For at least fifty years, TV advertisements have been ordered randomly within commercial breaks. But owing to the spread of digital video recorders, or DVRs, that allow users to blip past the ads in fast-forward, a new study from the Fuqua School of Business says it's time to change this business model to maximize ads' effectiveness.
"Think of two very different ads: the iconic Coca-Cola polar bears commercial, and a commercial for 'natural male enhancement,' " says Kenneth C. Wilbur, assistant professor of marketing at Duke and the study's coauthor. "The Coke ad will keep the audience glued to its screen, but the other ad will annoy some viewers, causing them to fast-forward or switch the channel. If the Coke ad is placed first during the commercial break, it still delivers most of the audience to the second ad. But if the Coke ad is placed second, it gets a significantly smaller audience."
To account for these types of ad-sequencing issues, the researchers have developed what they call the Audience Value Maximization model. This new algorithm shows how to select, order, and price ads optimally based on a mathematical formula that considers advertisers' willingness to pay and viewers' propensity to switch channels during commercial breaks.
"Television networks historically have managed and sold advertising time. We propose a fundamental shift, with networks managing and selling the truly scarce resource in this industry: viewers' attention," Wilbur says.
Advances in Advertising
November 30, 2009