Don't make pricing rules your enemy


Summary.

Pricing rules are intended to ensure a minimum CPM rate for specific parts of your ad inventory, thus improving your yield. But like all good inventions, they can overcomplicate your life, so beware!!! CPMs as we all know are dynamic, and depend on dozens of variables like seasonality, viewability, etc. Therefore, the defined pricing rules must be adjusted accordingly to CPM fluctuations.


WARNING: The lack of dynamic pricing rules directly implies inventory cannibalization.

Those bids lower than the floor price, will be lost, and therefore ad slots will be filled mostly by house campaigns in the best case. The end result is money left on the table.


Why ?

If we assume that we are using Google Ad Manager as an Ad Server, and as a consequence its Unified Pricing Rules tool (learn more), we have to know which bids are affected by these rules.


The established floor prices will apply to the following contexts, as defined by Google:

  • The open auction ( Ad Exchange).

  • Private auctions

  • Open Bidding

  • Remnant line item types Price Priority, Red, and Bulk


In contrast, only house line items and those lines with an assigned CPM equal to "0", are exempt from the floor prices.


Problem Statement.

  • The Search for the highest CPM: As AdOps we tend to focus on getting the highest eCPM. However, we usually forget to consider the price-demand relationship. For a higher price, there is less demand, meaning that focusing only in higher eCPM will reduce the Fill Rate.

In order to maximize revenue, AdOps professionals should focus on finding the equilibrium between CPM and Fill Rate.



  • Remnant Inventory: As explained previously, a Floor Price higher than the optimal one, will end up in a bigger amount of impressions delivered through house campaigns, dropping completely the value of these impressions.

  • Optimized Pricing Rules: So, how can I know if my Pricing Rules are helping me to achieve that equlibrium or if, au contraire, they are cannibalizing my inventory?


A quick way to realize the problem without an exhaustive analysis is to look at the percentage of impressions delivered through house campaigns, over the total sold inventory in a given period of time. If this percentage is, let's say 10% give or take, the need for Pricing Rules adjustments is evident.


If we replicate this case, with the most basic economic model we can observe that when the strike price ("sold CPM") is higher than the "optimal CPM", the result ends up in cannibalized inventory, meaning a reduction of the publisher’s surplus equivalent to the blue zone.






Solution & Methodology

1. List all your Pricing Rules with the CPM and the applicable inventory dimensions.

Example:



2. Create a custom report and monitor on daily basis fluctuations of each of your Pricing Rules to identify every time an adjustment is required.


Example: Take action when the Avg. Last Day Bid CPM is 5% lower than $2 (your set Floor Price)



3. Adjust your Floor Price accordingly to the bid eCPM.


Useful Resources.

- Use yieldPass Surveillance Software to set customized alerts and set your AARRR model.



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