Corporate marketing departments are increasingly looking for performance-based advertising models in which the ad price is linked to more transparent, accountable returns—not only from online channels but from traditional media too. This requires three parties—corporate marketing, media outlets, and agencies—to adopt more sophisticated analytics and information technology to deliver measurable return on investment (ROI) across all media markets—even TV, radio, and print.

1. Perspective Dr. Michael Peterson
Dr. Florian Gröne
Dr. Karsten Kammer
Julius Kirscheneder
Performance-Based
Advertising Models
Extending the Principles
of Profit-Driven
Marketing
Corporate marketing departments are increasingly looking for
performance-based advertising models in which the ad price is linked to
more transparent, accountable returns—not only from online channels
but from traditional media too. This requires three parties—corporate
marketing, media outlets, and agencies—to adopt more sophisticated
analytics and information technology to deliver measurable return on
investment (ROI) across all media markets—even TV, radio, and print.
This Perspective is one in a series of four articles written to accompany
The Four-Pillars of Profit-Driven Marketing, a book by Booz & Company
partners Leslie H. Moeller and Edward C. Landry.

2. THE NEW Performance-based advertising has
to date focused on the online world,
ADAPTING
PERFORMANCE- where the technology lends itself ONLINE METHODS
DRIVEN to more sophisticated tracking and
measurement models. But online is
TO TRADITIONAL
MARKETING only one of many advertising formats. MARKETS
MODEL In a recent survey of leading European
corporations, more than 90 percent
ranked TV as their preferred medium
for product launches. The same
survey, however, noted that more than
The growth of online advertising half of respondents would prioritise Fast-moving consumer goods
has demonstrated the power of ROI analytics and measurability when companies, such as Henkel, Nestlé,
performance-based advertising. New choosing how to spend their advertis- and Unilever, are early adopters of this
technology, click-through sales, and ing budget over the next three years. trend. They are beginning to require
sophisticated analytics are allowing Companies with an excellent market- that their marketing budgets deliver
companies to identify more precisely ing reputation are leading the way. In measurable gains from traditional
who their customers are and how fact, on average twice as many mar- media. This is particularly true
they respond to marketing campaigns. keting leaders as non-leaders have for campaigns that promote single
Media companies are beginning to already invested in a variety of capa- products, primarily because it is
adopt pricing that reflects this ability. bilities to help them better assess mar- relatively easy to quantify the impact
In the current economic crisis, where keting performance (see Exhibit 1). on an attributable outcome such as
the advertising spend is contracting In this way, performance-based adver- sales. The result is a different kind
by as much as 13 percent, there is tising is no longer limited to online of cooperation between clients and
even more pressure for ad prices to be channels; companies are beginning to providers to develop the tools and data
linked to specific goals such as new demand similar models from tradi- analysis capabilities that can measure
contacts, new customers, increased tional media. performance accurately enough to
sales, or a combination of all three. price ads according to how consumers
respond to them. In this context,
there are three critical requirements
of all parties—corporate advertisers,
agencies, and media companies—in
determining the cost of advertising:
Exhibit 1
Key Steps Leading Marketers Are Taking (% of Respondents)
45%
31% 30%
22% 22%
16%
12%
5%
Use predictive modeling Have dashboard to Recruiting specialists Adding an analytics
to impact marketing mix measure ROI for analytics department
Leaders
Non-Leaders
Source: Marketing & Media Ecosystem 2010 survey; Booz & Company analysis
2 Booz & Company

3. Resources
Leslie H. Moeller and Edward C. Landry, with Theodore Kinni, The Four Pillars of Profit-
Driven Marketing: How to Maximize Creativity, Accountability, and ROI (McGraw-Hill, 2009).
• Agree on a key reference point or
set of reference points to determine Michael Peterson, Volkmar Koch, Florian Gröne, and Kiet Vo, “Online Customers, Digital
success—for example, the number Marketing: The CMO–CIO Connection,” http://www.booz.com/media/uploads/Online_
of units sold in various markets in a Customer_Digital_Marketing.pdf.
given time frame after the launch of
Matthew Egol, Harry Hawkes, and Greg Springs, “Reinventing Print Media,” s+b, Fall 2009,
the campaign.
http://www.strategy-business.com/article/09308.
• Define calculation methods to Dr. Michael Peterson, Dr. Florian Gröne, Dr. Karsten Kammer, and Julius Kirscheneder,
determine the success attributable “Multi-Channel Customer Management: Delighting Consumers, Driving Efficiency,”
to the campaign. For example, the http://www.booz.com/media/uploads/Multi-Channel_Customer_Management.pdf
change in sales compared with a
previous period and/or with regions Endnotes
where the campaign was not run. 1
The others are to reinvent the content delivery model, to seek revenue streams beyond
advertising and circulation, and to deepen relationships with readers around target inter-
• Agree on a pricing scheme or est areas.
schedule linked to performance.
This can be a simple fixed-rate
price plus incentives for measurable
performance, as determined by the
established reference point, or
a multiple pricing model that is
linked to subsequent campaigns
PERFORMANCE- nies. The more accurate the measure,
the easier it will be to price advertising
and a variety of products. BASED RISKS AND on a performance basis. The pricing of
For example, let’s say a corporate
REWARDS gross-reach marketing for raising brand
awareness—those full-page glossy
advertiser and a media company ads on the back of top magazines, for
agree on a fixed price for an ad—the “Controlling (measurable return) is example—will remain distinct from
success-independent variable—and a much more involved in the media models that will require information
schedule of additional payments based purchasing decision than before, so systems to quantify tangible returns. In
on subsequent sales data (the success- we pass that pressure on to our agency this setting, the relationship between
dependent variable). This arrangement and the media providers,” says the the CIO and the CMO has never been
can be further developed to incorporate media director of a leading telecommu- more important; the data collected and
more complex payment schemes that nications company. analyzed by the former ensures that the
include discounted rates on subsequent latter can develop profit-driven market-
advertising if the campaign fails to A company’s data collection and analyt- ing strategies.
deliver. ical capabilities will drive its ability to
identify the attributable success of indi- The demand for these new models
This model allows all parties scope vidual campaigns and therefore put it is already here. What is novel today
for greater creativity and complexity in a stronger negotiating position with will become standard across more
in price negotiations. Ad pricing is advertising agencies and media compa- and more market segments. To thrive,
no longer limited to market-reach corporate advertisers, agencies, and
statistics to determine cost; it is linked media companies must understand the
to actual performance data. A number new complexities and opportunities of
of large European media companies pricing advertising in the profit-driven
are starting to pilot these agreements marketing universe.
in their traditional print businesses.
This innovation through new pricing
models is one of four viable strategies
for future print-media success that
Booz & Company has identified.1
Booz & Company 3

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Contact Information
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