Commentary

THE FUTURE OF ONLINE ADVERTISING: Optimize or Brand?

  • by June 13, 2002
Is online advertising good for anything? When click-through rates started to plummet, a heated debate began over whether the whole notion of the Internet as a powerful direct-response medium had in fact been doomed from the start. Champions of online branding, like Dynamic Logic’s Jeffrey Graham, argue that like other advertising media, the Internet is primarily a branding medium. In presentations, Graham points to a pie chart showing the tiny 1 percent slice representing click-throughs and asks rhetorically whether the other 99 percent of online advertising is “wasted.” Of course not, Graham insists, but there is currently no way to measure its branding value. Optimize or brand? What’s the best way to use the Internet for advertising?

Jason Heller, CEO, Mass-Transit Interactive: I come to the table with a very one-sided perspective on this particular issue. We’re an online customer acquisition and retention marketing firm, which is a recent new positioning from being purely an online media planning, buying and management firm. We did about $40 million in billings last year and this year we’re trying to get a little bit more into the overall cycle of acquisition through the upsell, cross-sell, and retention side. We definitely come to the table on a branding issue with a fairly one-sided perspective.

We approach the Internet—and all interactive media—as less of an advertising medium and more as an acquisition and retention marketing tool. We work with a lot of offline partners including a very large offline media-buying company, and over the last three or four years, we’ve run into fairly headstrong arguments on branding versus direct response and how to use the Internet properly, how to present it to clients and how to justify whether or not this should be used as a response medium or a brand medium. And at the end of the day, the plans that I’ve seen these guys put together for larger, more impactful pieces of real estate, they’re overall, per unique user, paying less on a CPM basis to achieve their reach and frequency goals offline than they are online. Conversely, on the Internet—on interactive media, which includes wireless and soon iTV as well, though I’ll take iTV out of this equation—but as far as the Internet and wireless go, we look at the accountability and the strategies and variables that are able to be optimized, starting with cost, and it’s a medium where we could project what the outcome is going to be—not necessarily always 100 percent accurately, but at this point fairly accurately for any particular campaign, and we’re able to modify those responses and... I don’t per se think that you can’t use the Internet as a brand medium in totality, I think it’s definitely a complementary push to the offline efforts that any particular client is putting forth... We feel the Internet is a direct-response medium, but at the same time if you’re looking at the effect of overall brand recall or brand effectiveness, if a company is using a full array of media, both offline and online, even if it’s a direct-response initiative, it can have an impact on brand recall as a complement to what’s happening offline.

Terry Krueger, director of business development, Mezzina Brown: The response rate on the Internet is the same as in traditional DR. You’re looking at a seven-tenths of one percent response rate, with a fairly substantial cost to it of maybe 60 cents a pop. But you’re papering half the Western World—which is your brand positioning, imaging, recall, awareness, and sometimes product launches. I don’t want to be the spoiler here, but at the small end of the funnel, it’s very difficult to draw a line in the sand between a branding exercise and a direct-response call-to-action exercise on the web. And the most effective methodology, in my sense of the holy grail, is the one that actually gets you to the small end of the funnel. It cuts through the clutter. So you’re doing this branding and positioning and awareness and all the other good things, but you’re also getting a direct-response component out of it— which is nothing more than a cost offset. And if you didn’t have the branding, you’re not going to have any retention in general. So it ends up in a cyclical fashion. I think on the Internet, we probably all know very specific examples who’ve branded well and also know others who’ve done standard, old-fashioned DR work.

Bob Liljenwall, executive vice-president, FicusGroup: I come at media more from the academic side; I teach branding at UCLA and do an online brand letter. And my perspective tends to be that brand management or building a brand is never done in a vacuum, it’s never done online or offline. It’s done in a combination of media. We put a lot of emphasis on integration of the different communication channels by getting companies to start thinking, with offline objectives that use the Internet as an integrated means of enhancing the response, whatever it is.

We’re working in this new variable data printing area, where you can go onto the Internet and do a click-through and get the response from a database that prints an individual brochure out, for example, that’s specific to that person, and it’s direct-mailed to them instantaneously. There’s no human intervention between the Internet and the printing press. That’s one of the new technologies. So we’re looking for more creative ways to not just get a click-through response, but to get other responses, whether it’s a human response, a direct-mail response, whether the programs that have to be changed offline to integrate the Internet into the overall communication mix. But the Internet never stands by itself, it has to coexist in an environment where the consumer or customer has it as a choice.

We’re working with a large hospital group here in Southern California, where they’re trying to increase their mammography. So how do they do that? Well, they’re not even capturing email addresses from their patients when they come in. There’s a big question of “How do we enhance the existing offline marketing programs by integrating the Internet and trying to convert a database that they already have into a usable, practical means of contact in a variety of ways?” There’s no “one way fits all.” That’s what we found.

Media: So the answer to the question of “What’s the best way to use the Internet for advertising, optimization for high response rates or casting a wide net for new customers through branding?” is really “Neither—and both. It depends on the objectives.”

Heller: Definitely. I agree with that wholeheartedly. We look at it as direct-response first, but also, to repeat an often-used industry phrase, a brand-direct medium. It is both. And there is always going to be a brand impact, particularly when there are many different forms of media used in a campaign. And I think any brand manager looks to use as many forms of media as will impact their particular user base to create that brand recall and brand retention and eventually brand loyalty.

But innately the Internet also has the interactivity, and it’s less a question of “Should we use this as a direct-response medium or a branding medium?” and more a question of “How do we speak the language of the brand managers and CEOs of some of the major traditional companies that are not embracing the Net?” Because they are not speaking the language that we’re speaking in terms of analyzing and justifying what’s happening on the Net. One side of that argument says, “Let’s look into using GRPs, because that’s what the offline world uses.” My response to that is, I understand we’re in a situation where we’d all like to get more dollars out of our clients, but I don’t think we should revert to a reach-and-frequency analysis for online advertising just so we can get more dollars and it can be a line item on the traditional marketer’s spreadsheet. I think that we should look at an interactive medium and try to harness the power that it has, which is interactivity. And whether it’s direct response or brand recall, the innate interactivity of the Internet allows a user to respond more on both levels. It’s just a lot more accountable, even on the brand side.

When we work with some of our agency partners, they actually do pre- and post brand studies online, which aren’t necessarily definitive. But we are able to see certain lifts in brand recall. Also, through the sophistication of online advertising tracking, we’re able to track conversion based on the ad exposure and not the click-through. So if somebody sees an ad, remembers your URL, types it in, and purchases something, is that direct-response or is that branding working?

Liljenwall: That’s all very true. I think the trap that we get ourselves into, technologically and with the measurement syndrome, is that we sometimes tend to be over the heads of the people who are making the decision. When we can’t show real offline integration of all of this... “When we get it all said and done, what am I selling? What’s the bottom line? Are we enhancing our revenue streams?”

And that’s where the trap comes in, because if we measure everything about how much revenue we’re getting off an Internet program and ignoring or not trying to measure the brand lift, it’s a real danger. Clearly, the statistics show the increase of the Internet and e-commerce, but the reality is that a lot of the negativity that we’re facing as professionals online is that the more traditional offline marketing or CEO executive has a real negative image of this business. So we’re going through these throes of developing justification models that support the continued use of online marketing. And you’re damned if you do and damned if you don’t. I think the challenge is to come up with real programs that are easily understood by those executives who make the final decisions on where to spend the money.

Krueger: Some CEOs, client base in general, may not be adopting and embracing the Internet, but honestly, it’s no different than it was 50 years ago with television. People sat on their haunches and said, “We like radio. But television? I don’t know.” Fortunately, there weren’t the technology tools available to measure who was listening to the radio and who was watching television. [Laughter]

But on the Internet, it’s like we’re saying, “Yes, be in television. But first you have to help build the television station.” That’s the cost component that’s killing a lot of revenue models for the advertising folks in general. Unfortunately, we’re in the exact same metaphorical space as a radio-to-TV conversion, except we have lumbered with this massive technology millstone, which is: “How come you don’t know how many times that person blinked at my banner ad here?” [Laughter]

What we all know, too, and no one’s really saying—but it’s gotten out some other ways—is that with a limited amount of sophistication, we know exactly who, what, when, where—and more demographic information than any other medium that ever came along to this point. Some of it can be used, some of it can’t be used. But if you start talking on those corroborative relational database numbers, the people you talk to get glazed eyes real fast. So they’re down to things they know, they’ve heard, and they feel comfortable with.

Twelve years ago, the highest level of database management on a mailing list for DR in this country was a roomful of mainframes, and in those days they could do a 14-deep-level corroboration, which is fairly well targeted. My gosh, now you can get a shareware program and get better than that from your home. So in one sense, we’re making the bridge from radio to television, i.e. “This is a new way to get to people and sell your stuff, guys.” The other issue is, we have to do that except we have to speak a language that really is 50 years ancient, and merge it with this massive amount of technology power that we all know is there and no one’s quite sure what to do with it.

Liljenwall: Yes, we’re going through this very intense transition where we keep making up new rules, the new standards of performance. And I think it’s going to take years before we really come to some really good conclusions about it.

Media: Let’s turn back for a moment to optimization. Isn’t focusing on only a few customers and stripping away ad vehicles that don’t respond at a high rate the path to a very narrow business model?

Heller: I don’t think there are many companies that are using the Internet as their sole marketing channel. If they were, that would probably be true. When you’re dealing with such an innately accountable medium, and you have brand marketers who consider brand effects occurring after a user comes to their site to see information and not necessarily through the information that’s in a banner—the brand is more than their logo and the look and feel of their creative, it’s the essence of the company. And a lot of brand marketers I’ve worked with have really expressed an interest in getting people to their site on a response level, because they feel that is how they’re using the Internet to brand: they have to get people to their site first. And it’s not necessarily through the ads that are running on a 468 or a skyscraper or interstitial or what have you.

Krueger: It’s the old saying, “Get ‘em in the door.”

Heller: Exactly. And at the end of the day, optimization just allows you to harness the highest response. It’s not necessarily optimizing on click rate, it’s optimizing on whatever variable you feel is pertinent for that campaign. For the most part, at my company, we do not optimize on click rate, we optimize on cost-per-acquisition, cost-per-unique-user, cost per whatever the goal happens to be. And that doesn’t necessarily mean excluding sites because they’re performing poorly at all times. There are very often strategic sites from a qualitative perspective that we leave in campaigns even when they’re the worst performers, because we know that that is the audience we’re looking to reach. Whether or not they’ve shown that direct impact immediately, strategically, we’re not going to remove those sites. But at the same time, we’re also not going to allocate large portions of the budget to those sites.

So I look at the statement about optimization as eliminating potentially good advertising sources as campaign-specific, and I guess from a traditional brand marketer’s perspective, they’re not going to look at their immediate response information as the determining factor of whether or not that campaign performed. But again the Internet to me is a responsive tool, and to not utilize the fact that you can count that responsiveness and act on it would just be not using the medium to its potential.

Krueger: One thing that’s highly underrated on the Internet is if you target, and you optimize, and you nail somebody between the eyes, and you get them to walk into your virtual front door, and buy, you get very high customer retention rates. Customer-acquisition costs are 12-to-1 ratio to customer retention costs. So if you build a business and say, “Gee, I’m not going to get many customers, but they’re going to be my customers,” you’ll probably find yourself in the same situation Wal-Mart’s in, with only about 48 million customers as opposed to 64 million customers. It’s always a success formula, it’s always a success rate. “Retain a customer.”

Media: Speaking of Wal-Mart, can you name a few major-brand marketers who have embraced the Internet and are doing it well, or who are going about it all wrong?

Heller: Everybody has a different definition of what it means to embrace the Internet. Just because P&G spends less than 1 percent of their budget on the Internet doesn’t mean they’re not spending the right amount of money. One percent of P&G’s budget is a lot of money, and there’s a certain level and limit to what you should be spending on the Internet. Granted, I’m sure P&G isn’t spending as much as they can or should be—which may also be, in part, because they’re working with the wrong agencies and marketing folks. [Laughter]

But at the end of the day, I think that the term embraced sometimes is used a little bit loosely. Embraced doesn’t mean “spending tons of money and blanketing the web with your ads.” It means looking at what the impact actually is, and most marketers, even if they’re looking to brand on the Net, they don’t even spend the money on pre- and post brand awareness studies—and then they say, “The web doesn’t work.” And you can’t say “the web doesn’t work” unless you’ve tried everything that you can to make it work. And I think that’s a big problem.

Liljenwall: One of the obvious factors is that people who are making traditional advertising marketing budget decisions have historically looked at their advertising message as being that of a message. What the Internet provides, more than anything else, as we’ve all pointed out here, is truly an interactive medium that allows us to do operational things that require the integration of the people that actually run the business and get involved in the business. And that’s much more difficult to generate and create a concept or a program that truly makes the Internet medium more than just a message medium. It becomes an operational adjunct. And that requires the integration of the marketing minds with the operational and program minds outside of their department. They’ve tended to operate in silos, and there hasn’t been this cross-pollination between the marketing people and the other parts of the company that do stuff. So that’s where the challenge is going to be: How do we get the people who do stuff integrated with the people who communicate what the stuff is and what it does. That’s the big challenge in front of us. Krueger: Good point. There’s been a reasonably smooth transition from catalog sellers into online catalog sellers because there’s always been a mesh between management directives and operational issues. Then, there’s been the flub-ups, semi-successful like a Sears.com. And then you see the people who haven’t done one right—the publishers. Those folks are still using blow-ins in magazines. [Laughter]

Media: Hey, if there’s a card in this issue, please send it back—or subscribe at www.mediapost.com. [Laughter]

Bob: Dell is the classic example; they’ve made the most beautiful transition worldwide. FootLocker is doing it well. And there are many examples like that that we don’t hear about, because they don’t really want to talk about it. They’re low-key, under the radar, and doing excellent work on the Internet.

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