Traffic Cost Inflation, Coming to a Marketing Budget Near You

A large part of the marketing battle has traditionally been fought over traffic versus impressions. The more people exposed to the marketing, the better. So to improve marketing results, marketers typically bought more traffic.

In an age of media fragmentation and customer control, this approach works less well each passing minute. It simply costs more to reach fewer people.

Tomorrow’s successful marketers must find a way to do more with less traffic.

TV Packs Less Punch

According to a Forrester poll conducted in partnership with the Association of National Advertisers (ANA), television, mass media’s golden child, is losing its luster. Some even say their TV ads are tanking.

Of 133 advertisers who control over $20 billion in advertising, 78 percent feel TV advertising’s potency has declined since 2004. When DVR penetration gets above 30 million households, 24 percent will cut their TV ad budgets at least 25 percent. They’ll reallocate that money to online and other channels. More than three-quarters will invest more in Web advertising; almost 70 percent will spend on SEM (define).

Offline, media fragmentation is taking its toll. Though demand drives price, mass media ad prices are unlikely to decrease. It costs the same to operate a TV station, cable outlets, radio stations, and magazines, regardless of audience size.

Online Prices Go Up, Up, Up

Demand for online advertising is driving prices skyward. Even the most efficient online marketers are feeling the squeeze.

Last month, Mark Vadon, CEO of Blue Nile, was interviewed by Jeff Matthews for his blog. Here’s what he had to say about traffic cost inflation:

To give you perspective, in our top five keywords, our cost per click was up over 80% compared to a year ago…. I think, if you follow our business, you know that we monetize Internet traffic for jewelry better than anybody in the world, and… there’s some people out there who are deficit spending and perhaps are back to the mentality of 1999….

So an important matter is how well you can convert…. You’re going to see more paid search placements today than you did a year ago.

Furthermore, as more companies advertise on search engines, the value of the incremental customer is dropping: And as there’s more people there competing for the same traffic…. So what that results in for merchants is downward pressure on the value of those customers.

Do the Math

According to Mary Meeker at Morgan Stanley, U.S. advertising spending in 2004 looked like this:

Medium Spending ($B) Households Spending Per Household ($)
Promotions 101 99 1,022
Direct Telephone 91 105 865
Newspapers 48 72 674
Direct mail 51 99 514
Broadcast TV 45 108 416
Radio 20 60 334
Cable TV 18 74 240
Magazine 21 99 216
Yellow pages 15 99 151
Internet 10 66 145
Total 420 881 4,577
Average 42 88 458

Undoubtedly, the Internet traffic and online advertising today are cost-effective compared to many other choices. Consider newspapers, a medium that reaches slightly more households (and is declining in reach) than online. Ad spend on newspapers was over four times that of online in 2004.

How much longer will it take for online ad costs and spend to catch up with newspapers? Could your company absorb a fourfold increase in its advertising budget for the same amount of traffic?

It may not happen today, but it will happen.

Insult to Injury

According to‘s “State of Retailing Online,” average online conversion rates for 2002 through 2004 were 3.2 percent, 2.4 percent, and 2.6 percent, respectively.

It doesn’t take an accountant, or even a science calculator, to see the effect of this on your current marketing ROI (define) equation. The mass marketing model, a model that’s even been adopted by online marketers, is clearly busted.

Consider, too, that compared to 2002, today’s sites are better designed and more usable, technology’s improved, and more companies use Web analytics and testing technologies. People are more confident buying online now, too. We have a better body of best practices, and, despite all the technologies that assist marketers, conversion rates are still limp. Maybe we’re looking for answers in all the wrong places.

Hope for the Future

The marketing battlefield has moved. Yesterday’s mass-media and traffic-building generals have considerably less firepower. You can no longer blast your messages into the minds of an unwilling, uninterested populace.

Conversion and persuasion are the future of marketing. Marketers must focus more on relevance, empathy, genuine customer experience, and relationship. Marketers must seek to communicate customers’ way, enticing and persuading instead of interfering and interrupting their lives with meaningless ads.

Tomorrow’s successful marketers will learn how to be found instead of shouting at people through pop-ups and obnoxious ads. They’ll know more about people and what makes them tick than about marketing technology. They’ll be the ones who can better plan a customer’s interaction with their company and products, giving her the information and resolve she needs to move through every step of the buying process. And they’ll plan marketing scenarios rather than today’s buy-and-blast approach.

Technology can’t replace the hard work of true marketing and persuasion. There is a better way.

Tell us: what you are you doing to be ready for tomorrow? It will be here sooner than you think.

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