Imagine that it's 1975, and you are the brand manager for a novel kind of deodorant. Both the product and the TV commercial test well, but consumers simply aren't finding it on the shelf. So you come up with the great idea of offering the retailers money in exchange for preferential shelf space.
It works -- the product starts to move. You can measure the return on your investment: turn the trade dollars on, sales go up, turn them off, sales go down. You think, "I'd better find a way to keep that investment up year-round," and come budget time, you negotiate a separate line for trade promotion. The problem is, so has your competitor. And overall, the consumer isn't buying any more deodorant.
Fast-forward three decades, and trade promotions are walking a careful line between an investment and a cost of doing business. In 2005, Accenture estimated that producers of "fast moving consumer goods," known as FMCG, spent $25 billion in trade promotion -- more than twice as much as they did in advertising -- to generate $2 billion to $4 billion in incremental sales. But to their comfort, those dollars were passed on to the consumers in the form of lower prices. Intense competition between retailers drove prices down -- which is reflected in the retailers' margins -- and, presumably, volume up. Now, what would happen if a single retailer had 75% of all grocery sales?
The analogy is imperfect, but I argue that search advertising is the online world's equivalent of trade promotion. Because it helps consumers find a product, most advertisers need to do it, if only for defensive reasons. It is effective. But whether it's efficient, like any investment, depends on what you pay for it.
By comparison, I argue that display advertising is online's equivalent of television advertising. It helps create and build a brand and maintain a dialogue with the consumer. And it prompts her to either buy the product directly or do a brand or category search to get more information, as research has shown.
Trade promotion and television have battled for marketing budgets before. Since retailers had a natural advantage as the final link before the moment of purchase, it was understandable that marketers would attribute it with extra credit. If you increased trade promotion, the thinking went, you would get a measurable result in sales. If you increase TV advertising, you would get uneasy questions from the CFO. It was only in the 90s that marketers realized that many of those "extra sales" were the result of everyday consumers stocking up on bargains, and the pendulum started to swing back towards television.
The issue of "attribution" is coming back full circle in the question of online display versus search advertising. As one of the last points before "the moment of truth," search advertising is gaining reputation as an effective results medium. But, just like it happened with trade promotion before it, it's hard to see how it grows a category. And worse, competition without transparency between advertisers may one day drive its cost up to the point where it becomes more of a tax than an investment.
On the other hand, single-source research by ComScore has proven that display advertising works, that its results on sales can be measured even when consumers don't click on the ads, and that it works best when used in conjunction with search. That may be a reason why is best to plan them together, as most ad agencies are doing, creating models that attribute each ad impression -- display, search or other -- with the right credit based on their contribution to short-and long-term results. It's still early days when it comes to online advertising, and I'm convinced the opportunities in display are still largely untapped.
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Hernan Lopez is president of .Fox Networks and chief operating officer of Fox International Channels.
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