INdustry: How Interactivity May Improve Advertising Math

It's interesting to note that interactive advertising, though not exactly a new idea, doesn't seem to have its own math. Pundits like me banter about the enticements of engagement, the intrigue of interaction and the certain value of conversions; but in truth, we have no math. Or at least, I can't find much.

I've been revisiting interactive advertising lately. With ITV apparently on the rise in many forms and flavors, the potential lucre from expansions of the $70 billion currently spent on TV advertising is the golden goose yet to be got.

While doing some reading about how media planners think, strategize and build plans to spend $70 billion, I took note of a particularly important aspect of media planning: the fuzzy nature of effective frequency, or the number of times an ad must reach its intended target to be effective.   

It turns out that media planners have, by little more than convention, arrived at general agreement that the effective frequency of advertising is 3. This is kind of like a coefficient of friction, except that it isn't actually based on any science. Some media planners argue that 4 is the magic number. Why? Well, mostly because they say so.  

It's a very important number because it has a huge impact on the way money is spent. Effective Reach is the percentage of the target audience that can be reached with Effective Frequency. So, if I reach 55% of the target audience 3+ times, my effective reach is 55%. Got it?   

Media planners constantly struggle with this because they really want to reach as large a percent of their target audience as possible. But, given finite budgets and asymptotic costs (meaning, the rate of cost increases much more than linearly), they nearly always sacrifice reach goals to make sure they're getting effective frequency.

This is a problem worth solving.

With this in mind, consider the results of the only US interactive TV audience measurement effort that I'm aware of--the study published last year by Canoe Ventures. (If anyone is aware of any others, please let me know and I'll make our readers aware.) In the study, Canoe reported very significant gains in unaided ad recall and perceived brand value--even among people that did not use the interactive feature.

So, why do we care? Well, using some standard math, it turns out that the cost to reach 55% of the target 2+ times is about 50% less than the cost to reach 55% of the target 3+ times. The whole point of repeating oneself is to break through the clutter and connect with the viewer. What if--and this is just Collette's hypothesis--what if it turns out that when we add engagement, interaction and conversion to TV ads we actually make them more effective. If the magic frequency number could be reduced from 3+ to 2+ by virtue of interactivity, it would take 50% less money to achieve the same result. That's another way of saying that it would make interactive ad units twice as valuable as traditional old TV ads. The best TV inventory is in heavy demand. If that inventory can be made twice as valuable, then inventory sellers will see significant increases in revenues and those that make that possible might just possibly get paid reasonable sums for their efforts.

Of course, this won't be easy. Not at all. A great many very experienced people are pretty convinced of 3 and sometimes 4. Actually, the whole TV ad industry relies on it. It will take a lot of careful work implementing, measuring, reporting and repeating same to reduce 3 to 2 and thereby drive a dramatic increase in TV ad CPM's. But, if interactive TV ads really are more effective, then it's doable. And if they aren't, well, then what's the point?

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Michael is the president and CEO of MediaTech Strategies, a consulting company that helps investors and operating companies develop and capitalize on emerging media technologies.   He has over 18 years' experience in the media technology business, including previous CEO roles at Ucentric Systems, where he pioneered the multiroom DVR category and PhyFlex Networks, where he developed a new access network solution for cable.  Michael previously held senior executive positions with OpenTV, ICTV (now ActiveVideo Networks), Motorola and Playboy TV.  Through his consulting practice, he has provided services to more than 50 companies of all types, stages and size.