You may not be in the advertising business, but chances are that your business advertises. And if you're like many business owners, one of your biggest frustrations can be the results: mysterious at best and terribly disappointing at worst.
The more you understand the topic, though, the better you can navigate around offerings and hopefully get the most bang for the buck.
A recent conversation between Randall Rothenberg, CEO of the Interactive Advertising Bureau, and John Battelle, executive chairman of Federated Media Publishing, can help put online advertising in perspective. Although aimed at an industry insider crowd, there were two major points that entrepreneurs should pay attention to.
Avoid diseconomies of scale
There are absolutely times when you need to do something different because consumers have been stuck with predictability. At such times, shaking up the old order is good. However, there are other times when doing something new just because you can is a mistake. Rothenberg made the point that ad formats often miss a needed level of standardization and predictability:
Marketing for large companies is fundamentally an industrial process. They depend on scale. The reason advertising grew was all because of scalability. The television ad takes a writer, a designer, a producer, and a media or account person to place the ad. Then it can run anywhere-on 600 networks, or any magazine.
But what has happened in online ads? Different publishers created their own formats. Just as the magazine with odd-size pages might be too tall to physically fit into newsstands, the "creative" ad outlet has made it difficult for advertisers to consider them. The latter would have to literally recreate material. Force a customer to "take on new costs," as Rothenberg said, and you might as well ask them to walk out the door. Until there is real standardization on the Web, a lot of brand advertising won't get the economies of scale to work well.
Lesson: Don't assume that all online media are the same. For efficiency, look for promising outlets that will let you easily reuse what you already have.
Don't get taken by click-through rates
Rothenberg points out that online advertising was created in a way that "facilitated direct-response marketers mostly." That has made "low click-through rates... a red herring," because that isn't the number direct marketers pay the most attention to. Ultimately, a DM program needs to look at the yield curve--the breakout of cost of acquiring customers compared to the effectiveness of the ad.
You really want to make the action you want cost less than the benefit you get. So the click-through rate itself is a distraction. A low rate at a low enough cost, with a high enough conversion rate to the action you want from consumers, can still be a good buy. Conversely, if the ad costs are high enough or the final conversion low enough, then even a seemingly productive click-through rate can leave you losing money.
Lesson: Take the time to correctly work the numbers. Track the customers that come in from a given venue and calculate the conversion. Then look at the cost per click-through and look at the ROI.