The State of Online Advertising & Marketing
Most top level executives agree that online channels provide the highest return on investment. Yet there are many challenges to creating a successful online strategy. Developing a comprehensive multidimensional online marketing plan can be expensive, time-consuming and organizationally tricky. As a result, many companies are cautious in allocating budgets to the online space. The purpose of this whitepaper is to shed some light on current trends in online marketing and advertising as well what the future might hold for the channel.
This paper explores:
- 2007 Online Big Winners
- Online advertising budget allocations compared to other categories of advertising
- Online budget allocation
- Challenges of moving online
- Elements to crafting a successful online strategy
2007 Online big winners
Internet monitoring firm Akamai reported that three hundred retailing Web sites draw 4.6 million visitors per minute - a three-year record for most traffic in a single day to retail websites. On the Monday after thanksgiving, sites for traditional companies such JCpenney (jcpenney.com), Best buy (Bestbuy.com) and Circuit city (Circuitcity.com) saw their traffic increase by more than eighty percent compared to a normal Monday. Cyber Monday sales exceeded seven million dollars which would make it the heaviest online spending day to date. And while traditional retail stores suffered this holiday season, online retailers reported a surge in sales.
The National Retail Federation (NRF) reported that over 72 million consumers shopped online from home or at work on one of the biggest online shopping days of the year. That's up from 61 million consumers on prior year representing an 18% increase. E-marketer reported 2007 the SpendingPulse figures showed that online sales posted a 22.4% gain over the 2006 holiday shopping season.
.comScore Networks reported that online retail sales rose to a record 26.2 billion dollars in 2007, an increase of 19% over 2006.
2007 Holiday Season vs. Corresponding Days in 2006
Source: comScore, Inc.
Online advertising budgets continue to grow
The online market space is impacting overall competition in the global economy. The numbers speak for themselves: In 2006, online consumer spending in the US alone hit $170 billion. In 2007, US online sales grew by an unprecedented 25% reaching upwards of $200 billion.
As consumers and business spend more online, companies continue to increase their online budgets to keep up. Studies published in 2004 expected online advertising to surpass the 10 billion dollars mark by the year 2010. While correct in its premise, online advertising hit its target much earlier than that. By the year 2005, and five years earlier than the research expected, online advertising reached 12 billion dollars. The online channel has been growing steadily since 2003 and is on track to surpass the 30 billion annual level of spending for the first time in history by the year 2010.
A closer look on advertising budgets
As more consumers and business migrate online, advertisers are following suit. The 2007 Nielsen company report for advertising showed that Internet spending had the strongest performance (+23.2%) compared to any category of advertising. The Interactive Advertising Bureau in conjunction with PricewaterhouseCoopers had similar findings and reported that overall Internet ad spending soared 26% in the first quarter of 2007 to a record 5 billion.
And while companies vary in how much they allocate of their budgets into online advertising, most Fortune 500 companies increased their online advertising budgets by 30% during 2007. However, the increase in online advertising budgets is by no means is limited to large companies. Even traditional media firms such as News Corp, Walt Disney, CBS and Viacom and Time Warner are all bulking up their presence on the Internet. As for smaller companies, most are moving cautiously and choosing to allocate 15% of their advertising budgets to the online space.
US companies spending on online advertising is expected to increase almost 4% in 2008. In comparison, online advertising budgets in the rest of the world are expected to go up 7%. By the year 2010, most companies are expected to allocate close to 32% of their advertising budgets to the online space.
In comparison, old and traditional methods of marketing continue to lose grounds at varying levels to the online channel. Network Radio and newspapers are reporting the worst performance with an overall decrease of -8%. The situation is not a whole lot better for yellow page advertising. Donnelley, the publisher of yellow pages, saw its shares fall twelve percent after the Cary-based company reported a 2.2%decline in yellow pages advertising sales.
Business to Business transactions are starting online
Online space is playing a great role in the case of complex sales where companies are expected to spend millions of dollars to close a transaction. Companies are finding out that they must be where other business [prospects] can find them. In a recent survey of 1500 B2B buyers conducted by Marketing Sherpa, respondents said that they often start searching as far as 90 days prior to making a purchase. B2B magazine’s “2008 Marketing Priorities and Plans” study 79% plan to increase their online marketing budgets.
Once a prospect finds a B2B company, the interaction starts. But that interaction is more than just a mere downloading of a dry white paper or getting product information. Companies are coming up with creative ways to build a relationship, which is crucial since so much of B2B marketing involves a lengthy and complex sales cycle.
Why the move online?
The main factors that are making companies move full steam ahead with online advertising can be summarized as follows:
• Accountability: No other advertising medium offers marketing executives the ability to accurately measure the performance of their marketing campaigns as the online space. This high level of accuracy brings performance based marketing to the forefront of any marketing plan.
• Increase return on investment : There is a high level of agreement amongst marketing executives that Internet advertising methods have the highest perceived return on investment, significantly ahead of any other category
• Following consumers: “The average consumer spends about 30% of their media time online -- that’s why you’re seeing all that catch-up spending,” said Heath P. Terry, CFA, research analyst, at Credit Suisse.
Where is the money getting spent?
In 2007, spending on search engine optimization both organic and paid, made up close to 60% of online advertising budgets. That is a jump from 50% in 2005. Many companies are discovering that it is not enough to drive traffic to their website, it is as critical to convert that traffic into actual consumers or leads. As a result, most firms are increasing their investments in conversion optimization services. Most Fortune 500 companies are dedicating close to 10% of their online marketing budgets to optimization services. By the year 2012, most companies are expected to spend 60% of their online marketing budgets on search engine optimization, 20% on conversion optimization, and the remaining 20% on a variety of online advertising methods.
Challenges of moving online
One of the biggest challenges after a company decides to move online is determining how to allocate their online budget in a way to maximize their return on investment. A survey released by the American Advertising Federation shows that while marketing and advertising commitments are increasingly being carried out on the Internet, marketing executives are having trouble deciding how to best utilize the online channel. The survey indicates that 29% of executives are overwhelmed by the uncertainty of the medium.
91% of respondents to the AAF survey feel the online media environment is a growth area for advertisers. However 58% of respondents believe that companies are struggling to keep up with existing online efforts and not able to take action on what else the online medium has to offer.
Yet, there are many success stories online. Companies such as Burger King, Apple, Verizon, and Volkswagen were all able to launch successful online campaigns that resulted in significant growth in revenue as well as an increase in brand awareness. Room & Board launched its website late in 2007 and was able to generate close to one hundred thousand dollars of its first day of operations. Motorola released its first ecommerce platform in 2006 and saw great success with it as well.
Creating a successful online strategy
It is tough to sell online today. Nobody disagrees with this. The issue is what companies can do about it. The internet changed the way sales are conducted. Prospective buyers find the sellers and not the other way around.
The secret to succeeding online is wrapped up in coming up with an effective online strategy and executing it successfully. The leverages to ensure online success are fairly straightforward:
- Create an online platform that meets the needs of your target clients
- Market the platform using a variety of strategies to drive traffic to your website
- Convert online traffic into actual clients or leads
- Carefully monitor and adjust your online marketing effort to ensure it is meeting predefined key performance indicators
The online environment provides elements that can be controlled, and those that are completely out of your control. You can only plan your online marketing strategy and execute it well. You never know how your visitors, prospects or clients will react to your message. There is no control over their behavior: thus the loss of control. At the same time, powerful tools are available that provide immediate feedback to what is working and what is not working on a website or within a marketing campaign.
Invesp consulting a leader in marketing and conversion optimization services provides practical solutions to help companies craft and execute successful online strategies. Invesp’s approach to Internet marketing provides practical solution to meet the unique B2B and B2C marketing needs.
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