Building relationships based solely on price will never lead to growth

Instead of concentrating on CPMs, more marketers need to focus on finding the right approach to media, says Speed's Ian Perrin.

There has been much debate in our industry around the role of procurement in media strategy, the cut-throat nature of pitching based on price and clients obsessed with ever-lower CPMs. Some say this is the new normal and we should get used to it. But I call bullshit on that. 

Not because I don’t believe that price is important, it is, but it’s only one metric. And if we focus exclusively on it, we end up undervaluing the importance of value. Creating value is a better way to drive growth than cutting costs, and let’s face it, creating value is what our industry exists to do.

How can media demonstrate the value it creates? 

But the problem with media is the difficulty in tangibly demonstrating the value we create. There is no common currency that defines it from either an intra- or inter-media perspective. The impact of advertising is simply too complex to boil down to a simple formula and so, when marketers go out to pitch, inevitably, many opt to build a relationship based on price.

Plenty of marketers promise their CFO they’ll reduce rates by 10% by going through this process. So, we end up with a binary decision where an agency is selected based almost exclusively on rates and, inevitably, the client makes media choices based entirely on rates.

If you start a relationship focused on rates, then everything around your relationship – how you go to market and trade, your strategy – will be built around price.

Consider the classic equation for return on investment (ROI), where brand sales as the numerator is divided by media cost as the denominator. To increase ROI, a marketer has two levers to pull. Cutting media costs in the denominator will provide much gratification to a CFO by instantly improving the ROI. But how long will that smile last? A single-minded focus on rates means that the other lever, the one that focuses on revenue growth to build ROI, is disabled if the rates of the media channels delivering growth are deemed to be higher.

Not to be too simplistic, but there are usually three different ways to deliver brand growth and cheap CPMs can be a barrier to all three of them.

1. Getting new customers to buy your brand

The barrier: Buying low-cost CPMs often means buying off-peak inventory which limits campaign reach. If you are reaching fewer people, you are putting pressure on your creative to deliver greater conversion rates.

For example, a fast-moving consumer goods (FMCG) brand targeting busy working mums is much better off paying a premium to target her during prime-time TV.

2. Getting your regular customers to buy your brand more frequently

The barrier: To increase purchase frequency, you often need to target a specific time, place or message. If you are selecting media based on when it is cheapest, you are restricting your ability to target effectively. For example, if you are a bank trying to convert an existing everyday account holder to a home loan, you should probably invest heavily in your digital targeting capabilities.

3. Getting regular customers to pay a premium for your brand

The barrier: To extract a premium, it makes sense to ensure the environment within which your brand appears needs to be exclusive. And exclusivity is difficult to deliver without compromising price. If, for example, you are a luxury jewellery brand, you are better off paying the premium to be the last cinema ad in Gold Class at Chadstone.

Obviously in each of these examples, you still want to pay the lowest possible rate, but you want that reduction based on the growth strategy, not the other way around. Cheap carts don’t pull horses.

There are numerous examples of campaigns that have demonstrated the true value of media rather than a focus on paying the cheapest possible rates.

We were recently involved in one such campaign for the Dry July Foundation. Having only invested a small amount in Facebook and radio for a number of years to advertise the Dry July campaign, sign ups were stagnant at 20,000 participants and fundraising had plateaued at $4m. But the client had ambition and decided to increase investment in above-the-line advertising to see if it would create a change.

Recommending a charity client spend additional budget in high reach, high profile media was no easy win, but the results were.

In 2018, the Dry July Foundation grew participation by 88% to 36,000 participants and raised $7m (77% growth in fundraising). And this year, with slightly more money (still invested the same way), it grew an additional 40% and raised $10m for the first time ever.

The Dry July Foundation, like other smart clients, knows that chasing lower CPMs is a fool’s errand. It may reduce operational costs, but it’s never going to grow business.

Ian Perrin is the founder and CEO of Speed


Get the latest media and marketing industry news (and views) direct to your inbox.

Sign up to the free Mumbrella newsletter now.



Sign up to our free daily update to get the latest in media and marketing.