New Web ad model taps flexible pricing system

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Orb to measure costs based on impressions, click-throughs, leads or sales

If Andrew Pakula gets his way, the current debate over Web ad prices will soon be meaningless.

Mr. Pakula's Web rep firm, Orb Communications & Marketing, New York, whose clients include AT&T's Downtown Digital and MovieFone's MovieLink, is proposing a new Web ad model that calculates an ad's price based on the value of the product advertised and the amount of interactivity the marketer wants. Under the system, called AdMetrix, each ad is priced individually; there's no set rate card.

"It really is a different approach for different advertisers," Mr. Pakula said. "A car company may have a different response rate and buy rate than a package-goods company."


Advertising on the Web today is generally based on a cost per impression. Most sites charge advertisers the same per-impression ad rate; few will charge based on click-through, claiming it devalues the site and makes the surrounding content worthless.

What Mr. Pakula proposes is a solution to the accountability problem that vexes so many Web advertisers. If the Web is such an accountable medium, they ought to know exactly what their return on investment is. Pricing based on impressions doesn't do that.

"We need to see more advertisers participate in this medium," Mr. Pakula said. "We think they're [not there] because they don't see the return" on investment.


Orb will work with an advertiser to determine what type of response the advertiser would like to measure: impressions, click-throughs, leads (prospective customers) and even sales. Once that's decided, the advertiser must next supply the value of the product or service being advertised, the gross margin and the media dollars needed to sell the product or service.

An automaker with a car valued at $26,000, a gross margin of $13,000 and a per-product media allocation of $2,600 would pay .026¢ per impression, based on 1 million impressions. If the site's ad click-through rate is 4%, the per-click price is 65¢.


Agency executives who have heard the Orb pitch say it makes sense for advertisers.

"If we consider a successful interaction someone clicking on our page we can [purchase ads] that way. If we consider a successful interaction someone filling out a survey, we can do it that way. That's what's most appealing about it," said Rob Meder, assistant account executive at BBDO Worldwide, New York.

Flexible ad pricing could pave the way for more marketers to try Web advertising, said Steve Halbreich, marketing director at L'eggs Products.

"I'm not at this point 100% convinced of the value of advertising on the Web," he said. But a model that gives marketers a lot of flexibility is "most definitely" more meaningful.


Although Mr. Pakula said the model works for media sites, some aren't so sure.

"I'd be willing to try something out for a week or two, but it's not our strategy to go per-click," said Vincent Grosso, president of Downtown Digital. "What's good about the AdMetrix model is identifying the advertisers that would be appropriate for the Web."

Sample ad prices:

Product value: $300
Cost per page view: $0.006
Cost per click-through: $0.15
Cost per lead: $8
Cost per sale: $30

Product value: $2,000
Cost per page view: $0.040
Cost per click-through: $1
Cost per lead: $50
Cost per sale: $200

Product value: $26,000
Cost per page view: $0.026
Cost per click-through: $0.65
Cost per lead: $33
Cost per test drive: $650
Cost per sale: $2,600

Note: Factors that can vary ad prices include product's gross margin and media allocation, the ad banner's click-through rate and the marketer's chosen action level. Source: Orb Communications & Marketing, New York

Copyright May 1996 Crain Communications Inc.

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