Chapter 6: Internet Advertising Pricing Methods: How - PowerPoint Presentation

Slide1

Chapter 6:

Internet Advertising Pricing Methods: How

to

Calculate

Advertising

Costs

?

Slide2

Payam Hanafizadeh and Mehdi Behboudi

http://www.igi-global.com/book/online-advertising-promotion/60769

Slide3

1

Flat fee means paying a

fixed amount

for displaying an ad in a

certain time period

; this is the oldest method of online advertising pricing.

COST-PER-THOUSAND AND FLAT-FEE EXPOSURE MODEL

http://www.boybdream.com/articles.php?articleid=37351

Slide4

2

When a customer places an advertising order and the ad is published

by CPM, more visitors rush on to the website, and this is a considerable success because it is a one-to-many communication model which looks for the audience to read its message.

COST-PER-THOUSAND AND FLAT-FEE EXPOSURE MODEL

http://www.ehow.com/how_8455991_measure-cpm.html

Slide5

3

Since

customer behavior on the host website is dependent upon the

type of website

and the

customers' motive to visit the site which is readily measurable, merely recording the number of visits is not enough information to sum up the value relative to the advertising cost.

COST-PER-THOUSAND AND FLAT-FEE EXPOSURE MODEL

http://citywire.co.uk/new-model-adviser/comment-stuart-fowler-on-the-case-for-flat-fees/a397175

Slide6

4

In this method, paying for ad exposure is based on the number of times the user has actually clicked on an advertisement. The price paid for one click on the ad is one to four percent of a dollar

(Hoffman & Novak, 2000).

CLICK-THROUGH RATE MODELS

http://enigmaprod.ch/en/good-to-know-2/what-are-cpm-cpc-ctr-and-cpa/

Slide7

5

In this method of

advertising pricing, the user not only should observe the ad, but also should actively decide to click

on the ad and be

involved

with the target communication process.CLICK-THROUGH RATE MODELS

http://smallbusiness.chron.com/improve-ctr-rates-blog-55301.html

Slide8

6

In this method, the search engines display the website's or their member companies' links in

separate boxes

, and usually place those links in the

upper part of the screen

.

PAY-PER-CLICK

http://www.entrepreneur.com/article/222436

Slide9

7

An important factor in this situation is a "

web master

", which puts the advertisers '

text

or graphic links

within their sites. When the users click on these links and enter the advertiser's website, the advertiser pays a fee, called a "

bid", to the web master. A

bid

is defined as the highest

per-click

price proposed the advertiser is willing to pay.

PAY-PER-CLICK

Slide10

8

An

English auction

is one of the

oldest auctions

attended by both vendors, and initially, vendors

are

free to set a base price for their goods; if the prices do not reach the set price, the vendor can end the auction. The buyers offer the highest price they think is appropriate for their business until finally, the item is sold at the

maximum price

.

English Auction

http://thelawdictionary.org/english-auction/

Slide11

9

An English auction is done in two different methods:

price

price auction

English Auction

http://www.auctionzip.com/IN-Auctioneers/105844.html

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10

This method has

two basic disadvantages

.

First

, in the kind of auction, there is no competition

among buyers because one of the buyers might be interested in one product and might want to buy it at

a higher price.

Another disadvantage

is that the

base price

is always

much higher

than the

market price

; otherwise, the auction has no interest in selling the item.

Dutch Auction

http://www.webopedia.com/TERM/E/eBay_Dutch_auction.html

Slide13

11

On eBay, there is a special kind of auction known as an EBay auction. On this website, several

samples

of the

same item

are up for sale.

EBay Auction

http://www.watchcount.com/bids.php?zero

Slide14

12

After being informed about

the item

and the

price

, the customer begins the bidding process

.

The buyer, who has

proposed

a maximum price, buys the item at the

lowest price

accepted by the auction.

EBay Auction

https://www.bidnapper.com/

Slide15

13

Introduced by

Goto.com

, the generalized first-price auction allows every customer to enter the

highest price

that they will pay by clicking on the advertisement.

Generalized First-Price Auction

http://restud.oxfordjournals.org/content/78/1/112.full

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14

In this way, the customer bidding the

highest price

gains

first place

.

Convenience

, low entrance cost

and

transparency of the process

have meant great success for this method to the extent that

giant search engines

like

Yahoo

and

MSN

utilize this method; however, it needs adjustment. The rapid change of proposed prices and the

prices-per-click

result in some

confusion

.

Generalized First-Price Auction

Slide17

15

One of the

newest pricing

and

selling

mechanisms

in advertising is the Generalized Second-Price (GSP) auction.

GSP is designed for

online advertising

and has achieved a lot of success in that field. This is the primary pricing mechanism of

Google

and

Yahoo

.

Generalized Second-Price Auction

http://www.techpolicy.com/Articles/Internet-Advertising-and-the-Generalized-Second-Pr.aspx

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16

As the

GSP

auction

develops for online advertising, its rules follow the characteristics of the internet environment. GSP emphasizes that

merchants suggest just

one bid for each keyword (unless there is more than one item on sale.

Generalized Second-Price Auction

http://math.stackexchange.com/questions/253641/vickery-auction-questionsecond-price-auction

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17

A mail company first introduced CPA, where advertisers

do not pay

a fee to the publisher based on the

exposure

of the ad to the users or the number of clicks.

COST PER ACTION

http://www.dottraffic.com/glossary/cpa.php

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18

However, the

publisher

does

receive a fee

when the user performs an action

on the

merchant's website, such as

selling

,

e-mail registration

,

filling out forms

,

participating in surveys

and

polls

,

attending online chats

and

creating an account

.

COST PER ACTION

http://www.cpafix.com/forum.php

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19

Internet publishers state that the

lack of interaction

between

users

and the site

is due to other reasons such as

poor web design and

unattractive content

, which are not under the publishers' control.

COST PER ACTION

http://www.clickxpay.com/

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20

George Reyes, Google's chief executive officer, says "

click frauds and misuses are now the greatest threat for the Internet economy and a big threat for our business model

"

(Crcomputerrepair.com, 2011).

PAY-PER-PERCENTAGE IMPRESSION

http://www.inoutscripts.com/addons.php?script=adserver&addon=ads-cpm

Slide23

21

Recently, a method called pay-per-percentage impression has been developed which

prevents

both

clicking

and publishing frauds

.

PAY-PER-PERCENTAGE IMPRESSION

http://www.websitemagazine.com/content/blogs/posts/archive/2006/07/07/pay-per-percentage-analysis.aspx

Slide24

22

The most common

fraud is the

click fraud

. In click frauds, a competitor of a merchant does a fake search for the keyword which relates to the merchant in order

to decrease their competitor's ROI and

to negatively affect their advertising budget

.

PAY-PER-PERCENTAGE IMPRESSION

http://www.seoptimise.com/blog/2006/12/pay-per-percentage-of-impressions.html

Slide25

23

The income-based approach in online advertising pricing begins with

recognition

of

the marketing objective

for target communication

, which results in affecting the

consumer's attitude, encouraging the consumer to create a profile or leading the customer to buy.

INCOM-BASED PRICING MODEL

http://www.rics.org/sg/training-events/e-learning/e-learning/cost--income-based-methods-of-valuation1/cost--income-based-methods-of-valuation/

Slide26

24

Although pricing models utilized in online advertising are based on

traditional advertising

or

mass media

when there is a revenue base, these pricing mechanisms may be

more related to a direct response pattern.

INCOM-BASED PRICING MODEL

http://www.scotsmanguide.com/default.asp?ID=3402

Slide27

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The way that the internet gathers such information was impossible in the past; however, finding this information may also be

more expensive

and

time-consuming

than in the real world. It has become easier to

commit fraud and

pass on others' information, and it is not clear as to how is going to misuse personal information.

PRIVACY

http://www.adobe.com/privacy.html

Slide28

26

In Hoffman and Novak's study in 1999,

it was shown that users assess a great value to their privacy, and this is obvious in surveys and enrollment on some websites.

Since the names and information registered on those sites are nicknames, it is obvious that users want to have full control of their personal information.

PRIVACY

http://www.privacyfoundation.org/

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27

Research has attempted to put an end to consumer rights violation by

clarifying

some

terminologies

and mechanisms

of the new online medium. One of the most important issues is the

disguised advertisement.

MORAL PRACTICE

http://hepg.org/hep/book/130/TeachingAsAMoralPractice

Slide30

http://www.350media.com/2012/07/12/cpc-cpm-cpa-whats-the-best-value-for-your-ad-campaign/

The End Of Chapter

6

http://yourbusiness.azcentral.com/internet-advertising/

http://www.wired.com/business/2013/03/marin-software-ipo/