July 20 2006

Internet Marketing spends reaches new high. So what?

Summer temperatures are soaring and so is the proportion of marketing spend switching to online (in both proportional and absolute terms). This is a nice headline, but does it matter? Is advertising simply pouring good money after bad while reinforcing chronic customer disloyalty?

nternet marketing spend is reaching record highs, while traditional advertising and sales promotion budgets are being slashed across the board, according to the latest Bellwether Report.

Growth of Internet marketing continues, with 30% of companies reporting an increase to budgets against a 6% of those reporting a decrease for the second quarter of this year. The report from the of Practitioners in Advertising found that the proportion of companies allocating more than 10% of spend to Internet marketing rose to a record high of over 17%, while the proportion of companies allocating no spend to Internet budgets fell to a record low of 11%.

According to the survey the channel only accounts for 4% of marketers' total spend, but a minimum of 26% of consumers' media time is now spent in front of a computer screen, indicating massive potential for more growth.

The report also shows strong signs that budget cuts for traditional advertising and sales promotions are beginning to ease, as downward revisions are the smallest since the spiral began in Q2 of 2005, and are considerably below reductions highlighted in the previous two quarters.

Wayne Arnold, Chairman of IPA Digital, MD of Profero, said: "The latest Bellwether survey continues to confirm that Internet advertising is rapidly becoming an integral part of any marketer's communication mix."

However, in an email to IR Towers Frank Lombos, regional vice-president, Coremetrics, said:

"Internet marketing spend may have reached record highs, but the question is how are these budgets being deployed? Internet marketing in itself spans a number of disciplines; from email blasts through to banner ads, pop ups, pay-per-click campaigns, search engine marketing and now pushing video. While internet marketing is demanding the lion's share of the promotional budget, the companies that will win through, driving business via online media will be those that use tactics that demand repeat visitors and see loyal customers returning to the site time and time again."

Couldn't agree more.

While it's good to see an appropriate mix of funds being channelled online, the true measure of marketing success is in ROI, not spend. That the marginal ROI for online acquisition is greater than for print or other direct marketing is not under debate. However, whether the optimal ROI has been reached in a stable, sustainable customer model is very much still an open question.

Ian Jindal Quote from Frank Lombos, regional vice-president, Coremetrics