Confounded by the complexity of the web?

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A complex system of media owners, ad networks and exchanges is taking online advertising beyond the ’old world’ of page views and cost-per-click. Yet the potential of this for brands is at risk of being lost because marketers lack the technical skills to exploit it. Now is the time to get to grips with the ways of the web.

 

 Pitch’s angle on advertising on the web

Online is the new orthodoxy in marketing, yet for many marketers the inner workings of the web are not well understood.

What is clear is that spending on digital media is growing as a proportion of advertising expenditure, and consumers’ habits are changing too. By 2012, the percentage of people in Europe who use the internet at least once a week is projected to surpass those who read a weekly newspaper, according to data from the European Interactive Advertising Association.

With detailed figures of click-throughs and conversion rates available to demonstrate how users interact with ads – and how many make purchases as a result – the trend of marketing activity moving online is unsurprising. Targets are not only met but seen to be met.

However, as the internet itself expands, so too do the number of intermediaries involved in placing online ads on behalf of brands. As a result, understanding how and where marketing messages are seen on the internet becomes more complex for marketers. There are more cogs than ever within the machine and it is a task in itself to determine what each one does.

Digital immigrants

While many marketers seem pleased with the returns and the accountability provided by online ads, it appears that fewer have intimate knowledge of the process of buying them. Miles Lewis, vice-president of international sales at music site Last.fm, says marketers and their suppliers within media agencies are often not natives of the web environment, and are still learning how to use it. “The majority of planning and strategic buying in the UK and globally is done by people who are ’digital immigrants’, and that is a problem,” he says.

Because of this lack of knowledge, most marketers have to rely on experts outside of the business who do understand the inner workings of online advertising. But the decision about where an advert goes is being passed through several lines of command, meaning that marketers are losing track of exactly where their advert will be seen. As well as marketers briefing their media agencies to buy directly from publishers, advertising is also being placed in increasing volumes by these agencies through ad networks and exchanges, many of which are owned by large media companies.

There is a benefit to this multi-layered approach, claims Nigel Gilbert, chief marketing and development officer of Orange-owned ad network Unanimis. Although marketers might not know exactly which website their ad will appear on, it should be reaching the right audience.

Gilbert explains that ad networks and exchanges are used to identify groups of websites that the brand’s core consumers are likely to visit – the former through a managed service and the latter through a self-service real-time auction.

These networks and exchanges initially began as a means of selling space that publishers had not been able to fill directly, but are now no longer a destination of last resort for media owners seeking to sell space or advertisers seeking to buy it.

Eurostar head of marketing Claire Hutchinson, who oversees how online ads are bought, says buying through these channels has the benefit of reaching highly targeted groups of internet users, but can also have some unexpected consequences because marketers cannot always choose which sites their adverts are going to appear on (see case study on Eurostar, below).

Hutchinson recalls that purchasing through ad networks has previously resulted in Eurostar ads appearing on the website of airline Ryanair. As a competitor, in this case the outcome proved beneficial to Eurostar. However, there is also a risk of advertising appearing alongside inappropriate content, where the website’s audience profile happens to fit that of the advertiser’s target market.

But the advent of ad networks and exchanges has shaken up the market and is providing more options for businesses. Marketers no longer have to rely on traditional publishers, or have to accept low average click-through rates that were once presented as the norm.

Paul Hood, head of digital for Mirror Group’s national newspaper brands, admits that traditional media companies have suffered from complacency born of the early days of web publishing.

Advertisers seemed happy with the 0.01% click-through rate because there was nothing else. If you fast-forward ten years, you see that the advertising ecosystem is pretty complicated

Paul Hood, Mirror Group

At an NMA Live event on online display advertising, Hood said: “Advertisers seemed happy with the 0.01% click-through rate because there was nothing else to give them anything better than that. That was the accepted average. If you fast-forward ten years, you see that the advertising ecosystem is pretty complicated.”

Both Hood and Lewis at Last.fm concur that the growth in online ad revenues taken by publishers has not matched the growth in the market overall, and that one reason for this has been a historic under-investment in audience targeting on the part of publishers, agencies and advertisers. Ad networks have been swifter in catering to these demands, developing targeting and retargeting technologies – the latter allowing ads to be served for types of products that users have previously looked at, thanks to cookies saved on their web browsers.

On the subject of exchanges, Matt Brittin, UK and Ireland managing director of Google, which owns the DoubleClick ad exchange, argues that adding another layer between the advertiser and media owner does add value for both ends of the supply chain: “If we can offer an advertiser an auction in the instant that a page is loading, that gives them the best possible return on that space. And, in old media terms, it gives the media owner the best possible yield on its ad inventory.

“We think that brings value to that media owner, the publisher of the website. It also brings value to the advertiser because with better targeting, the advertiser which bids the most for that space is the advertiser which values that lead most.”

Advertisers are increasingly opting to use these channels to buy space rather than going to publishers directly. Hood, of the Mirror, says prices have been pushed down both as a result of this and of the huge number of websites on which networks and exchanges can place ads.

But brand advertisers may not be taking full advantage of this added competition because instead of relying on expertise, they are depending on suppliers’ targeting software uncritically to deliver the right audience at the right price. Julia Smith, head of the association of Internet Advertising Sales Houses (IASH), told the audience at NMA Live: “I do not know how much planners and buyers are spending on actually planning and buying, rather than just using technology to buy.”

Expertise in targeting online audiences is therefore something that marketers could take greater responsibility for, according to Smith: “Should brands start taking ownership and bring those skills in-house? Potentially, yes.”

A more active interest from marketers might also help ensure that the effectiveness of online advertising is better understood on terms that reach beyond click-through rates. Its ability to raise brand awareness as well as to demonstrate a path to purchase is a topic that is slowly gaining traction.

Motorola interactive marketing manager Marco Ottonello says: “All the experts in the industry now agree that click-through is not the only index to evaluate a display campaign, because there are people that, if they do not click directly, might two or three days afterwards remember and go to the website through Google.”

He adds: “We try to understand the impact generated by an ad, not only through the click-through rate. We also try to understand the increase in traffic.”

Conversely, there is the possibility that some online purchases might be attributed to online advertising when brand awareness generated by other means might have played just as important a role. Eurostar’s Hutchinson gives the example of customers who make a booking after clicking through from a travel website: “It is questionable whether this is an incremental sale or whether that person is someone who would have been on the site anyway and booked Eurostar.”

It is clear that marketers, perhaps under the influence of their finance departments, are sometimes reluctant to take risks with online advertising in ways that might prioritise brand awareness over firmer measures of performance. Jane Nicholson, regional director (UK, Ireland and Nordic) of 2010 Engage Award winner Tourism Queensland, says that in these markets, the organisation would not use online media for simple brand advertising.

“In terms of online, it is about the click-throughs. It is about engagement, and the length of engagement, on the site from those click-throughs,” she says.

However, it cannot be taken for granted that increasing the proportion of ad spend going to online channels will automatically lead to better results – even in terms of click-throughs. Recent data from the MediaMind Global Benchmark study found that click-through rates are higher when users view fewer ads, indicating that the law of diminishing returns might apply to the constant growth in online advertising.

Consequently, marketers will probably need to push for more creative and innovative approaches to online campaigns to avoid future stagnation. One way brands are doing this is by becoming content providers themselves, drawing in their audience through news and entertainment. Some, like Orange, are also providing advertising space on their own websites against this content, with their own ad networks selling this inventory.

American Express, meanwhile, has taken the approach of sponsoring and advertising around online music and guides to particular events – the London Restaurant Festival, the BFI London Film Festival and Christmas Winter Wonderland – on the websites of LoveFilm, The Guardian and Spotify. Banner ads appear against sponsored content that is collected in dedicated areas of the sites and is viewable without the user being directed elsewhere. All of the content also appears in one place on an American Express website.

As well as creating a brand association with these publishers and events – and with the video, audio and editorial coming out of them – the click-through rate has been ten times higher than for a typical online campaign, according to American Express.

Also crucial to the future of online advertising and the formats it takes is the biggest cog of all – Facebook. Research from comScore shows that in the US during the third quarter of 2010, 23.1% of all ad impressions were served by the social network. Mirror Group’s Hood says that Facebook – even more so than the ad networks and exchanges – is “setting the market rates for display advertising”, typically at about 50p per impression. Facebook has itself also developed ways of making ads relevant to specific users and innovating with display formats.

At NMA Live, Facebook UK commercial director Stephen Haines said: “All the engagement ads you see [on Facebook] are based on user behaviour.” He added that, through the site’s “like” button, “what we have done with the engagement ad is add social context”. When users see ads on Facebook, they are also shown information about friends who say they like the brand, or have interacted with it in some way.

His example of one brand that has used Facebook with particular success is Starbucks. The Starbucks Facebook page has over 18 million fans at the time of writing, and according to Haines: “Starbucks has actually structured its client team around Twitter, Facebook and Google, and it has made a proper resource to conquer social media. It can update those 18 million people free of charge, as many times a day as it likes.”

Starbucks has actually structured its client team around Twitter, Facebook and Google. It can update 18 million people free of charge, as many times a day as it likes

Stephen Haines, Facebook UK commercial director

It is apparent, then, that there are options available both for building brand awareness and for demonstrating concrete results online – and many more options are likely to arise as brands strive to stand out from the growing number of ads. The market is also changing, however, with traditional relationships between advertiser and publisher interrupted and new forces driving the economy in online ads. To stay in control, marketers will need to get into gear quickly.

Case study: Eurostar

Star player: Eurostar has increased online spend because it has proved a powerful and effective medium

Eurostar is a brand on the cusp of a significant marketing push. “We have got a big brand job to do next year,” says director of marketing and sales Emma Harris, referring to a planned shift of focus towards connecting passengers to European destinations further afield than Paris and Brussels.

What role online advertising plays in that activity remains to be seen. For Eurostar, digital spend is focused primarily on delivering return on investment, with click-throughs and conversions monitored closely. Brand building is left mostly to offline media, Harris says.

Head of marketing Claire Hutchinson, who reports to Harris at Eurostar, adds that using internet display formats for brand advertising is a difficult strategy to execute when the target audience is focused on particular interests and not easily distracted. Reaching these people means attracting their attention for enough time to elicit some kind of emotional response.

“It is hard to do that online with an audience like ours, which is very smart and engaged but also very busy,” says Hutchinson. But, she adds, youth brands might have more success in this endeavour, as their audience is broadly more receptive to marketing messages online.

Between 2007 and 2010, Eurostar increased the proportion of ad spend going into digital channels from 7% to 40%. According to Harris, Eurostar’s digital activity has two focuses. The first is targeting its principal audience, which is identified as “urban” and “intelligent”. The second is reaching areas of the internet where users are likely to be interested in travel.

“By focusing on those two core areas we get a really healthy ROI online,” she says. Hutchinson puts return on investment at about 50-1, and 180-1 for pay-per-click advertising.

Harris continues: “What is great about online is that you can change your messaging. You can test and change and see what is returning. That is why we find it so powerful, and over the past three years we have shifted more and more of our spend overall from offline to online.”

This does not necessarily mean that Eurostar takes the role of online display advertising for granted. There is still plenty of scope for experimentation with formats and techniques, says Harris. “We want to find ways to use it more creatively. We think there is a lot more depth to it.”

As an example, Harris cites activity surrounding the brand’s Tri-City-Athlon event, organised as part of its sponsorship of the London 2012 Olympics. “We used online ads in specific areas to get people to visit the triathlon microsite.”

With crucial work to be done in the coming year and a marketing budget that Harris says is “pretty reflective” of this year’s, Eurostar has a need to establish a brand message while the long-term trend towards greater online activity continues.

Like many other brands, it has the task of either justifying more above-the-line activity or finding ways to achieve brand awareness online.

Hutchinson notes: “That is quite an interesting challenge for marketing people, particularly with TV consumption changing and media consumption changing. How do you do the big messaging piece and then convert down the line?”

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