Paid versus Owned Media

Prof. Dr. Koen Pauwels

Paid versus Owned Media? it depends on your brand and category

Prof. Koen Pauwels

Online budget has increased

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“You cannot build a brand simply on the Internet. You have to go offline.” J.G Sandom, Co-founder and former director of Ogilvy

Paid search under fire• Who likes the “Google Tax” ?

• Paid search has 0 effect for eBayConsumers will find it anywayShuts paid down, saves $ millions

• But paid search fantastic for InofecIncreases profit 14x doubling it

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Online and Traditional Marketing:What do we know?

• Online marketing such as search, social media is more effective than traditional marketing, TV (Manchanda et al. 2006, Wiesel et al. 2011)

• Paid, owned and earned media have different effects (Li and Kannan 2014)

• Online-offline synergy for specific cases (Naik and Peters 2009) within-offline synergy for others (Schultz, Block & Raman 2011)

• Unknown: When do online paid, earned, owned media work best and have most synergy with traditional marketing?

TRUSTWORTHINESS VERSUS REACH OF MEDIA

Our view: Consumer involvement & knowledge

• High involvement: customers desire the best information

a) Experience good: need deep, trusted information (Nelson 1974)

b) Search good: fast information by search (Erdem et al 1999)

• Low knowledge increases need for cross-channel media:a) Internet poor for building brands (Erdem et al 1999, Sandom 2010) unfamiliar brands need both

online and offline mediab) Familiar brands can leverage within-online synergies

Involvement vs knowledge effect conditions

Experience goods

(services)

Search goods

(products)

Unfamiliar

brandElasticity: Owned > Paid

Synergy: Cross > Within-online

Synergy: Cross-channel > Within online

synergy

Familiar

brandElasticity: Owned > Paid

Synergy: Within online > Cross

Elasticity: Paid > Owned

Synergy: Within online > Cross

Specific actions differ by firm

PAID OWNED EARNED TRADITIONAL

Paid search costDisplay adsNews site adsBanner adsAffiliate site adsPrice comparison site ads

Site TrafficOrganic site visitsOrganic search

Social media conversations

Direct mail costTV ad costOut-of-home costPrint (Circulars)RadioPriceDiscounts

• Treating online marketing (especially online media) as just another direct driver of sales leads to misattribution of sales to drivers and ultimately bad mix decisions

• The following picture simply no longer holds true:

Old mix modeling does not work for integrated online measurement

PRINT x COU

PONS x TRA

DE x Online x SA

LES

A far more complex marketplace exists in which online activity acts as an outcome of offline marketing, as well as a driver of sales. We analyze these dynamic effects in a systems of equations.

XTV x

Earned Media

TVSales

Paid Media

Price

Distribution

Owned Media

Offline actions invite (online) consumer action + sales

Academic Foundations of VAR• Sims (1980) regressed a vector of variables on their own

past as well as those of fellow influential variables creating the term "Vector Autoregression" (VAR).

• This groundbreaking work that continues to add value in the business community (particularly finance) earned Sims the 2011 Nobel prize for Economics.

Christopher Sims receiving his Nobel prize in December 2011

Reference: Sims (1980) "Macro-Economics and Reality" in Econometrica.

Findings

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Performance Elasticity of Paid Search and Owned Website Visits

0 5 10 15 20 25-0.1

-0.05

0

0.05

0.1

0.15Brand A: Paid Media

Weeks

Revenues R

esp

onse

Response to shock in Paid Search

0 5 10 15 20 25

0

0.05

0.1

0.15

0.2Brand A: Owned Media

Weeks

Revenues R

esp

onse

Response to shock in Organic Visits

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Performance Elasticity of Paid Search and Owned Website Visits

0 5 10 15 20 25-0.2

-0.1

0

0.1

0.2

0.3

0.4Brand B: Paid Media

Weeks

Rev

enu

es

Resp

onse

0 5 10 15 20 25-0.1

-0.05

0

0.05

0.1

0.15

0.2

0.25

0.3Brand B: Owned Media

Weeks

Rev

enu

es

Resp

onse

Response to shock in Paid Search Response to shock in Web Visits

Summary of Key Findings • Owned > paid media if high enduring involvement (e.g.

fashion, GMAT testing) but paid > owned if high need only at specific time (e.g. furniture, refrigerator)

• Cross-channel synergy higher than within-online synergy for unfamiliar brands, within-online synergy highest for familiar brands (e.g. eBay, Kayak.com, Old Navy)

• Earned media has highest elasticity across conditions.

Managerial ImplicationsExperience (Service) Search (Product)

Unfamiliar

brand

Owned (and Earned) key to purchase

Spend on offline media for synergy

Owned key to Purchase

Spend on offline media for synergy

Familiar

brand

Owned key to purchase

Spend within online for synergy

Paid (and Earned) key to purchase

Spend within online for synergy

OK, but which paid online actions?• Content-integrated have highest effect:Affiliate sites if high enduring involvement (e.g. fashion, cars)Paid search and price comparison site if high need NOW (refrigerator, glasses, office desks)• Retargeting effective if mood of new website matches mood of

your product

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Proposed Usage: Dashboard input and output

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Comparing profit from saved scenarios

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Want to learn more ?• It’s not the Size of the Data, it is How You Use It: Smarter Marketing with

Analytics & Dashboards• Website: www.notsizedata.com for free diagnosis

• Blog: http://analyticdashboards.wordpress.com• Twitter: @koenhpauwels• LinkedIn/Twitter: koenhpauwels• Facebook: http://www.facebook.com/pages/

marketdashboardscom/207532115957700

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• Thank you very much for your attention!

Any Questions?