Digital Advertising Gets a Boost from the Financial Crisis

In the United States, communications media are facing the greatest advertising crisis since the Great Depression. The cumulative decline in newspaper advertising is already running above 14% this year, and it could surpass 20% by the end of 2008, according to the Newspaper Association of America (NAA). In Spain, the figures are not much more encouraging: The advertising market there could plunge by more than 9% this year, according to a Zenith Vigia study conducted by ad agency Zenithmedia. Only the Internet, where growth is close to 20% and targeted ad channels are growing at more than 6%, offers an exception to the overall pessimism.

 

The traditional advertising market could deteriorate even further in the U.S. and Europe in the coming months because the uncertainties of the financial crisis have put every company on alert at a time when they are preparing their marketing and advertising budgets for next year. Manuel Alonso, an expert in digital marketing at the IE Business School, explains that the cut in advertising spending “means you face the challenge of acquiring [potential customers] with lower impact; you have to find leads that are higher quality [in ways] that have more affinity with your target. That’s where the ability to segment in digital advertising can help a great deal.”

 

Can the financial crisis become the definitive opportunity for digital advertising? According to Alonso, that is already happening. “It is the only sector that is growing, while others are on the decline. The cuts in marketing budgets mean that people are looking for channels that require less spending than some traditional GRPs (gross rating points, which measure the impact of a campaign), which involve managing very expensive budgets.” For Ricardo Molero, director of digital media at Zenithmedia, “In times of crisis, advertisers look more than ever to optimize their investments. Digital media, along with television, enable brands to achieve a greater ROI (Return on Investment). That’s why we believe advertisers are giving more weight to digital media — they are looking to optimize the impact of their budgets and maximize their returns. Without doubt, digital media will emerge from this crisis stronger than ever.”

 

In this climate of financial uncertainty, “many companies that had not tried out digital media as an advertising channel are making their first baby steps. In most cases, they are getting good results, which they are then using to spread the word [about online media]. Because of the crisis, online media are [absorbing] some pretty significant budgets. And this is money that won’t easily return to traditional media,” says Alonso.

 

According to Molero, “In recent years, we’ve been seeing exponential growth in spending on digital media and a gradual decline in conventional media such as radio and newspapers. In fact, the latest international forecasts for advertising spending prepared by the Zenithmedia confirm extremely positive numbers for Internet media despite the crisis we’re going through. By 2010, the Internet is expected to take in 13.8% of all advertising spending worldwide.”

 

Last year, advertising on the Web was valued at $36 billion worldwide, according to Zenithmedia. Forecasts for 2008 point to an annual growth rate above 20%. This trend will continue in coming years, with total online ad spending rising to $61 billion in 2010.

 

The risks of not spending on advertising

 

Molero explains that in times of crisis, “theory tells us that you shouldn’t reduce your marketing budget. When a brand goes silent, one of its competitors takes advantage of that and steals away market share and public awareness. Nevertheless, in hard times many companies choose to cut costs. But some companies are more active, and they see the great opportunity that a crisis can offer. Still, reality is stubborn, and if you work in the transportation sector and your sales are dropping by 40%, as they did in Spain in August, there is no doubt that your marketing campaigns will be cut.”

 

Poor sales performance is one of the main reasons why the advertising sector is undergoing such a rough period, says Alonso. In his view, companies have not lost their trust in advertising per se. “The drop of almost 9% in advertising spending this year merely reflects cuts in marketing budgets caused by the decline in sales stemming from the crisis. As soon as this crisis lets up, we’ll see spending rise again; you can’t sell if you don’t convey your marketing messages to the public.”

 

New formats

 

For companies, the short-term solution involves spending on media that are initially cheaper but can achieve the same impact as traditional advertising channels. Alonso says there are about 50 new advertising formats in digital media, such as social networks (Facebook), search engines on mobile phones, and “advergames” – interactive games that communicate the value of a brand.

 

Thanks to these new technologies, notes Molero, “the different devices that an individual is exposed to (mobile phones, PCs, game consoles, MP3s, PDAs, etc.) are all interconnected. This has spurred new digital modes and disciplines, such as mobile marketing, social networks, buzz marketing (utilizing a blog to make comments about a brand), and television over IP, which are all being strongly pushed.” Molero adds that information and communications technologies have also made it easier for consumers to interact with online media and advertising messages.

 

Consumer habits have changed a great deal because of the Internet. Blogs are becoming rivals to the traditional communications media. They are not just a source of information but a system of building interpersonal relationships. For example, 70% of Spanish web users visit these sites at least once a month according to a study by the Universal McCann communications agency, which surveyed 17,000 web users in 29 countries. China leads in the blogosphere market. In that country, 70% of web users write their own blogs, and there are more than 42 million bloggers, compared with barely three million in Spain.

 

According to that study, 34% of the people who write blogs do so in order to give their opinions about specific brands and products. Advertising agencies are obliged to research this sort of process, explains Juan Manuel Rebollo, director of the digital department at Universal McCann España. According to Rebollo, although you still can’t say whether it’s a safe bet to advertise on these social media, they are viewed as a new advertising channel. “Brands and marketing professionals need to adapt themselves rapidly to the revolution in the creation and consumption of this new content. Each new wave of research shows stronger growth in these channels; especially in blogs and video clips,” he notes.

 

The advantages of digital advertising

 

What is it about digital advertising that makes it so attractive in a time of crisis? According to Alonso, this advertising medium offers “a better ROI (return on investment) than traditional media.” As for its effectiveness, “that depends on how well or poorly you manage a specific campaign,” he adds. “The key to a good advertising strategy is not to compare digital advertising with traditional media. On the contrary, it’s about achieving the right balance in the types of media you use in order to reach your targets in the most efficient way. Every good campaign that has a certain breadth must be integrated [between various media]. Nowadays, no traditional campaign can be considered complete without a digital component, but it makes no sense to develop a campaign totally online” with the exception of campaigns that target a very young market.

 

Molero says the use of online advertising has changed as quickly as digital media have expanded. “These days, according to the EGM, a Spanish study of media markets, more than 11.4 million people in Spain connect to the Internet every day. That’s 28% of the entire population. That includes more than 60% of the population between 14 and 35 years of age. So it’s not just that the Internet [is] a channel that has a greater affinity [for consumers], but that the Internet also reaches an extensive market. Digital media are already mass media for certain advertisers,” explains Molero.

 

Without even taking into account the advantages in terms of the cost per impact, he adds, “digital media stand out for their capacity to connect with those consumers, who are more and more oriented to its content; who participate actively in it, who have power over it, and who know what they want and where they want it.” So those channels that “do not adapt themselves to this new reality will not attract individual consumers. In that respect, digital media are outstanding because of their ability to segment, optimize, entertain, innovate and deliver demand-driven content… That is to say, they play an outstanding role in the new reality of the individual.”

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