Thursday, January 11, 2007

The average marketing spend online is completely misleading

Remarkably, three years on from this piece being published in Marketing Magazine, the digital 'don't get its' are still a big force in marketing.  Their competition are running away with the silverware, whilst the slowcoaches chase the average.

Imagine you’re standing in a pub, and Bill Gates walks in.  Immediately, on average, everyone in the room becomes a millionaire.

This week’s Bellwether Report from the IPA once again showed substantial growth for online marketing, with 36% of companies reporting an upward budget revision –  the sharpest gain since Q1 2000.  But whilst average spend is growing, this is belied by an emerging division between the digital ‘get its’  and the digital ‘don’t get its’ which is leaving many out in the cold.

This quarter’s result is no flash in the pan – digital has in fact got a much more solid record of growth than the average for all marketing expenditure.  The study shows only one quarter in the past seven years with negative growth for digital, compared to 17 quarters where budgets fell for marketing overall.

There are two principal attractive features of online to the marketer.  You can tell what works, and you can tell what doesn’t.  Accountability has driven success, and success has driven further investment.
But it’s not as simple as it at first appears.

There are dozens of different weapons in the armoury of the online marketer.  Banners, paid inclusion, paid for search, organic search, trusted feeds, affiliates, distribution partnerships, tenancies, aggregators, directories, rich media, video, email, behavioural targeting, social networks, wikis and blogs to name a few (phew).

Measuring the impact of each of these is (relatively) straightforward.  Gauging the impact they have on each other is tougher. 

The purchase process for most items has become more complex with the addition of the internet.  Once upon a time, we wanted a dishwasher.  We went to John Lewis, and they told us which one we could afford.
Now, we check manufacturers’ websites, product review sites, blogs, price comparison engines.  We go and look in a store, then we order online from a different retailer.  We might even record our experience in a blog – especially if it’s a poor one (although we should remember it’s not as interesting as we think).

All sorts of media touch us in this process, and many of the different digital marketing tools influence that decision.  But which?  And to what degree, and in what combinations?

The commonest mistake (not entirely discouraged by many search operations) is to attribute the sale to the last touchpoint – usually search.  But of course, we know that display advertising (both TV and banner ads) affect search volumes – and in some cases the ratio between generic and brand searches (“dishwasher” vs “AEG”).  This is important, because brand searches are often more cost effective.  So understanding how to use media channels together is critical to maximising the effectiveness of each.

But it’s not just between channels that interdependencies exist – this happens within and between the tactics employed in a channel.  Many advertisers cap the cost per acquisition they’ll pay in search activity.  This often severely limits the spread of keywords they can buy – some will look far too expensive, driving too few sales.

But these expensive keywords aren’t necessarily about direct acquisition.   Their role is to participate in the early phase of the purchase process – getting your brand on the consideration set so that later (cheaper) searches for other terms will convert for you.  This isn’t obvious, and it isn’t easy to track.  But it can be measured, and it does work.

The Bellwether Report tells us that a record 17% of marketers spent over 10% of their marketing budget online, and that the average was 5% spent online.  But 40% spent less than 1%.  So that average figure of 5% of marketing budgets going online (the figure equates to around 11% of media budgets) is misleading. 

What’s really emerged in the market is a polarisation.  A substantial number have committed significant resources to making a success of online business, whilst a larger number have done little or nothing.  And as time goes on, the bar is being raised as the techniques employed become more sophisticated.
It’s never too late to get started, but it gets tougher every day.

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