The Web has proven to be a cost-effective medium for both traditional and dot-com advertisers. And over the next few years, it should continue to play an increasingly large role in the media mix of many advertisers. Those were the conclusions of a Morgan Stanley Dean Witter (MSDW) report published a few weeks ago on the effectiveness of the Internet as a marketing vehicle. Additionally, the report predicts that online media pricing will continue to decline slightly over the next year.
The report also notes in passing that the top traditional American advertisers spent less than 1 percent of their 2000 ad budgets online, leaving dot-com advertisers to dominate Internet ads. It attributes this imbalance to the fact that traditional advertisers still lack faith in the new medium’s effectiveness.
However, another major factor comes to mind: Advertisers generally allocate their dollars based on their agency’s professional recommendations.
Minding the Bottom Line
It is important to recognize that ad agencies have two main business objectives:
- To serve their clients to the best of their abilities and generate ROI
- To increase their own profits and, in many cases, maximize shareholder wealth
As is the case with any business, providing services to clients and maximizing profits are the keys to success.
MSDW found that a major reason advertisers are not allocating more ad dollars online is because their agencies do not stress Web marketing enough, due to traditional advertising’s significantly greater creative and ad-placement costs. It is only natural for an agency to push its most expensive services in the name of greater margins.
According to the MSDW report, the online ad world functions differently, in that media buying and creative production are less expensive but just as effective. Additionally, online media allows for the possibility of a much-quicker turnaround time for production. A recent industry trend is that interactive agencies tend to generate greater gross profits from their commission on media buys than on creative production, even though margins on creative production are still far greater.
Balancing Spending Ratios
Therefore, an ad agency with both traditional and interactive services will normally push clients toward traditional advertising because that’s where margins are highest. Not to knock the value of offline media, which has proven itself for decades, but it’s obvious that traditional advertisers’ online-to-offline spending ratios are not as high as they should be. Agency motives are a big reason for this trend, which will likely continue for a few more years until the online market stabilizes, allowing for ad-production costs and online media pricing to climb again.
For this reason, it is important that clients take a more hands-on approach with their agencies by understanding media allocation and the rationale behind it. Although last year’s negative press and dot-com failures have deterred advertisers from leveraging their presence on the Web, industry types know that it is one of the most cost-effective and measurable mediums out there.
The online advertising industry is well on its way, but it still has a long way to go before it becomes a staple in a company’s media plan. Internet marketing should and will most likely play a more substantial role in many advertisers’ media plans, but the agency’s influence will be a key factor in helping the industry progress.
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