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Monday, December 21, 2015

The Endowment Effect in Television Advertising

Those of you who have studied Consumer Behavior, Psychology, or Behavioral Economics are undoubtedly familiar with what is known as “The Endowment Effect.”  Quite simply, it occurs when a person or persons ascribe more value to things merely because they own them.

A few examples might include when a couple decides to sell their home. Their realtor may give them an estimate based on similar homes in the same zip code but the owners insist that their home is special and deserves to be premium priced. Used cars are another great example. A seller explains that his/her old car is a “cream puff” that was beautifully maintained and has mysteriously low mileage. Selling something on e-bay? The odds are good that the owner believes her collectible is going to fetch a top price after a lively bidding war.

Over the last few years, I have come to believe that, in television advertising, the endowment effect, is beginning to wane. Historically, literally going back 60 years, media planners and negotiators always took the attitude that one “pays more to get more.” In other words, you paid a higher cost per rating point for a spot with a 15 rating than one with a three rating. The appeal was that the 15 rating reached a larger unduplicated audience so you were willing to pay a premium, often significant, to get that substantial audience all at once. The Super Bowl remains an outstanding example of this principle as it consistently delivers 44-45% of US TV households each year, and importantly, commercial attentiveness is higher for The Super Bowl than any other TV event.

The problem is that today there are few things out there that even deliver a fourth of The Super Bowl’s audience. And, commercial avoidance via DVR’s, Netflix, Hulu, or simply using the remote, is at an all time high and gaining ground. So, even if one buy’s one of today’s top rated primetime show (assume an eight rating), many will tape the show and edit out commercials as they watch it. The advertiser has paid a premium for the large audience but what are they really getting in terms of attentiveness?

Separately, there is the issue of sports programming. Sports has always been premium priced on a cost per potential eye ball basis. While it varies by telecast and quality of the audience, let us use a 20% premium as a benchmark for advertising in a sports vehicle.  Today, some people tape football games and play them back. The average game has 12-13 minutes of action. Do people dutifully watch commercials or listen to sometimes inane commentary when playing a game back? It would appear to be highly unlikely. On fall Saturdays when college games are broadcast, it is not unusual to have seven games playing simultaneously. Hardcore pigskin fans can jump from game to game during commercial breaks lessening the impact of advertising dollars placed in specific games.

Some have commented to me that my point is well made but it is all relative. In the 1980’s, General Hospital on ABC Daytime was a soap opera that delivered a 20 household rating and was often used by buyers as a primetime surrogate depending on the product advertised. Simultaneously, some late news (WPVI in Philadelphia, for example) also delivered killer numbers that could bring buys in nicely. Today, an eight is the new 20. I see their point but there does not seem to be a lowering of the premium over ordinary fare consistent with the precipitous drop in ratings.

Now, I fully understand that TV costs are determined by the law of supply and demand. So, if media negotiators continue to bid up the prices of a handful of selected shows with either strong numbers or attractive demographics, that is simply the way the market works. Yet, when will it end or slow down? We all know that TV does not work as well as it used to not so many years ago. Measurement of a host of digital options is getting better and better so a shift away from TV may start to pick up speed and soon.

Agency media people continue to give certain aspects of TV an endowment effect that remains on steroids despite crumbling measured delivery and attentiveness. Something has to give.

To Media Realism readers all over the world, may I wish you a very Merry Christmas.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

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