4 Factors Stunting Online Growth

By Steve Latham
From iMedia Connection
March 3, 2008

Marketers are still spending just 7.5 percent of their budgets on a medium consuming 30 percent of their audiences’ time. Find out why and how to raise that ratio.

When was the last time you made a considered purchase (airline, hotel, rental car, jewelry, clothing, electronics, gifts, automobile, etc.) without doing online research before you bought? Even if you prefer to buy offline, would you make a big purchase without pre-shopping on the web? While some still like to do things the old-fashioned way, the vast majority of consumers rely on the web to do research and price comparisons before they make a purchase.

Every marketing, advertising and communications professional is aware of how the web has changed our daily lives. Media consumption has changed dramatically over the past 10 years, with the web now a close second behind TV in terms of daily media consumption. A recent study published by IBM showed that people spend almost as much time online as they do watching TV. Credit Suisse reported that only TV accounted for a higher share of daily media consumption (measured by time) than the web.

But if you think about the quality of that consumption (passive TV viewing vs. active online engagement) it’s not hard to argue that interactive may be the single most important medium for reaching and engaging consumers. By 2011, online consumption will surpass TV as the number one medium worldwide. The trends are unmistakable — media consumption has become very fragmented in recent years, and it’s never going to return to the way it used to be.

Despite this, some industries have been slow to adapt to changing consumer trends. Overall, marketers invest only 7.5 percent of their advertising / marketing budget for online initiatives. If consumers spend 30 percent of their media time online, why has allocation of media budget not caught up? 

Why companies don’t invest online
McKinsey recently published a study of 410 marketing executives in retail, telecomm, technology, business services and energy. McKinsey reported that the primary barriers to online investment were as follows:

  • Insufficient metrics to measure impact: 52 percent
  • Insufficient in-house capabilities: 41 percent
  • Difficulty of convincing upper management: 33 percent
  • Limited reach of digital tools: 24 percent
  • Insufficient capabilities at agency: 18 percent

Combined, insufficient capabilities (in-house and agency) is the leading (59 percent) deterrent to investing online. This is not a surprise as online marketing is still relatively new, somewhat complex and changing rapidly. Most companies are still trying to make sense of new media and develop strategies to utilize it. After years of one-off efforts, many are taking time to define their key objectives, strategies, tactics and requirements for achieving them.

The tight supply of talent is also a problem. For both brands and agencies, finding skilled people to execute digital strategies is also a significant challenge.

The second leading hurdle (insufficient metrics to measure impact) is a bit mystifying, as online marketing is much more measurable compared to traditional media. I believe this sentiment stems from translating clicks and page views to metrics a CFO will understand (e.g. revenue, profit). 

The economics of online marketing are still challenging for many, which leads to the number three barrier, which is the ability to convince upper management. Only a small subset of marketers can develop a compelling business case (supported by numbers) to convince upper management to invest in new media. But even with a solid business case, it’s still difficult sometimes to convince upper managers to invest in a medium they don’t fully understand.

So far, there should be no surprises. However, the McKinsey study doesn’t tell the whole story. Over the last five years, we’ve worked with dozens of companies with $1 million+ marketing budgets. During that time, we have found several other lesser known reasons that prevent companies from investing online. Several of these are not going to show up in a survey.

1. Misperception that online marketing is only needed if you have ecommerce. Only a small percentage of companies who advertise online actually sell online. In fact, some of the biggest online advertisers do not sell online. But they understand that most consumers use the web to do research before they go to the store. Shop.org reported that more than 70 percent of online searchers make offline purchases. For every person who buys online, three are buying offline. And since people tend to spend more and shop more frequently in-store than they do online, the value of an in-store customer is relatively higher. So traditional retailers, suppliers and service companies should be willing to spend even more to reach customers than their online competitors. Yet, this misperception still persists.

2. Status quo mentality. Many are uncomfortable with change or learning new things and instead prefer to maintain the status quo, doing what they’ve always done. They are more concerned about rocking the boat or putting themselves at risk than they are motivated to achieve great results. The truth is that few will actually get fired for doing what they’ve always done. But this may change when senior managers start asking why they don’t show up on Google, why their competitors are being marketed on Facebook or why their competitors are gaining share at their expense. C-level executives are demanding more from their marketing teams. Those that want to stay ahead of the curve need to realize that if they are not effectively using the web, they are falling behind the competition.

3. Accountability. Some marketers have had the luxury of not being accountable for results. Faced with new technologies and programs that measure results and quantify the impact of impressions, engagements or transactions, these people are threatened. Over the years we’ve heard several times, “I get paid to place the ads (or send the email); whether or not they work is not my concern.” We expect this will change as more executives realize marketing can be measurable, and marketers should be accountable. Again, those who are looking ahead will take action before it is mandated to them. By then it may be too late.

4. Changes to business processes. Online marketing is not just another channel; it often requires a change in how you do business. It first requires alignment between marketing and the IT department; while marketing “owns” the website, the department often relies on IT to make things happen. Second, it poses new challenges for decentralized organizations. If your marketing organization is segmented by brands, product lines or geographic regions, you’ll find it’s a challenge to meet the needs of each stakeholder. For most companies, inter-departmental cooperation and new business processes are required to fully utilize the web to reach and engage each of your target audiences in an efficient, profitable and brand-enhancing way. 

Regardless of the health of the economy, the trends are unmistakable. Digital will continue to take share from traditional media, and marketers must adapt to the changing times. Savvy marketers will take advantage of the opportunities in online and mobile marketing; those who drag their feet are in for an uphill struggle. 


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