July 25, 2008: Is Online Advertising Losing Its Luster?

Trends suggest that spending on online promotions will soon surpass spending on banners, search, email and other interactive advertising. Find out why.

There's a seismic shift underway that has considerable implications not only for traditional media, but also increasingly for traditional verticals as advertisers try to communicate better, quicker and more effectively with end users.

Online promotions are beginning to significantly pull ad dollars from online advertising. A recent study by Borrell Associates, a Williamsburg, Va.-based market research firm, uncovered three major trends:

Spending on online display ads (web page banners, pop-ups, etc.) have been flat the past two years and are expected to top out at $12.6 billion in 2008, then decline more than 50 percent by 2012.
Paid search advertising will peak at $16.9 billion by 2009 and start declining.
Online promotions generated about $8 billion in 2007. This category will nearly triple by 2013 to $22.8 billion, exceeding all other online advertising categories, including paid search, banners, email and online audio/video advertising.

"The allure of creating one's own advertising channel is attracting more and more spending, much of which comes directly out of budgets once earmarked for traditional advertising," says Gordon Borrell, the firm's founder/CEO.

Online promotions: a gamble or common sense strategy?
Online promotions can encompass many elements -- contests, giveaways, coupons, sales of half-price gift certificates and more. Bruce Hollander, executive vice president of Melville, NY-based Don Jagoda Associates, an independent promotion marketing agency, says promotions are less of a gamble and easier to control than advertising because of a number of key factors: fast results that can be evaluated; a format based on specific objectives; you can adjust the mechanics if the promotion is not receiving the level of expected involvement; and since "everybody wants something for nothing, you're guaranteed the ability to create a database of names."

Andrew Frank, research vice president, cover advertising and marketing, for market research firm Gartner, Inc. adds: "It's much easier to measure and compute ROI on direct response -- which seeks to drive sales and conversions -- than advertising, which is focused on softer, more indirect goals of branding and demand generation."

But Rob Enderle, who heads up The Enderle Group, a San Jose, Calif. market research company, says that he's not absolutely convinced that promotions are less risky -- just easier to assess.

"Promotions are typically tied to actual sales; advertising is vastly harder to measure. You may never know for sure whether an advertising program is truly successful, but a promotion's success or failure tends to be rather obvious," says Enderle.

As to whether online promotions are more effective, that's debatable; it depends on who you talk to.

The Gartner Group's Frank says the interplay and relative effectiveness of sales promotion versus brand advertising has been a subject of long-standing study and debate in marketing circles.

"Clearly there are certain combinations of goals, products and conditions that will favor one approach over the other, while other times some combination might be the right play," says Frank. "One could say that sales promotion is more effective in driving direct sales because that's what it's designed to do. It's not, however, designed to justify high profit margins."

Whether or not it can proven that online promotions are more effective than advertising, most industry experts concur that they do deliver measureable results rather quickly since promotions are run against specific objectives -- displays, sweepstakes entries, auto entries, database generation, sign up for a newsletter, electronic billing and more.

"Because they have an immediate call-to-action, they are generally quickly measurable," says Hollander.

On the other hand, "with advertising, you generally don't know what made the customer come to you," says Andrew Martin, a research analyst with Borrell Associates. "With a coupon or code, you can easily measure as someone responds and most promotions are time-limited -- the response is directly a function of the promotion itself."

Some online promotions have achieved notable success. Following are a few examples.

Snapshot online promotional campaigns

Marriott International, Inc.
Marriott launched a number of new site features on Marriott.com but customer awareness and use was low because the features weren't immediately visible on the home page. So the hotel chain retained Don Jagoda Associates to create a promotion to increase customer interaction.

The "Marriott Plan & Go Anywhere Game" offered customers an opportunity to win a trip for two anywhere worldwide -- one of more than 1,750 instant-win prizes. Customers had to first register for the promotion and answer a question about one of the new Marriott.com site features, at which point they would find out whether they won an instant-win prize and receive a sweepstakes entry.

The target audience was U.S./Canadian visitors to the Marriott.com homepage. The six-week promotion received 196,944 registrations; total game plays were 537,354; 873,000 sweepstakes entries were received.

Each registered participant played the game about three times. Another key objective was to increase customer trial of the new features -- visitors to the promotion were 70 to 95 percent more likely to interact with these new features in the same session than the average site visitor.

WKRN-TV
The Nashville ABC affiliate wanted to capitalize on the 32 College Bowl games held last year and launched an online contest called "College Bowl Frenzy." The key goal was to increase page views and unique visitors to WKRN's website. Participants had to select which college team they thought would win each game.

The contest offered 15-second promotions on the site before running news and weather clips; promotions included spots by KFC and RJ Young, who were presenting sponsors. WKRN sports reporters also participated in the contest.

According to WKRN Internet Sales Manager Jamie Camp, enrollment was about 50/50 between males and females because it wasn't really necessary to have much knowledge of the specific Bowl game.

"You could flip a coin to determine who you thought would win," says Camp.

Camp added that WKRN.com averaged 16,000 page views for the 1,000 College Bowl Frenzy participants, about 16 views per player per day. The promotion also put the TV station in touch with contest participants "on a more personal level" and Camp now hopes to "build equity" with them for future online endeavors.

P>The local element
Local advertisers have been slow to take advantage of this burgeoning trend because they tend to offer giveaways offline -- they typically feel they have very little means to capture data (e.g., leads) otherwise.

Rob Salerno, president of Online Promotions Group, a New York City-based, lead-generation online agency (core service offering is HollywoodPrize.com, a portal for online entertainment sweepstakes and brand promotion), says that it's true that before firms like his came along, it was very expensive to grab this data on a local level other than through traditional methods -- sign-in sheets, scratch cards/instant giveaways -- and most firms felt the internet had too broad of a reach.

"Anyone could opt-in from across the globe but local advertisers only wanted to target local consumers," says Salerno. "While that problem can never be truly solved online, you can now run online local promotions in which the URL is known to a targeted group of local entrants. Also, people don't read newspapers as much anymore and the attention span of a potential lead is less than five seconds -- promotions are the perfect attention grabbers especially if you have the right tactic, like the internet and mobile, at your side."

So what does this portend for local media companies? Evolve or become irrelevant, says Salerno.

"Why run a local ad and reach a subset of your local target audience when you can reach a larger subset of the same audience online and not substantially increase your costs?" asks Salerno. "Local media was never designed to reach people based on matching interests, motivations or demographics -- it was designed to reach people based on geography. Well now geography is becoming almost irrelevant."

For most, notes Borrell, it will force an adjustment in their product mixes and sales strategies in response to advertisers who are no longer interested in just buying home-page banners. For some, it's already opening new opportunities to exploit the internet to create new revenue streams.

To capitalize on these trends, local media companies must better leverage their knowledge of the local market. Martin says they need to realize that online is not an extension of print; it's not an analog way of thinking. Local advertisers, which tend to be small- to medium-sized enterprises, are also not always completely clear on how they can use promotional spending to their advantage.

"There is a perceived element of risk -- giving away something for less than you normally charge for it, which can be difficult to understand," says Martin. "But short term, you'll spend more on advertising than an online promotion so it raises an interesting conundrum."

Looking down the road
TV may eventually serve as an effective legacy medium for driving traffic to an online promotion but Enderle says this won't happen overnight. The transition from TV to online isn't instant and most of us have limited memories and attention spans.

"At some point you'll be able to link from the TV to the internet and the result, assuming folks do it, should make a big difference," says Enderle.

Public relations will also serve as a powerful ally for online promotions as PR firms are brand sensitive on behalf of their clients and seek to associate their clients' products/services with portals and technology.

"Without PR, online promotions will lack credibility and accessibility as very few media organizations currently believe our industry delivers business value; they rarely cover our stories," says Salerno.

Web 2.0 tools and services like MySpace, YouTube, Facebook and local counterparts in community portals will accelerate this trend as viral marketing and social networking are no longer luxuries -- they are necessities. People sell to people and the success of promotions, says Enderle, often happens via word of mouth -- social networks accelerate this.

"The best review you can get for an online promotion is from one friend to the next," says Salerno. "Sites like Twitter raise the bar even higher because they aggregate people's lives in real time. So since it can be challenging to qualify leads, by leveraging social networks, you're letting them do the pre-screening -- powerful stuff!"

A quote from the Borrell Associates report perhaps sums it up best:

"Advertising makes people want to buy. Promotions make them want to buy now."

Neal Leavitt is president of Fallbrook, Calif.-based Leavitt Communications, an international marketing communications company.

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