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eCPMs: You only get one chance to make an effective impression

Oh, the good old days when television was simple to plan and buy! All you had to do was:

  1. Pick a Nielsen age and gender cohort – Adults 18-49, Men 25-54, Women 18-34,
  2. Negotiate your cost per thousand (CPM) by daypart,
  3. Refer to the plan’s daypart mix,
  4. Allocate dollars by daypart,
  5. Calculate whether that will achieve your reach and frequency goals, then…

Wait a minute! That’s not simple at all!

Not to mention the fact that age and gender cohorts can’t tell you about, for example, dog ownership if you’re Purina® or auto intenders if you’re BMW. So, while your television media buys can be efficient on a CPM basis, you know your campaign is reaching lots of people who have no need or interest in the product you’re advertising.

Enter addressable television, which behaves like direct mail. If you’re a direct mail advertiser you buy a mailing list because it contains the names and addresses of the people who are most likely to buy whatever it is you’re selling.

Same goes for addressable television, except the age and gender CPM calculations are no longer relevant. Since addressable television enables you to only reach the people in your target audience, the metric changes as well. We move from the tired old age and gender CPM to the shiny, new eCPM.

eCPM – the effective CPM that tells you how much you’re paying to reach your precise target audience.

This is best illustrated by way of an example. Assume you’re buying television for Purina Dog Food, a brand only interested in reaching dog owners. (For the moment, we will ignore people who may someday own a dog; we’ll discuss them a little later.) And let’s make a few assumptions to illustrate how the eCPM calculation works:

  • Purina has been using a target demographic of Women 18-49 (W18-49) on linear television, since their research indicates that’s mostly who buys dog food.
  • They’ve been paying $10 per thousand (CPM) to reach W18-49 on television, using whatever additional research is available to them in picking out the best programs for reaching dog owners.
  • And finally, ten percent of W18-49 own dogs.

Given these assumptions, Purina’s current effective CPM (that is, the cost per thousand they’re paying to reach dog owners on linear television) is $10/10% = $100.

In our hypothetical example, Purina is paying $100 to reach a thousand W18-49 who own a dog. It’s important you get comfortable with this number, because the way you calculate the cost of media is about to change.

Now let’s assume Purina is interested in running an addressable television campaign, so they acquire a list of people who own dogs, regardless of age or gender. Of course, if Purina wants to further refine their audience, they’re free to do that – but let’s not overcomplicate things.

So how much should Purina be willing to pay to reach a thousand dog owners? Keeping in mind that until now they were paying $100 to reach a thousand dog owners, shouldn’t they be willing to pay that same number for addressable television, where they’re assured of reaching only dog owners?

The answer to that question is “No.”

Here’s why: In the linear television example, Purina knows that only ten percent of the audience their campaign is reaching own a dog. In other words, ninety percent of the audience doesn’t own a dog BUT (and it’s an important “but,” to which I referred earlier) those people MAY someday own a dog so the Purina message has some brand-building value. By contrast the addressable campaign, which ONLY reaches dog owners, has no value in building the Purina brand name among current non-dog owners.

Purina would not want to pay the same $100 eCPM for an addressable campaign that it’s paying for its linear campaign, since it doesn’t enjoy the (admittedly marginal) additional benefit of building its brand among non-dog owners.

Therefore (if, as Keynes said, it has to price itself rationally), the addressable television marketplace must charge advertisers a lower eCPM than what they’re paying for their linear campaigns. And the current addressable marketplace seems to be priced at about two-thirds of the linear eCPM, though that number varies by advertiser category.

So…welcome to the new world of TRULY simple television media buying. All you need is one number – your eCPM – and that will tell you exactly how many potential buyers of your product your media budget will reach. It’s as simple as that.

Written by Michael Kubin, EVP Media