63. Online Advertising
Advertisers love interactive marketing because it is more effective and more targeted, while also being less expensive than traditional media. Even big brand advertisers are aggressively pursuing interactive media. Kimberly-Clark launched Huggies Pure and Natural diapers without TV advertising to reach a more targeted audience of digital moms.1
An important question to ask as you evaluate where to spend your marketing dollars is: “What are the most effective ways to advertise online and what kind of results should I expect?” The following topics describe the most popular forms of online advertising and new media advertising.
Display Advertising
Online advertising skyrocketed in 2000, reaching $8.2 billion, then dropped with the dot-com bust, and leveled out at $7.3 billion in 2003. Since then, the pace of display advertising has been growing and is expected to reach approximately $12 billion in 2010. Display advertising, including online video, is expected to grow 17 percent CAGR to reach nearly $17 billion in the U.S. by 2014.
Display advertising is comprised of contextual ads, static images, rich media, and online video. It can be purchased in a variety of sizes, including banners, rectangles of various sizes, skyscrapers, buttons and more. When a user clicks on the display ad, they are linked to the advertiser’s Web site or a microsite landing page designed specifically for the advertised offer. To view results on some of the most popular sizes, visit the AdRelevance section in Nielsen Media’s Web site (www.adrelevance.com). The use of rich media in display advertising is used in about one-third of all display spending because it increases user engagement and leads buyers through the purchase process.
Reports on consumer preference for online advertising results vary widely. Seventy-nine percent of users say they click on ads, and 26 percent made an online purchase as a result of clicking on an online ad. Incentives like coupons and contests drive interest. Forty-seven percent say they participated in online contests or sweepstakes during the past 12 months, and 31 percent said they use online coupons.2 Incentives also play a big role in social media. Of the people who said they follow a brand on Twitter, 44 percent say access to deals is the primary incentive. Results are similar on Facebook and MySpace, where 37 percent say they “friended” a brand to get access to special deals.3
Marketers are eager to invest in performance-based media buys that are measurable compared to other types of ad spending. Forrester reposts that marketers currently invest 60 percent of display advertising budgets in pay-per-click buys versus impression-based buys, and will continue to do so because it is easier to measure ROI.
Sponsorships and Affiliate Advertising
Web sites that promote products and services online for another company participate in affiliate marketing. Affiliate marketing is a very cost effective way for companies to reach potential buyers who match their target audience because it is similar to adding a sales force, but without the expense. Affiliate marketers earn a commission when a buyer makes a purchase or takes action. Typical payment structures are Cost Per Lead (CPL), Cost Per Action (CPA), and revenue sharing, which is what the affiliate earns as a percentage of the purchase. Affiliate fees generally range between 5 percent and 20 percent and may vary based on the volume of purchases made.
Amazon.com is probably the most well-known affiliate program, because it was one of the first to ever be established. When a business promotes select books on their Web site that are relevant to their business, they might feature a link to Amazon.com. If the user buys a book as a result of a link from the site, the company earns 6 to 15 percent of the selling price.
Affiliate programs are booming as more businesses pursue affiliate marketing as a key component of their strategy. The referral fee is akin to paying a sales commission but without the hassle and expense of hiring and managing a sales force. Another advantage is the extended brand presence created by affiliates.
Affiliate programs require good tracking software to track leads and sales made by each affiliate. For this reason and others, companies may choose to work with an affiliate network. Large affiliate networks usually provide tracking, reporting, ad hosting, and the ability to engage a large number of affiliates. Affiliate networks act as a third party between the merchant and the affiliates, and they usually charge businesses a percentage of the commission earned by affiliates.
Sponsorships can be an effective way to position your company’s products and services on Web sites that feature a synergistic product or target the audience that you would like to reach. Sponsorships can be purchased on news, finance, entertainment, and a variety of special interest Web sites. The sponsor pays a fee and receives acknowledgment in the form of advertising or promotion for paying a fee to sponsor an event, a service, content such as a report, or other service. For example, a financial services business might be interested in sponsoring part of a financial news Web site. If you market a consumer product targeted to women, you may wish to sponsor content that will reach a large number of people in your target market, such as the Oprah Web site. Or a manufacturer of golf clubs such as Calloway might purchase a replay segment of the PGA tournament on a news or sports Web site. There are many different types of sponsorship and each is unique in terms of the benefits rewarded to sponsors.
Ad Exchanges
One of the best opportunities in digital advertising has been the proliferation of advertising exchanges. An advertising exchange is an auction-based platform that allows buyers and sellers of online advertising to transact directly with one another. This highly flexible business model allows advertisers to more effectively purchase and target their advertising by buying inventory based on their impressions in real-time.
Another benefit is the flexible pricing model. Instead of negotiating lengthy contract terms and making purchases on a cost-per-thousand basis—a process that has been in place for decades—advertisers can set variable prices for certain types of inventory and different types of target markets, which provides for more specific targeting.
This completely changes the game with respect to buying a certain program or time slot and paying a set rate. Advertisers can align pricing to the target market impressions and anticipated return.
This is good news for both advertisers and for ad exchange portals like Google DoubleClick, Yahoo! Right Media, AOL’s BidPlace, Microsoft AdECN, and others that are eager to tap into this emerging market. As marketers demand more and more performance-driven marketing investments, budgets will no doubt shift to those with measurable returns.