People Eating Advertising?

There is a well-written and entertaining article on Grape Nuts in yesterday’s Wall Street Journal. It included a fantastic quote from Carin Gendell, senior brand manager for Grape Nuts in the ’80s. “Grape Nuts,” she says, “was people eating advertising.”. The same could be said of many, many foods today.

I have personally had discussions with more than one processed food company where they are viewing advertising as a raw material input to their finished product – much in the same way as grain, corn syrup or cardboard for that matter. While it’s not necessarily appetizing, it’s undeniably true and brings up an interesting point. Effective advertising has become as important an ingredient in many products as the raw materials from which the actual product itself is made. It’s important to note that Carin says “was” and not “is,” because Grape Nuts has lost share dramatically since those heydays – another important reminder of what can happen to a brand if it loses touch with its customers.

I am actually a big Grape Nuts fan – I happen to like “the rhythmic crunching that reverberates around your skull” – so I hope the current $5M campaign moves the needle.

A Brief Analysis of the Ad Supply/Demand Imbalance

It’s true that there’s an imbalance between supply and demand, which is putting downward pressure on rates as highlighted in this morning’s WSJ article “Future Shock for Internet Ads?”.  However, I think there are some important details missing that would add richness and perspective to this article and other similar ones.

First off, the writer cites PubMatic data at the beginning of the article. I have every confidence that the PubMatic data is accurate for what it is, but articles quoting the data rarely mention that it reflects a very specific sub-segment of the overall online ad market. That is direct response campaigns running on primarily small publishers with poor average content quality (with many exceptions I am sure) and weak/non-existent direct sales channels (likely not many exceptions here). This market sub-segment is the most volatile and most sensitive to changing market conditions so in that sense the trend numbers (48% Y/Y decline in Q4) really represent a “worst case”. The absolute numbers ($0.26 average CPM in Q4) are similarly non-representative; the significant majority of money that was spent in the display market during Q4 was spent at CPMs an order of magnitude higher than that. PubMatic actually makes some attempt to clarify in the text of the report itself, but in general these numbers are too often represented to be a broad barometer of display advertising, which they simply are not.

Two other important points: In general much of the online ad supply that’s being created is not being created in areas that advertisers have figured out how to use yet. Social networking sites and long tail content sites are good examples. The consumer applications are evolving so rapidly that effective ad models are lagging behind, so spend stays concentrated in areas that advertisers understand better.

Finally, in any analysis of supply/demand balance and particularly when CPMs are involved, it’s important to note that there are two distinct high-level market segments in online ads – Direct response and Brand. Across all measured media, Brand spend is 2x DR spend but this dynamic is very different online. Nearly 30% of DR spend is now online, but only 5% of Brand spend is. This imbalance is a big reason why the overall supply/demand balance is out of whack. The author mentions this at the end of the WSJ article I reference above but I think these more specific details help clarify why this is happening.

Lessons in Online Branding: Working the Full Funnel; Balancing Online Measurement With Offline Sales

This past month two of my recent byline articles were featured in the Online Media Daily section of MediaPost.  I thought it was worth a quick re-post on our blog for those that don’t regularly read MediaPost.  While each article stands on its own, they were originally composed together.

The first article offers a different perspective to the steady stream of Direct Response focused press which seems to suggest that performance-based and/or online-only metrics are the only important ones to consider in managing online advertising spend.  I agree that measurement is important and that whenever possible we want to drive toward direct metrics (e.g., ROI).  However, here’s our collective challenge: the vast majority of retail commerce–nearly 90% overall in 2008 and much higher for key Brand categories like CPG and Automotive–still takes place offline. Thus, for the majority of marketers evaluated based on their success in driving offline sales, online-only metrics are likely to be less useful than proven tools like brand awareness/favorability, purchase intent or even reach and frequency, for that matter.  These metrics certainly are not perfect, but they are tested, well-understood and are useful across media.  The Internet can increasingly facilitate the accurate and economical measurement of Brand metrics and there continue to be exciting advances in online measurement capabilities, but there are still some real limitations when it comes to measuring offline impact.  Brand marketing fundamentals remain critical to overall marketing success, even online, and Brand marketers cannot afford to ignore the obvious value available online today.

The second article cites specific evidence to show how critical it is to work the full advertising funnel versus focus only on metrics which are easily measurable and quantifiable.   I use two examples to support this point of view: (1) research published by the Atlas Institute and (2) an example from my past experience running pricing and yield management for Yahoo!’s global display business.  These examples illustrate why value can be difficult to measure and also how models cannot substitute for domain experience and common sense.

As always I would welcome your comments and feedback.

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