- Posted by: Paul Christ
For most consumers, understanding why companies charge what they do for a product is an absolute mystery. This is especially perplexing for them when they see two similar products side-by-side, but one costs 25% more than the other.
While pricing is confusing to customers, it is also a challenging and often complex decision for marketers. This is due to numerous internal and external factors affecting what will eventually impact the final price. But as we noted, customers don’t really understand pricing or what factors impact price. They only know, that for some products, the amount of money they need to give up to purchase the product does not make sense to them.
A good example of pricing that may not seem to make sense to some customers is noted in this story from NBC News. The story examines the continuous price increases impacting the breakfast cereal market despite an overall decline in consumer cereal purchasing.
The fact cold cereal sales are declining may be an indication this product category, which has been in the Product Life Cycle Maturity stage for many years, is now inching toward the Decline stage. As evidence, the story notes the overall cereal product category market has dropped by nearly $4 billion since 2000. This is not to say all breakfast brands are declining, as there are several brands and even product forms that are growing. Yet, one strong indication breakfast cereal is entering the Decline stage can be seen with manufacturers’ pricing strategy. Several of the top manufacturers seem to be moving toward a “milking” strategy (no pun intended!!) in which product suppliers raise price in order to get the most out of those who are still loyal to a brand. This price increase seems to be happening in three ways in the cereal market: 1) companies are simply raising the price they charge for the same size product; 2) companies are keeping the price the same but are decreasing the size of the package; and 3) companies are drastically reducing the number of coupons they offer. The last one is essentially raising the price for people who are accustomed to waiting to make their purchase with a coupon.
If the breakfast cereal market is entering the Decline stage, do not expect this product market to fade away anytime soon. Most likely it will stay in the Decline stage for a very long time. Thus suggesting that a price increase can be a very profitable decision for breakfast cereal companies.
- Posted by: Paul Christ
In our last post regarding ad blocking, the general tone is one that paints an unclear picture for the future of online and mobile advertising. While we suggested several options marketers may have to address ad blocking, many ad industry folks are truly concerned that the long-term prognosis does not seem all that rosy for advertising delivered through computers and mobile devices.
Well, that is a picture that has been painted for many companies and industries in the past only to see the prediction of dire straits never coming about. Certainly the most obvious recent example is Apple, which in the mid-1990s was mostly written off as a computer company that was reaching the end of its life. Of course, naysayers were proven wrong when Steve Jobs brought new ideas to the company, and everyone knows the rest of the story.
In terms of industries, certainly the intercity bus industry is another good example of something that was heading to the mothballs. Long predicted to whither away due to automobiles and airlines, the demand for bus seats is now growing. While some of this growth is affected by rising costs and unpredictable delays of other transportation options, especially air travel, bus companies’ efforts to improve the customer riding experience, including more comfortable seats and Internet service, are altering customers’ perception of bus travel.
On an even larger scale, consider what is happening in many big U.S. cities. At one point, large cities were predicted to become nearly ghost towns (granted a bit overstated!) as people bolted for suburban living. But cities soon learned by offering economic incentives to locate in the city, companies with creative ideas could help lure people back and revitalize urban areas.
At the core of these examples is the idea that even when marketers are immersed in troubling times, re-creation through innovation can turn things around. And this may be just what will happen in the online and mobile ad industry. As discussed in this story from Mobile Marketer, advertisers are reportedly jumping at the opportunities that may exist with the new interactive 360 video technology introduced by Facebook this week. Advertisers are anxious to try out this new advertising approach as they see real value in terms of audience interest, and more importantly, audience involvement. While it remains to been if such ads will also be susceptible to being blocked, the potential entertainment value of this ad format sets it apart from other formats. And, if this is the case, many using ad blocking may be persuaded that there is real entertainment value found in watching advertisements, and the best way to obtain this value is to turn ad blocking off.
- Posted by: Paul Christ
For many websites that rely heavily on advertising as a source of revenue, such as news sites, blogs, information sites and other content publishers, last week turned out to be an upsetting one. These sites and others are now bracing for a potentially major reduction in advertising revenue, which may occur as a result of the spread of ad blocking technology. To better appreciate why these sites are concerned, it is important first to understand how most online advertising works.
In the world of online advertising, nearly all advertisements displayed on websites (and on mobile apps) are delivered by specialized ad networks that manage all aspects of finding advertisers, managing payments and delivering ads. There are hundreds of ad networks, with the largest being owned by well-known tech companies Google, Yahoo and Microsoft. Making money from advertising simply requires a website to submit a request to be part of an ad network. If approved (some ad networks have higher requirements than others), the website places a small amount of computer code on their site, and the ad network will begin displaying ads.
Once ads begin to appear, the website is in a position to receive a portion of what the advertiser paid for ad placement. However, ad blocking technology is intended to prevent advertisements from displaying when someone visits a website, thus affecting website ad revenue. It works by identifying and then blocking messages (i.e., ads) sent by ad networks. While this is especially an issue with people accessing sites via mobile phones and tablets, ad blocking is also growing on computer and laptop browsers.
The technology to block ads has been available for some time, but it was not until last week when Apple updated its operating system that it became a critical issue. Apple’s release of iOS 9, for iPhones and iPads, permits the installation of ad-blocking apps, something Apple did not previously allow. As expected, within a few hours of the iOS 9 release, third-party ad-blocking apps climbed to the top of the iTunes download list.
So is this a sign that soon nearly everyone will adopt ad-blocking technology leading to the end of online advertising? Well, assuming ad-blocking apps are going to be adopted by everyone is probably unrealistic for a few reasons. First, many people are not tuned into what is happening to know ad-blocking apps are available. Second, and much more important, operating systems for mobile devices and tablets are not all Apple products. In fact, the majority of mobile phones and tablets run on the Android operating system, which is developed by Google. While, at one point, Google did allow ad-blocking apps to be easily installed from their Google Play Store, in 2013 they put a stop to this. It would seem Google will be extremely hard-pressed to allow ad-blocking apps again since the majority of Google’s revenue comes from its ad network service, which appears on thousands of websites.
But let’s say ad blocking continues to grow, then what can a content publisher do to continue to generate revenue and stay in business? Below are a few ideas, however, before considering any changes a site should first make sure there really is an ad blocking problem. The best way to do this is to install an ad blocking tracker to see what percentage of visitors are not being exposed to ads. While backend access to the server hosting the site is needed to do this, the information could indicate whether a response is needed. If it is determined the problem is worth attention, then here are a few ideas:
Wait and Do Nothing
Even if a site is seeing a high percentage of ad blocking visitors, some sites may have a tendency not to make any changes. The rationale here is that, with tech giants like Google running ad networks, it seems that it is only a matter of time before they figure out a way to prevent ads from being blocked. This is certainly something that may happen, but many companies that produce ad blockers are also pretty bright, and it may not take them very long to come up with a solution that will renew ad blocking. This cat-and-mouse game is likely not going to end. So while relief may come for short periods, it does not seem likely ad blockers will ever be totally eliminated.
Block Anyone With Ad Blocker Installed
If waiting and doing nothing is at one extreme, restricting content to visitors who have ad blocking installed is at the other extreme. Some content sites, including the Washington Post, have moved in this direction. If you visit their site with ad blocking turned on, you may receive a message saying you are blocked from accessing content. But to move in this direction poses two problems. First, if a site generates revenue from other sources, such as selling books, t-shirts or other e-commerce items, they are also preventing visitors from learning about these products. Second, blocking a visitor may affect word-of-mouth promotion, as visitors may not be inclined to suggest the site to someone else. And that may be a problem if that someone else does not have ad blocking installed.
Take Control of Managing Ads
Ad blockers are most effective because these can identify ads coming from ad networks. One way around this is for a site to take control of ad delivery by operating its own direct ad-serving system. That is, the website solicits advertisers and then handles the technical side of placing the ad. In many ways, this is similar to a site placing an image in a news story. Of course, there are some problems with this, such as the time and energy needed to recruit advertisers, and controlling what size ads appear on a specific device. Also, ad types may be limited to static image ads or basic text ads, rather than multimedia-type ads. However, there is one other big downside to this. Ads cannot be easily targeted to the user the way it is done by ad networks. So if a visitor previously visited Amazon searching for art supplies, a site controlling its own ads cannot easily identify where the visitor has been and cannot “retarget” them by serving an ad for art supplies. However, this may not be a big issue for specialized content sites, where ads related to the content of a page can be more effective than ads for something a visitor experienced on another site.
Move to “Native” Advertising
If a site decides to take control of its own ads, then another option to consider are so-called “native” advertisements, which appear to be content but are, in fact, supported or produced by an advertiser. For instance, an advertiser may sponsor a section of a website or create blog posts on a specific topic. While ad-blocking technology can identify some forms of native advertising, if done correctly, these types of ads could be an effective option.
Adjust the Revenue Model
Possibly to most dramatic change is for the site to adjust its revenue model and not rely so heavily on advertising. This can be done in several ways, such as offering only small amounts of content for free but charging for access to a full resource (e.g., blog post, article, video, etc.). Or packaging related materials together in an eBook format and then charging for the download. Additionally, these downloads can even contain advertisements, though again this requires soliciting advertisers. But, as with the management of ads, changing the revenue model requires a significant time commitment and also some insight (i.e., research) into what visitors will be willing to purchase. So, at this point, given the effort involved in making the change, it seems a bit premature for most sites to make drastic changes to its revenue model. However, given where things seem to be heading, it is certainly an internal discussion that needs to happen.
- Posted by: Paul Christ
If you are under 30 years old, you most likely have never had the experience of placing a vinyl record onto a turntable. Possibly in a club you have observed a DJ using this musical format but that may be as close as you have come. For you, and even for many people over 30 years old, vinyl records and turntables are old technologies, which have been replaced with the convenience of digital recordings. Since it has been such a long time since vinyl recordings were the main form of listening to music (25 or more years at this point), most people would assume this product form has long ago left the Maturity stage of the Product Life Cycle and now rests deep within the bowels of the Decline stage.
Well, maybe that is not quite what is happening. Sure there is a large number of Laggards that still prefer the sound of vinyl recordings over digital, but PLC strategy suggests when products reach the Decline stage of the PLC companies have little incentive to innovate or invest in the product form, and thus it is destined to die. That is, unless the product form experiences a reawakening that attracts new users.
This appears to be the situation with vinyl records. According to this New York Times story, the interest in vinyl records is growing and not just with old folks. As the story notes, 54 percent of vinyl customers are 35 years old and younger. Customers are demanding these products mostly because they believe the quality of sound recording on vinyl is superior to other audio formats.
For marketers, the problem is whether this is a trend that is sustainable or is it just a fad. As the story notes, companies producing vinyl are in a tough spot as most of the equipment used to press records is quite old and replacement parts are expensive. Yet, if demand continues to grow it is possible we can see a very unusual example of how a product that is all but dead, defies PLC theory and once again becomes a growth product.