean, I think both on the agency and the media platforms side, it's a top-down exercise.
There's a budget [00:04:00] that the media company is writing across media platforms and there's an expected CPM increase or decrease that might that’s going to apply based on how much that budget is, of what the impressions objectives are for the client. And then on the platform side, they have a budgeting process that says we need to generate X billion dollars from the ad sales.
And they try to build up what their rate card and what their customer specific pricing will be based on that objective and what was purchased the prior year. I think one of the big missing ingredients is a more market-focused view into what might be possible and not just, and not as much based on just last year.
Lindsay Duran: Interesting. I'm sure that [00:05:00] the current economic environment and the Coronavirus situation is certainly having an impact on this market just as it is in nearly every industry. Can you talk a little bit about how you're seeing the Coronavirus particularly impact ad sales, especially for the upcoming fall season?
Jon Higbie: The effects, like in many years, to the economy, are devastating. First, let's start with last year's deal, which they're still operating on until the end of September (2019). Many advertisers are electing to exercise their option cutbacks, which are components of upfront market guarantees that allow the company to back out of part of its buy.
Their budget or financial situation changes, which it has. And we're already seeing in the advertising in Q3 and [00:06:00] starting to see in Q4 already large option cutbacks about to the maximum of 50%. A couple of other things: The upfront presentations were generally canceled or held virtually online. That's something that helps start the fuel. The start of the upfront market by the industry expectation for this year is there's essentially not enough front market, but there will be deals done in June and probably throughout the summer that have guaranteed impressions. So, this has happened before with major economic disruptions where they've had an elongated upfront, if you will.
And that's what everyone's expecting this year.
Lindsay Duran: Interesting. Is the last time that this happened with the 2008 recession?
Jon Higbie: That’s correct.
Lindsay Duran: Beyond the Coronavirus [00:07:00] implications, are there any other major industry trends or dynamics that you've observed?
Jon Higbie: There are two other things I'd like to hit on one. 1. This industry has gone through more change than arguably any other in the last 20 years.
The audience drives everything; where they are, how they spend, what they consume and with the explosion of the digital and streaming platforms. That's a moving target. Digital advertising eclipsed TV advertising for the first-time last year. Something's been long predicted, but it just happened. At the same time, most media companies’ data infrastructure sales process hasn’t changed with the times. So, there's a big need for a tighter B2B sales process and data science-driven tools.
Lindsay Duran: What types of data infrastructure or tools are companies using today? Are these primarily spreadsheets, Excel models? Are there [00:08:00] manual tools or are there software packages that have been in place for a while?
Jon Higbie: There's a mix, but it's pieces. And the one constant is the traffic system. Everybody has one. They're not, for the larger media platforms, they're not standard software offering. So, any kind of integration with those traffic systems is custom, but you know, there's some people that have some proposal building automation. There's some BI and things, like Tableau, that a lot of companies have.
They’re not all knitted together in a coherent fashion as we see in many other industries where you've got the sales, the entire sales process from end to end, including contracts, and going-to-order, encapsulated in a workflow where you have all of the associated data available to present to decision-makers when they need it.
There's a lot currently. There's still [00:09:00] a lot of spreadsheet analysis that is driving the process.
Lindsay Duran: I'd like to explore that a bit more. What problems do these outdated practices tend to present for companies? What's the impact of those practices?
Jon Higbie: Again, I'll give an example. This is a very simplified and might actually be somewhat achievable with current methods. But, there's a negotiation at an advertiser level that’s being conducted by the agency. But there's a second level of negotiation between the agency and all of their clients with the media platform. And that scenario might be that the agency comes back to NBCU and says, ‘We're getting a 4% increase. That's not right. The marketplace is only a 3% increase. We need to negotiate. We need to get that down. Or we're going to move our [00:10:00] money to another platform.”
The current response would be they have some of that data and their systems and their crappy systems. They may not be able to instantaneously pull up and see what the increase at an agency level is. The answer is probably going to be delivered from a spreadsheet that may need some updating and, it's rife with potential for mistakes.
But one of the things I see is that opportunity is we have all of this data there. So anytime the head of sales wants to know the answer to a question like that, it's right there at their fingertips. They don't have to wait hours, because hours may be too long. They may pull some of their buy and move it somewhere else.
We can't respond.
Lindsay Duran: What other workflow and efficiencies do you see in the sales process Jon?
Jon Higbie: Embarrassingly, a lot of businesses is still done via fax. It might come in from the agency [00:11:00] with a request for proposal or an advertiser, and they have very simplistic instructions like “same mix as last year, equal flighting.”
So, that would be an example of programming they had last year and then the same weight in each week, not even enough could probably be built, but that's pretty common. Now someone - a planner at a media platform company has to kind of infer a lot of things and build a proposal for that. And then there's a, there's some back and forth with email documents and maybe even sometimes fax is going back the other way.
That's really hard to believe in this day and age, but it's still a big part of what happens. There's some automated interchange of data. And there's some media platforms have some automation to build a proposal, but most don't. That's where there's a lot of revenue opportunity.[00:12:00]
Lindsay Duran: Interesting. Do some end clients tend to get special pricing? It sounds like this is all managed in a very ad hoc sort of manner. How does special pricing work and how is that managed in terms of understanding what kind of discount, let's say, larger clients should get?
Jon Higbie: Yeah, they have a methodology. But it's based on a simplistic approach that I kind of described earlier.
The media platform - they have a number of dollars that they need to deliver that gets boiled down to say, the upfront, for example. And then that boils down to basically “What is the increase I need to get across all my business to meet that budget dollar?”, which might be 2%. That's a [00:13:00] valuable piece of the puzzle, but there's nothing there about the potential in the marketplace.
So, that would be something that we would like to fix. Really the root of where we get a lot of custom discounts is for what they did last year, which probably goes all the way back to the 1950s. But for example, a consumer goods company, like Unilever might get a 30-40% discount because that's the bucket they were in last year, even though they're committing sizable chunk of inventory at a lower rate.
On the flip side, a movie company may pay a 10% premium because that's what they've been doing last year. And it's justified based on the level of service that they require. But that's the extent of the analysis that goes into it.
Lindsay Duran: It sounds like some of these companies need to consider trade-offs in terms of “How can you [00:14:00] accurately, or with some sense of accuracy, predict what inventory could have sold for, as you look at your entire universe of customers, of advertisers that you may be able to sell to? Does that track with where you see an opportunity and in this particular market?
Jon Higbie: Yeah. That would be a game changer. To my knowledge, no, one's really looking at what that potential is. It's all based on what happened last year and what their need is this year. And it leads to some really suboptimal behaviors for both the agency and the media platform. For example, even though it might work well for a totally different set of programming to be added to a client's proposal this year. Because it's a different, it's a significant difference between last year, it's hard [00:15:00] for them to really estimate, given the tools they have, what the revenue impact of that would be. And so, there's a lot of pressure to just keep things very similar to what they were last year. If we could support them with tools that would tell them that: “Hey, yes, this proposal was very different last year, but it's actually, when you look at the mix of business that you want to sign from everyone else, it's going to make you more money to sell this proposal that's got different programming that works better for that client.” That's always been something I'd like to help media companies be able to do.
Lindsay Duran: Along those lines, Jon, this podcast is called B2B Reimagined for reason. What are some concrete ways that, at Zilliant, we're now able to help companies in this space reimagine their approach to ad sales?
Jon Higbie: I mean, like I said, I've got extensive experience in media and with Zilliant, Zilliant has an excellent thought-out [00:16:00] B2B pricing and sales process. And it's really no different from what media companies are trying to do. But it's, what's done in media, has grown organically out of B2B.
I think leveraging ideas from other areas would really help them and would also give them access to more tools that they might not otherwise be using. For starters, we'd like this platform to be the system of record for all data needed to consider when setting prices. And that would be a cloud-based platform that can access external market data and is best practice for modernizing how these companies work, store and use to think about something like salesforce.com, which is a system that integrates with a lot. It's very well thought out. It's used by thousands and tens of thousands of companies. [00:17:00] I know it can work for media companies and then in the larger Zilliant platform, some capabilities that we know with that we could deliver our rate card optimization.
So given the budget dynamics and what we know about the marketplace, what's the right way to set the rate card to drive smaller deals? And then also as a basis for the customer-specific pricing that they're doing largely today? And the negotiation guidance, say, we even decide to stick with this overall, we need a 1% increase.
We want to be tracking that constantly as proposals go on hold, and to order, update what that target should be. Sometimes the first people to move are the consumer goods [00:18:00] products companies. We already said they get much lower discounts and sometimes getting an increase from them is very difficult.
That may set you back in your objective and might meet now that the overall target is 1.4 and not 1(%). The CPQ and deal management. I mean, that's really bread and butter functionality that governs the RFP process to building a proposal, to managing the deal, all the way through to a contract.
And then the customer specific-pricing, building, figuring out what the right increase might be for a specific customer. And then also the capability to automate selecting spots put on that plan that are going to be revenue optimal that are going to meet customer [00:19:00] expectations that would be revenue optimal for the medium platform.
Lindsay Duran: Interesting. It sounds like there are quite a lot of ways that, that we can help companies improve not only the process and the inefficiencies in the process, but also the quality of the rate and the pricing themselves. Are there ways that you envision us helping companies rethink how they approach their customer segmentation as well?
Jon Higbie: One of the key capabilities that I've learned here that we have that is perfect for media - it's called Sales IQ. So, it will look for things that the customer is not buying, but based on our models, our predictive models, we believe they should be buying. And that gives new opportunities to construct your proposal.
I mean, even if you think of it this simplistically, [00:20:00] customers basically said they want out of six programs, and then we can find another program that they would be willing to buy, we've increased the flexibility to build a plan by 18%. And that results in a more efficient plan from the media platform side, as well as the customer side, for that matter.
Lindsay Duran: How can we help agencies in particular reimagine the buy side?
Jon Higbie: Yeah. So, we can bring intelligence to the table to determine which media channels geography seasons, time of day demographics to target essentially this spreading-the-buy problem or media optimization problem. We can do that. We can optimize their ad spend by analyzing their budgets and reach goals more efficiently than current practices. With our big size [00:21:00] platform, they can quickly build apps to do things like forecast ratings and web impressions, to help them make better buying decisions. We can also give them guidance on the precise CPM they should expect for each client during negotiations.
Lindsay Duran: Great.
I know that a lot of companies might be hesitant to look outside of the traditional methods and tools that they've used to set rate card guidance, or for agencies to think about their approach on the buy side. What advice would you give to companies in this space that are looking at trying something different, but might be a bit hesitant to maybe be the first mover in their industry?
Jon Higbie: I'd ask them to be open-minded and recognize that ad sales is B2B sales. And [00:22:00] B2B is the largest - is a larger portion of our economy than consumer sales. And there are companies that are doing this but are executing those very well using the tools that we're describing.
And I think just because this is the way we did it last year or 10 years ago, or 60 years ago, is not a good reason to keep doing what you're doing. And I think if you want to get ahead, you're going to get much more precise in your sales and CPQ process and support that with data or real-time decision-making.
Lindsay Duran: Jon, thanks so much for sharing your expertise with us today on the podcast and we're thrilled to also have you as an official part of the Zilliant team.
For more information, you can access a white paper that details these challenges and Reimagined approaches [00:23:00] via the show notes below. You can also visit zilliant.com for more information. And we hope that you'll join us for the next episode of B2B Reimagined.
