Marketers worldwide are moving to addressable, response-enabling channels. Good news -- and a major challenge.
The new year brings good news for interactive marketing. Chief marketing officers (CMOs) in five leading national economies say they'll increase this year's spending not only on Internet marketing but also on direct mail and direct-response media advertising. They'll commit less to general media advertising and public relations and will keep sales promotion flat. Marketers are turning to channels that can be addressed and capture responses.
Although total spending in 2003 will grow only a modest 3.3 percent this year over last, allocation of that total shows a substantial shift, according to a just-released survey of 727 CMOs in the U.S., U.K., France, Germany, and Japan. Specifically, Internet marketing will be the biggest gainer with an expected year-over-year increase of 11.7 percent, upping its share of the total marketing expenditure to 7 percent in 2003.
Direct mail spending will also outpace total growth, slightly, with a 3.5 percent year-over-year increase, pushing its share of total spending to 13.3 percent in 2003. But the global average masks national strengths. Specifically, declines in the economically depressed markets of Germany (-0.9 percent) and Japan (-2.5 percent) obscure strong year-over-year gains in the U.K. (6.8 percent), France (5.7 percent), and the U.S. (4.9 percent).
The disproportionate growth of digital marketing and direct mail over two years is even more dramatic. From 2001 to 2003, spending on Internet marketing will increase 19.1 percent and direct mail spending will increase 7.4 percent, compared with 3.9 percent total growth. Trailing the total, media advertising and sales promotion will post 1.6 percent and 1.4 percent increases; PR's expected 4 percent growth over the two years is exactly on par.
In addition to online marketing and direct mail, direct response advertising (DRA) within the media advertising category will post good growth this year, while general brand advertising as a portion of total advertising expenditures continues its slide. The study defines DRA as:advertising whose main purpose is to generate a specific and fairly immediate customer response such as a direct order, a qualified sales lead, an information request, or a visit to a store or website.
Such response-enabling advertising is expected to grow year-over-year from 33.7 percent to 35.7 percent of all advertising spending, and growth is occurring in all five countries. DRA in the U.S. will post the highest year-over-year share-of-budget increase, jumping from 42.4 percent last year to 45.5 percent this year. Even DRA in the U.K., an already high 53.9 percent in 2002, will ratchet forward another 0.7 percent to 54.6 percent in 2003. At the other extreme, Japan, despite an economic depression, will increase DRA spending by 0.3 percent to 6.1 percent of total advertising spending in 2003.
The trend is clear. Marketers in the year ahead will move dollars into channels, digital and analog alike, that are addressable and response enabling. Similar shifts occurred in the past in response to sharp downturns in the overall economy with the aim of producing immediate results. Respondents to this survey, in verbatim comments, and the report's authors suggest three longer-term reasons for the reallocation.
First, these channels work harder. They not only stimulate desire but also enable behavior. It's not just channels as such. Companies' improved data capabilities enable them to use these channels to achieve improved dollar-denominated business results.
The superior cost efficiency of these channels, simply as delivery systems for getting specific messages in front of more of the right people more often, was also frequently mentioned as a reason for the shift in allocations.
Finally, some respondents cited the importance of addressing the customer directly. These channels enable a style of treatment that's specific, immediate, and intimate. Desire for such directness was particularly prominent among German businesses, among respondents in the automotive, hotels/tourism/leisure, and consumer-durables sectors, and in explaining increased spending on direct mail.
Online marketing will, as indicated above, be the biggest beneficiary of this allocation trend -- but all is not peaches and cream. As the report properly notes, the large relative growth in digital spending is occurring on a small absolute base. It also explains this spending is split among online advertising, marketing Web sites and extranets, permission-based email marketing, and, more recently, wireless services. In a few markets, interactive television as well.
The path forward should be clear. Clients are reallocating marketing budgets, spending more in channels that promise superior effectiveness, efficiency, and, in some cases, directness. To leverage this trend, agencies must deliver those business goals, not merely tactics that enable them. The end game should be to meld all forms of digital communications, direct mail, direct-response advertising, and all other addressable and response-capturing channels into an always-on, two-way flow between companies and customers.
All information systems promote coupling. Just-in-time inventory, for example, couples manufacturers to suppliers. Coming from the other direction, build-to-order systems couple manufacturers to their distributors. A stock price published on the public ticker tape couples buyers and sellers; in insurance, actuarial tables align risks and premiums.
The addressable and response-enabling channels of the marketing function have a distinctive opportunity. The capabilities are available, if harmoniously harnessed, to create and unlock the potential of tight coupling between companies and customers. Indeed, tight coupling is what information systems have to offer. If you don't want that, you shouldn't be in the game.
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Wednesday, July 23, 2014