In merely a few years’ time, online advertising has developed from infancy into adulthood. As it has matured, businesses buying online ads have increasingly demanded results through methods such as pay-for-performance pricing. Now suppliers are feeling the pressures of those demands and facing the challenge of the medium’s inherent measurability.
The effectiveness of advertising on the Internet can be quickly assessed by several metrics, including number of visitors to a site, page views, click-through percentages, session lengths, and purchase behavior (pay per purchase). As more businesses have used this medium, they’ve demanded greater accountability for results. In turn, the price of banner advertisements has dropped from a cost per thousand impressions (CPM) of more than $50 to a CPM often less than $5.
So have entrepreneurs and business owners been paying too much for offline, or traditional, advertising all along? It reminds me of John Wanamaker’s oft-quoted lament: “I know half the money I spend on advertising is wasted, but I can never find out which half.” Many experts accept that companies pay for a lot of inefficiency with advertising, but few can say to what extent.
Would offline advertising rates drop significantly if they could be tracked more effectively? Have marketers let offline advertising escape the same level of scrutiny and skepticism that is applied to online advertising media?
Media professionals provide in-depth analysis of offline advertising vehicles by calculating cost per thousand prospects reached, cost per rating point, cost per target, and percentage of vehicle overlap — all to ensure proper and efficient targeting on the front end.
Without a doubt, obtaining this information is critical; however, it doesn’t solve the problem of measuring performance. Market research companies offer several measurement techniques, including pre- and post-testing, to assess advertising effectiveness. Though sensible, the expense and time-consuming nature of these tests often — and mistakenly — precludes their use. Other advertisers resort to simple techniques, such as asking customers questions like, “How did you hear about us?” Although helpful, these techniques are severely limited to who responds, and they fail to address brand perception.
Then there is direct-response advertising, to which online advertising is most commonly compared. It is specifically designed to produce a measurable response or transaction. Many feel online advertising is held to a direct-response standard (most commonly click-through rates), while offline advertising is not expected to be as accountable.
So if an advertisement isn’t eliciting a direct response, what is its remaining value? Often it’s said to “build the brand”; advertisers argue that the value comes from increasing awareness, creating a recognizable image, and developing a reputation for the product or services represented.
Yet does it make sense that offline advertising receives so much credit regarding branding value while Internet advertising receives little to none? Clearly, some media channels offer better branding potential than others. Still, it is wise to hold all advertising accountable and not shy from measuring brand impact. Even if one accepts the direct-response comparison, offline direct-response advertising does not appear to be held to the same tough standards now applied to online advertising.
To hold both online and offline advertising accountable, marketers are left with the challenging task of building closed-loop systems in which each advertising strategy has a set of defined performance measures. This includes assessing the costs to reach the target market prior to developing the advertising plan as well as calculating the actual reach after the plan is executed. Many Web-based advertisers calculate return on investment (ROI) by following the customer from exposure to purchase. Though ROI solutions may not be as obvious offline, disciplined advertisers measure customer behavior by monitoring customer inquiries, revenues, market share, customer-acquisition costs, and brand perception.
Examining the recent drop in online advertising rates, one might conclude that the price businesses are paying for offline advertising is significantly higher than the value they receive. Others would say that this is a hasty conclusion, given the additional branding value of the offline medium, and like any good or service, the price of advertising is driven by supply and demand. In truth, both sides should be taken into account, and we must acknowledge that companies buying offline advertisements are paying for a lot of inefficiency.
The issue remains one of valuation. Online advertising’s perceived value is now subject to results-oriented industry standards such as click-throughs and purchase rates, while offline advertising is typically held to a broader “reach” standard. Management must compare the efficiency and results of its offline advertising purchases to those of its online purchases. By being familiar with overall pricing and effectiveness amid the rapid maturity of online advertising, managers should take a more critical look at their offline media buys.