Compensation Models for Interactive Advertising
(Department of New Media Technology, MODUL University Vienna, Austria
(Business School, University of Western Australia, Australia
Abstract: Due to a shift in the marketing focus from mass to
micro markets, the importance of one-to-one communication in advertising
has increased. Interactive media provide possible answers to this shift.
However, missing standards in payment models for interactive media are
a hurdle in the further development. The paper reviews interactive advertising
payment models. Furthermore, it adapts the popular FCB grid as a tool for
both advertisers and publishers or broadcasters to examine effective interactive
Keywords: Interactive Advertising, Compensation Model, Classification
The focus of marketing is shifting from mass to micro markets, due to changing
demography and nuanced product preferences. Digital technology and hypercompetition
accelerate this process. This shift has advertising implications as a heterogeneous
marketplace requires more one-to-one communication rather than one-to-many
communication [Kotler 02].
Interactive media, like the Internet, interactive TV or mobile media
provide possible answers to this shift, with advantages over traditional
media. They extend advertisers ability to reach and engage users (potential
customers) through interactive features, which increase customer involvement
and could lead to this one-to-one relationship [Brodin
02]. Furthermore, the intensity of interaction may associate positively
with satisfaction [File 93].
Internet advertising revenues increased strongly this century. From
7.2 billion US dollars in 2001, revenue rose to 16.9 billion in 2006 and
increased 26% from the first quarter of 2006 to 2007 [Interactive
07]. Since the 1994 launch of simple static banners on websites, spectacular
growth in web use has driven major changes in online campaigns and consumer
responses. [Hollis 05] observed a boom-bust-revival
pattern in online advertising, with a 1996 boom preceding a 2001-2002 decline
and a revival in 2003. Driving the revival include an increased adoption
of broadband access and sophisticated segmentation strategies [Hanson
07]. For example, 67% of Australian Internet users had broadband in
2007 [Australian 07] and advertising companies can
target banner advertisements based on a users domain such as .com or
.au web browser, operating platform, search topic and online profiles
in communities [Hanson 07; Hollis
05; Stone 07].
Interactive TV, digital TV with a return path to enable communication
between consumer and broadcaster [Brodin 02], has
two broad forms. The major form today, DRTV, is limited in that users usually
get just an on-screen overlay to exchange personal information for a special
offer or other incentives [Mercier 04]. One reason
for DRTVs popularity could be that it is simple to set up and run. The
second form, DAL, offers a wide range of advertising possibilities by taking
the viewer in a separate environment showing additional information, yet,
permitting a direct-response function as in DRTV [Mercier
04]. Advertising figures emphasise the potential of this new medium.
While most traditional media lose advertising customers [Hanson
07], interactive TV has increased revenues. Peter Birch, head of interactive
sales at UKs largest broadcast network, ITV, predicts a 35% rise in interactive
advertising revenue for his company in 2007 [Nicholson
06], after a revenue of £157m in 2006 [ITV 07].
The development of mobile TV, i.e. television on the mobile phone, takes
the development of interactive TV to a further level. Customers are able
to view TV programmes everywhere and at every time with the availability
of a channel to interact with the advertiser or agency [Dickinger
Traditional mass communication such as television often assumes customers
are homogenous (one to many). Little interaction between customers and
the advertising company occurs [Hoffman 97]. On traditional
TV, for example, the advertiser usually buys advertising time on a certain
programme on a particular TV station. Prices usually depend on the estimated
audience, so prime time or spectacular events like January 2007 Superbowl
in the USA cost up to US$ 2.6 million for a 30-second spot [Monica
Interactive media enable consumers to reply to an advertisers communication
or initiate the communication, for example in visiting a particular website
[Wu 07]. In contrast to mass-media, interactive communication
can go in either direction (many to many) [Hoffman 96].
Even though interactive media have bright prospects, they also face
problems generating advertising revenue: There is for example no standard
regarding payments for Internet TV advertisements [Crampton
07] and regarding advertising on the web, the complexity of the medium
in general hinders the standardization process [Novak
[Swain 05] addresses the question of compensation
models for interactive marketing predicting that agencies will gain in
importance. The interviews with marketing professionals showed that agency
compensation has not yet been related to interactive communication success
as there is still thinking in terms of traditional marketing communication
measures [Swain 05]. Thus, there is a call for
research in the field of developing appropriate measurement-based methods
for agency compensation [Swain 05].
This paper therefore reviews interactive advertising payment models
as well as advertising models in traditional media. Furthermore, a taxonomy
developed in this paper argues which payment model aligns with certain
types of goods or services, as not every payment model suits every product.
Moreover, it will take the aim of the advertising campaign into account,
i.e. consider whether the aim is an increase in sales or an image campaign,
also impacting the choice of compensation model.
The FCB grid, a two-dimensional grid differentiating purchasing situations
developed by the Foote, Cone & Belding advertising agency, serves as
a basis for our discussion [Vaughn 08]. The remainder
of the article proceeds as follows. First, compensation models for advertising
on TV and the Internet are presented. Then, our application of the FCB
grid and compensation models for interactive TV is presented. The paper
closes with a discussion of the results and future research avenues.
2 Compensation Models for Interactive Advertising
Academics have examined different forms of interactive advertising such
as Internet advertising [Shen 2002; Spake
99]. [Spake 99] differentiate between behaviour-based
compensation and outcome-based compensation. The latter involves some sort
of measurement of the outcome such as sales increase, brand share etc.
The measurement methods available (audience feedback, attitude change,
brand equity, change of behaviour and/or attitude, image) are tied to the
final compensation model chosen. Some measurements may require extended
market research (e.g. image analysis) and are thus priced on a fee basis.
The most popular interactive advertising medium, the web, offers a large
variety of advertising forms like pure text messages, picture or video
elements. However, the the Internet mostly uses banner advertisements
and target communications. Banner advertisements are graphic images and
text that try to entice users to click on the banner to learn more. Target
communications could range from a single, simple website to a series of
linked pages [Novak 00]. Usually a click on a banner
leads the viewer to a specific target communication.
Interactive TV offers some more possibilities which can be divided in
two types, that are within the broadcast stream or alongside the broadcast
stream [Cauberghe 06]. Within the stream offers DAL,
impulse response, microsite and a contact me function in the commercial.
In the content products can be placed and banners can be shown. Alongside
the stream the possibilities include a walled garden (logos, banners, games
and websites), logos and banners in the electronic program guide, direct
mailing and video on demand. [Cauberghe 06] compare
different forms of interactive advertising including the above mentioned
in their paper.
Companies need to get further insights into how to compensate for interactive
advertising. Therefore we draw on models developed for the Internet to
adapt them for the interactive TV context:
Flat-fee pricing charges the advertiser for their ads on a website in a
certain period (e.g. per month). Flat-fee can be without or with traffic
guarantees. If accurate traffic information is available, companies can
use a pay-per-view model [Novak 00].
Pay-per-view (PPV): Usually measured in CPM (price for 1000 impressions),
the publisher gets a fee (dependent on the popularity of the page usually
a few dollars or more for the mentioned thousand views) for each ad shown
on a publishers website [Hanson 07]. Even without
clicking on the banner, the mere exposure can increase ad and brand awareness
[Briggs 97]. However, this payment model can motivate
the publisher to attract mass audiences instead of focused audience segments
Pay-per-click (PPC): In contrast to pay-per-view, the publisher is paid
only if the visitor clicks on the ad. Google, for example, charges $0.01
and up per click, depending on the popularity of the keywords [Google
07]. A disadvantage of PPC is ´hit or click fraud´ the
click-through rate is artificially inflated [Anupam 99].
Pay-per-sale (PPS): The publisher receives a commission for purchases done
on the target site. The payments are usually higher because they are more
valuable for the target site. Amazon, for example, pays up to 15% depending
on the product sold [Amazon 07].
Pay-per-lead (PPL): This method requires that visitors take a specific
action in response to an ad banner, e.g. registering for an account [Anupam
99]. ´Hit-shaving´ is the main threat of both the PPS and
PPL payment models. The advertiser fails to report a lead or a sale to
the publisher [Anupam 99].
Other forms of compensation include ´banner swapping´
or ´banner exchange´, where firms exchange ads between each
others website without or with a fee [Turban 06].
These exchange models are inappropriate for this paper, as they require
two advertising companies and no publisher. In addition, there are pricing
models, which are hybrids of the above mentioned forms.
3 Choosing the Right Model
Often the negotiating power of the advertiser or the publisher seems crucial
to the choice of a model [Hanson 07]. However, there
is no best model and not every model goes with the advertising campaign
of a certain product. For example, the PPV model seems appropriate for
products with universal appeals such as telephone rates or travel services
[Mangani 04]. For specialized products, PPV might
be unsuitable. Advertisers and publishers negotiating payment models should
consider three points:
aim of the campaign / the ad
the goal of the user [Hollis 05]
the type of product
Planning the target communication starts with specifying the intent
of the marketer, that is the aim of the campaign or the ad, and the goal
of the user encountering the ad.
The Elaboration Likelihood Model (ELM) model of [Petty 83] suggests that the degree of involvement of
the viewer of an ad is important to predict for these first two
points, the campaigns aim and the users goal. Customers actively
seeking product information usually focus on an advertisements
message. These high involvement consumers follow a central route of
processing information. For these consumers, the ad should tend
towards being factual [Petty 83] and interactive,
as people actively searching for information are more likely to click
on an interactive ad [Hollis 05]. In contrast,
for low involvement viewers, the focus of the ad should be more on the
peripheral cues, for example the ad design, as the consumer follows a
peripheral route towards processing information [Petty 83].
Experience may play an additional role in this discussion, because
high experience might lower the necessary involvement [Laczniak 89]. A study investigating the previsit
intentions of different product websites, confirmed the ELM. For
high-involvement products the previsit intentions had direct and
indirect effects (via attitude towards the website) on brand attitude
change. For low-involvement products the study revealed only the
mentioned indirect effects [Wu 07]. Advertising
should target towards consumers information needs and predicted
involvement [Hollis 05].
A basic decision for the advertiser should be to drive an immediate
response, e.g. to sell a product, or to increase brand awareness [Hollis
05]. Payment models requiring an active response, such as PPC, may
be inappropriate if the advertiser seeks no response or expects the user
not to interact due to their low involvement. Including the type of product
in this discussion, literature suggests two models that offer a basis for
negotiating payment models between advertisers and publishers, the Rossiter-Percy
grid and the FCB grid.
The Rossiter-Percy grid categorized products according to their underlying
purchase motives as informational (negatively reinforcing) or transformational
(positively reinforcing) [Rossiter 87]. Advertisers
can satisfy informational motives by providing information with a corresponding
emotional state, for example problem removal or problem avoidance. An advertisement
for headache tablets would be in this category. Transformational motives
promise to raise the sensory, mental or social state of the user. An example
could be an ad for luxury cars [Wu 07].
The FCB grid serves for the further discussion as it builds on the commonly
used utilitarian (thinking) hedonic (feeling) differentiation. The model
categorizes purchase decisions based on thinking or feeling, and high versus
low involvement. Combining these two dimensions produces a strategy matrix
that isolates product categories and suggests specific marketing considerations.
The extended FCB grid in Table 1 shows product categories and serves as
a guideline for applicable interactive advertising payment models.
In the first quadrant, high on involvement and thinking, the customers
are in the Informative/Thinker stage. They search for information because
the product might be complex or at the beginning of the product life-cycle.
For the advertiser it is important to supply a potential customer with
the information needed to reduce the perceived risk [Vaughn
08] involved with the purchase decision. This leads to clicks on advertisements
to request this needed information which suggests a PPC compensation form.
An example would be advertisements for a brand new personal computer (high
involvement, beginning of the product life cycle) for which a potential
buyer would still need a lot of information on the innovations regarding
the PC, the programmes installed and the specifics regarding hardware.
This information need leads to clicks on the interactive advertisement
calling for a PPC compensation model.
The second quadrant, high on involvement and feeling, i.e. the Affective/Feeler,
also requires high involvement, but the focus is on emotions and feeling
not on information [Vaughn 08]. The goal of the ad
for a product that requires high involvement and a high level of feeling
is to create images, emotions, and arousal in connection with the product.
In the long run this may lead to a purchase decision, suggesting a PPL
model or flat fee.
Car advertisements typically fall into the category of emotion and image
creation where the involvement with a product would be high and the focus
is on feelings and emotions. The potential customer would not immediately
buy the car but could request further information, calling for a PPL compensation.
As some sort of image for the brand is created, for example through a video
clip, a flat fee could be appropriate too.
In the third and fourth quadrants, the customer involvement is lower.
In the third quadrant, Habit formation/Doer, thinking dominates for products
like household items or food. The aim of marketers for these products usually
is to increase brand awareness and therefore to form habits. Inducing a
trial may even trigger subsequent purchase [Vaughn 08].
[Vaughn 86] indicates that exploratory buying may
happen in this quadrant, thus, a PPS model appears appropriate depending
on the product class. Food may not be bought this way, household goods
or cosmetics, however, are possible to be shipped to the customer. Interactive
advertisements may offer cosmetics like shampoo with a free bottle of conditioner
to induce trial of the conditioner. This would work for spontaneous habit
purchases as well as trial of new products. The customer has the chance
to immediately reply to the advertising stimulus. Thus, a PPS and a PPV
model (for perishables) seems sensible [Briggs 97].
In the last quadrant, Self-satisfaction/Reactor, feeling dominates over
thinking for self-satisfying products such as cigarettes, liquor or candy.
The advertising aim for these products is to increase sales or at least
to increase brand awareness. Thus, it is important for those companies
to present their products via interactive TV. As such liquor or candy can
be promoted via this medium leading to product awareness and even sales.
Depending on the possibility to buy products online, a PPV or PPS payment
model seems appropriate.
||Car, house, furnishings New products
||Jewellery, cosmetics, fashion apparel
|Implication for advertiser
||Specific information Demonstration
||Change of attitude
|Possible payment model
||PPL, Flat fee
||Habit formation (Doer)
||Food, household items
||Cigarettes, liquor, candy
|Implication for advertiser
|Possible payment model
Table 1: Classification of compensation models for interactive advertising
Although it makes sense to use interactive metrics and the derived payment
models with interactive media, this paper argues that the appropriate payment
model for an interactive advertising campaign could also be one that does
not require interactivity (e.g. PPV). The paper adapted the popular FCB
grid as a tool for both advertisers and publishers or broadcasters to examine
effective interactive payment models.
However, to choose a payment model, advertisers and publishers also
have to know the threats of each model and discuss how to avoid them.
It is suggested in the literature, that for example multi-site data
(on every website involved in the campaign) is one requirement to solve
the problems and to obtain further confidence in the interactive media
Beyond this confidence discussion, future research should test the classification
developed and presented in the grid through both qualitative and quantitative
Key challenges remain regarding the development of interactive TV and
the further diffusion of digital video recorders. Marketing Management
predicts that such technologies will destroy advertising effectiveness
of traditional TV spots and leading companies will therefore invest in
branded entertainment within TV programmes, TV program sponsorship, interactive
advertising during TV programs, online video ads and product placement
[Marketing 06]. These additional forms of TV advertising will require further
The IDIOM Project (Information Diffusion across Interactive Online Media;
www.idiom.at) is funded by the Austrian Ministry of Transport, Innovation
& Technology and the Austrian Research Promotion Agency within the
strategic objective FIT-IT (www.fit-it.at).
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