Digital Advertising, an anti-cyclical sector?

Manuel Alonso Coto. Professor. IE Business School

9 January 2009

Publicity and marketing is going through its worst crisis since the Great Depression. But not every aspect is suffering, given that online publicity is seeing enormous growth, driven in part by needs emerging from the economic crisis.

If we analyse the figures used by specialist agencies, the crisis that is heavily affecting almost every business sector could become an opportunity for digital advertising. In fact, it is already happening; it is the only sector that has grown (almost 20% so far this year) as everything else is shrinking. The cuts in marketing budgets mean that agencies are seeking channels with lower investment requirements than traditional GRPs, which are very expensive for the current budget. Thus, many firms that had not previously tried the digital medium as an advertising channel are taking their first steps and, in most cases, with good results. Hence digital advertising is growing. The crisis means that budgets that are far from negligible are moving online, and it is money that will not easily return to traditional media.

However, investments in the traditional advertising market in Spain could be reduced by 9.2% this year, the biggest fall of the last 30 years. Certain things occur with the arrival of a bearish economic cycle: individuals fist start saving by not buying long-lasting products, while businesses cut back on training and advertising. This reduction in investment in advertising brings the challenge of obtaining the same leads (or, if possible more leads, since the crisis will lower the sales-conversion ratio) with less impact; so they have to be of higher quality, more in line with the target. And that is where the great capacity for segmentation of digital advertising can be very helpful. Online segmentation techniques, such as behavioural targeting, should be given more consideration than ever.

In the USA, the media are facing the greatest advertising crisis since the Great Depression. This is one of the conclusions drawn from the report prepared by Zenithmedia on the forecasts for the advertising market. It predicts the greatest fall ever, bigger than the North American Great Depression, and, consequently, the greatest since the Spanish market reached maturity in the 1980s. Have advertising companies lost their confidence in traditional advertising investments?

I strongly disagree with the idea that businesses have lost their confidence in either online or traditional advertising investments. The fall of almost 9% in advertising investments so far this year is the result only of cutbacks in marketing budgets caused by falling sales as a result of the crisis.
As soon as the situation lets up, we shall see investments increase again; you cannot sell unless people know you exist...

What is true is that the Internet is one of the channels that is most successfully dodging the crisis and there are three key factors to the situation: higher profitability of the campaigns, more refined segmentation and, above all, greater simplicity for gauging results: at the present time, it is particularly important to know the quantity of leads and sales returned by every cent invested in marketing.

In general, digital advertising ROI is better than that of traditional advertising. Effectiveness depends on how well or how badly each particular campaign is presented. But the key to good advertising strategies is not setting digital and traditional advertising against each other, but rather the opposite: it lies in attaining the appropriate blend of on + off media to reach the target more efficiently. Every good campaign of a certain size must be integrated: in the same way that today no traditional campaign can be considered complete if it does not have a digital component, there is also little sense (except for very young segments) in developing campaigns that are 100% online.

Does this situation have anything to do with the new forms of advertising that are appearing in the digital world? Without a doubt. But, what would be the most appropriate for times as complicated as the present? Giving a short answer to this question is not easy; in my new book, Blended Marketing, published in one month’s time by Pearson, we consider around 50 different formats, many of which were not available three years ago. If I had to highlight a few as being the most innovative, I would choose advertising on social networks (e.g. the applications on Facebook), marketing on search engines applied to mobile phones and advergames.

This seems to confirm the predictions made by the IDC before summer, which confirmed that the Internet would attract 15.6% of total investments in advertising by 2012, in comparison with the current figure of 8.6%. On the said date, online advertising would overtake traditional sectors, such as television or newspapers, and it would be the second most used medium, preceded only by direct marketing. Advertising related to search engines will be the most important in this period, rising from $10,400 million in 2007 (41% of the market) to 18,000 million in 2012 (34%). However, one format that will come on very strong will be video advertising, which will progress at the expense of traditional TV advertising. Video advertising will account for $3,800 million by 2012, 7.4% of the online total. So, will the credit crunch represent the final push for digital advertising? It seems clear that this new sector is swimming against the tide of the economic cycle as a result of what used to happen in advertising... But, of course, it does so at the expense of off advertising, which is still far greater in size... As the years go by and investment in digital advertising levels off in comparison with its traditional counterpart, the former will also probably be affected... But that will be during the next crisis... Right now, let´s worry about getting through this one!

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