Wal-Mart Calls for New Kind of Online Auction

Discussion
May 10, 2006
George Anderson

By George Anderson


Retailers have used the online auction process to drive down costs of all types of products they purchase for internal use as well as sale to consumers, so perhaps it should come as little surprise that Julie Roehm, senior vice president – marketing communications for Wal-Mart, is calling for a similar type of system to be tested for purchasing and selling television advertising time.


According to a report by Ad Age, Ms. Roehm is asking advertisers to contribute to a $50 million fund to test the concept. Among the consumer marketers likely to participate in the test are Hewlett-Packard, Masterfoods, Microsoft, Philips and Lexus.


Ms. Roehm is looking to get a large number of advertisers to participate in the test. “A hundred advertisers would be great,” she said. “Maybe it’s 200.”


The proposal by Ms. Roehm is not new. She first began pushing for it two years ago when she was a marketing executive at Chrysler.


Advertisers are looking for more transparency when it comes to media buys, especially in the area of upfront purchases. The Association of National Advertisers (ANA) is playing the role of facilitator in moving the proposed auction test forward.


There is interest among online auction sites, most notably eBay, to participate in the advertisers’ test.


The online auction giant proposed a system that would allow advertisers and/or their agencies to look at inventories of available commercial slots based on network, timeframe or a variety of audience demographic attributes.


Auctions could proceed in two ways: either as a forward auction where bids are made by advertisers or their agencies on available inventory; or a reverse-auction system where networks and other media sellers could respond to bids by advertisers or their agencies based on criteria detailed by the buyer.


No decision has been made on the technology partner in the test, although Ms. Roehm was impressed with eBay’s presentation calling it “a really good solution.”


Not every large advertiser is convinced that auctions are the way to go. Many of the largest media buyers are happy with their ability to work out low prices through the current system.


The major television networks are also not looking to promote online auctions as a means to make media purchases. None of the major networks participated in the ANA’s panel discussion of the topic.


Moderator’s Comment: What are your thoughts on an online auction system for purchasing television and other media? Will a system of forward or reverse
auctions benefit larger media buyers and hurt smaller marketers? How well have online auctions worked for retailers and suppliers for other products and services?


It should be noted that while Julie Roehm is promoting the test of an online auction system, which suggests her company would participate, Wal-Mart has
not officially pledged to participate in the project.
– George Anderson
– Moderator

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11 Comments on "Wal-Mart Calls for New Kind of Online Auction"


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Daryle Hier
Guest
Daryle Hier
14 years 9 months ago

Performance based advertising – what a concept! Since essentially it doesn’t exist, I like Wal-Mart’s effort. Most ad agencies sell the client not the product and WM knows this. WM understands the waste that goes with advertising agencies and is trying to force real production coupled with reducing useless expenditures.

Large advertisers would probably benefit most although I agree it could help everyone. Anything is better than the current system and WM should be applauded.

Jeff Weitzman
Guest
Jeff Weitzman
14 years 9 months ago

Auctions of non-commodities, and I agree with Don that media time is not a commodity, should work best with sophisticated buyers and lots of information about the asset. If you think about TV upfronts, the pieces are in place: elaborate presentations of new shows, sophisticated buyers, lots of audience demographic information, historical performance figures, etc.

The missing piece at the present time is that TV advertising rates have continued to climb even as audience numbers on the major networks have steeply declined. That either indicates that network advertising is still undervalued, or that there is a price bubble. If the former, TV execs should jump all over an auction format. If it is the latter, they won’t touch it.

Warren Thayer
Guest
14 years 9 months ago

Buying TV time has always been right up there with those things you should never watch, like making sausage or law. Pretty nasty stuff. Adding transparency like this certainly wouldn’t make it worse than it is, and might help level the playing field a little. I checked off “auction companies” as the ones to benefit most from this, but when all is said and done I suspect benefits will trickle down to all about equally. Conceivably, it could do the most for the smaller and more naive advertisers, who don’t know the ropes or how the game is played, and can get ripped off easily. If Wal-Mart wants this to happen, it will happen.

Franklin Benson
Guest
Franklin Benson
14 years 9 months ago

I think that if the lowest bidder always wins, the seller will wind up with a lot of broken contracts, poor execution, and dismal content.

Price isn’t everything.

Mark Lilien
Guest
14 years 9 months ago

Since large advertisers spend more, they have the most to gain. The auction method might save them money, but a united buying group would save them even more. Pay-per-click has strong growth because it’s performance-based and performance-priced. TV, radio, print, and outdoor (billboard) advertisers would be more likely to spend more in those media if they were performance-based and performance-priced too. I doubt that ad agencies would favor a united buying group or auctions since both might cut their income. If auction-participant retailers bid aggressively against each other, the media might be the real winners while the retailers lose. That’s why a united buying group is the optimal retailer strategy. Retex (www.retex.com) is the largest non-merchandise retailer buying group, but their traditional focus has been systems and telecommunications.

Don Delzell
Guest
Don Delzell
14 years 9 months ago

The eBay process, as described in news reports, appears to provide a great deal of the structure that an auction of this nature would require. At the core, in order for auctions to be effective, there must be universal access to information about the commodity being auctioned. The information about the commodity must be sufficient to allow the various participants to assess its value relative to their own needs.

eBay acknowledges that media time blocks are not actually true commodities. The matrix of value created by the details of who is watching, when, and with what affect make reverse auctions improbable. I am perplexed, however, by the benefit to WM. I can see how a niche marketer might benefit, with the valuation of the block worth more to them to to others, and thus limiting the competition and driving the price down. But to a mass merchant, who, I think, will be playing in a very broad and very competitive field…I don’t get it.

Herb Sorensen
Guest
14 years 9 months ago

This will become relevant also to in-store advertising as the metrics for that advertising become more standardized, rational and comparable to traditional media metrics. For example, Wal-Mart is not only a media buyer (network television, etc.) but owns the world’s largest audience (in-store) and will be selling their own audience more than buying others.

Bernice Hurst
Guest
14 years 9 months ago

Let me make sure I understand this. If the auction pushes down the price of buying TV time, presumably advertisers would be able to spend more money on producing their ads? Quality would go up? They might be more interesting and informative? ORRRR quality and content would also go down, along with the price of the time, so corners and costs could be cut everywhere. So television companies make less money, advertisers spend less money and consumers benefit how? Sorry. I have failed. I have not made sure I understand this at all.

James Tenser
Guest
14 years 9 months ago

Herb makes an interesting point that I’d like to expand on a little.

Wal-Mart’s in-store video network reportedly reaches a larger unduplicated weekly audience than any broadcast TV channel. But in-store media are still struggling to establish their value proposition. What’s a gross rating point worth in an in-store environment? While there are several reasoning-based approaches to the answer, a perfect trading marketplace might be the most efficient way to establish that value.

I imagine the implications of this are not lost on Ms. Roehm as she guides her company’s strategy as both national advertiser and national medium.

Camille P. Schuster, PhD.
Guest
14 years 9 months ago

Would forward auctions really be much different from the up-front buying season?

Kai Clarke
Guest
14 years 9 months ago

Hooray for a great concept! There is too much intermediation, which drives up the cost of advertising time. Now, folks can shop directly with the providers, on their own time, and determine what, and when it makes sense for them to advertise, and what the price should be. This will start the “Priceline” revolution of advertising which will also give eBay one more outlet to push efficiencies in a channel which has long survived amid an archaic system of intermediation and inefficiency.

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