Ad v e rt i s i n g o n the World Wide We b

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1 Ad v e rt i s i n g o n the World Wide We b Barker & Grønne 1996

2 Ad v e rt i s i n go nthe World Wide We b This is the final report of Christian Barker and Peter Grønnes master thesis. The report is available for free downloading on Peter Grønnes website: Feel free to use and expand the theories and figures developed in this report, but remember to give us credit for our work. Any comments on the report are welcome and can be send to Peter Grønne

3 Ad v e rt i s i n go nthe World Wide We b Christian Barker Department of Management, Politics and Philosophy Peter Grønne Department of Intercultural Communication and Management Supervisor Stephen Rance Hesketh Copenhagen Business School April 1996

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5 It s the Information Superhighway - but it s still unpaved

6 Advertising on the Web List of contents INTRODUCTORY PART 1 - Introduction Problem formulation Methodology Towards a new advertising paradigm Introduction to the World Wide Web PART I - WHAT ARE THE MAIN DIFFERENCES BETWEEN THE WEB AND TRADITIONAL MASS MEDIA FROM AN ADVERTISING PERSPECTIVE? 2 - Between Interpersonal and Mass Communication Interpersonal communication Mass communication World Wide Web - neither interpersonal nor mass communication Conclusion Characteristics of the Web users Development in hosts, networks and domains Population surveys User segments Future growth of the Web Demographics of the Web users Usage patterns The death of Netiquette Conclusion Strengths and weaknesses of the Web as an advertising carrier Advertising spending in major media Fee-based vs. sponsorbased content Exposure on demand Media characteristics - strengths and weaknesses of the main advertising media Conclusion

7 List of contents PART II - HOW SHOULD THE WORLD WIDE WEB BE USED FOR ADVERTISING PURPOSES? 5 - Which companies should use the World Wide Web for advertising? The three dimensions to consider Audience fit Product fit Combining product fit and audience fit ,5 General benefits to the company How should the Web be incorporated into the company s media mix? Conclusion Guidelines for designing Web advertisements The key to customer attention: Introducing value-based advertising Three approaches to creating value for the customer Informercials Advertainments Purchase facilitation Comparing the three models Attracting visitors to the site Generating repeat visits to the Web site Operational considerations when designing advertising Web sites Conclusion PART III - CONCLUSION...119

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9 Introduction INTRODUCTORY PART 1- INTRODUCTION Th roughout history, technological bre a k t h roughs have created fundamental changes in the way we communicate and relate to each other. The new forms of communication that have surfaced with the passage of time have, each in their own way, influenced society dramatically. Gutenb e rgs invention of the printing press in the 15th century made it possible to mass produce text and triggered a wave of knowledge dissemination which eventually provided the foundations for the Lutheran re f o rmation and other radical changes in the society of that time. In the 20th century, radio and television have brought sound and pictures directly to the individual household. This first generation of electronic mass media expanded the individual s access to information and exercized a homogenizing influence on large parts of the population. This development has played an important part in shaping the mass society which is a defining characteristic of our century. Interactive networks In these years, a new communication technology is beginning to break through: interactive networks, which make it possible for the individual to retrieve and deliver large amounts of information to one or more recipients. As the information processed in these networks is digital, it can be re p l i c a t e d, manipulated and distributed with an unprecedented ease. And unlike the 1

10 Advertising on the World Wide Web unidirectional communications of traditional mass media, the interactive networks are based on a two-way communication flow which gives a more active role to the user. Many observers argue that interactive networks hold the potential to revolutionize the way we communicate, work, shop and entertain ourselves. Revolution or not, there is little doubt that their long-term impact on our lives will be significant. The largest and fastest growing interactive network is the Internet, the network of networks, which is emerging as today s de facto information superhighway. Until a few years ago, the use of the Internet was limited to scientists and techno freaks, but now it is gaining popularity with a growth rate unparalleled by earlier media, the number of current users being estimated at million. The growth of the Internet is driven by increasing ease-of-use, lower access and telecommunication costs, cheaper and faster computers, and, perhaps most important, by an increasing amount of entertainment and information. As our society continues the transition from an industrial to an information society, the Internet may also emerge as an important distribution channel. Commercial use of the Web With a growing number of users spending an increasing amount of time on the Internet, advertisers, who annually spend billions of dollars courting potential customers, are beginning to show great interest in this new medium. The fastest growing part of the Internet, the World Wide Web, is increasingly being used for commercial purposes by companies who are attracted by the low costs of making information available, the possibilities of reaching a global audience, and the opportunity to use the medium s interactivity to create a dialogue with the audience. From Madison Avenue to Silicon Valley, companies are establishing Web sites and struggling to understand what interactive advertising is all about. Although there are several success stories of commercial use of the World Wide Web, anecdotal evidence indicates that many companies have not yet reaped the expected economic benefits of using this new medium. One of the main reasons for this seems to be that the form and content of the advertisements have not yet been adapted fully to the medium. This situation is characteristic of new forms of communication: in a medium s early fase, experiences from other media are transferred before users start adapting content to the new medium. When the film camera was invented, it was used to record theater plays in their entire length, which were subsequently shown in unedited versions for an audience. Later, the invention of the film editing technique facilitated the design of content especially suited for the new medium. Similarly, the first radio news programs consisted of newspaper articles which were read aloud. 2

11 Introduction The lessons from history are clear: content needs to be adapted to new media in order to ensure effective communication. The World Wide Web is inherently different from the mass media traditionally used as advertising channels, and an understanding of the differences is essential to optimizing advertising efforts in this new medium. Advertisers who do not understand and acknowledge these differences and who attempt to apply traditional advertising concepts and approaches indiscriminately to this new medium are likely to fail miserably. Therefore, new advertising approaches and models which exploit the unique properties of this medium must be established. Lack of research Because of the explosive development in this area, research has lagged behind practice. Despite the great attention given to the development of the Internet, very little research has been undertaken about how the World Wide Web is actually used for advertising purposes today, and even less about how it should be used. While most observers agree that the Web has an enormous potential as a commercial medium, there is widespread disag reement about how the medium is developing and what advertisers should do to exploit this development. In this report, we will attempt to shed light on these questions. 1.1 Problem formulation The aim of this report is to analyze the World Wide Web as an advertising carrier. The World Wide Web is a new medium which has not yet been adequately researched and described in the literature, and it embodies a number of communication characteristics which differ fundamentally from those of traditional mass media. Moreover, there are large uncertainties about who the Web users are, how they use the medium, and what the general strengths and weaknesses of the Web as an advertising carrier are. Thus, the first objective of this report is to gain an in-depth understanding of the medium. The second objective is to discuss how the World Wide Web can best be used for advertising purposes. Taking our findings about the medium as the point of departure, we discuss the considerations a company should make before integrating the Web in its media mix, and which models can be developed for successful advertising. 3

12 Advertising on the World Wide Web In short, this report aims to answer the following questions: 1. What are the main differences between the World Wide Web and traditional mass media from an advertising perspective? 2. How should the World Wide Web be used for advertising purposes? In order to answer these main questions, the report will address the following subquestions, which include analyses about the medium and its users, as well as prospective advertisers: From a theoretical perspective, what are the differences between the communication processes on the World Wide Web and traditional mass media? What are the characteristics of the Web users? What are the strengths and weaknesses of the Web compared to other advertising media? Which companies should use the World Wide Web for advertising? What guidelines can be established for designing Web advertisements? Definitions and delimitations World Wide Web The World Wide Web is the part of the global Internet which follows the HTML standard. Although and file transfers strictly speaking follow d i ff e rent protocols, we will consider them part of the Web as they can easily be accessed through most Web browsers and thus appear to be an integrated part of the Web from a user perspective. Section 1.4 contains an elaborated explanation of the World Wide Web and related concepts. Advertising Advertising can briefly be defined as...nonpersonal communication of information usually paid for and usually persuasive in nature, about products, services, or ideas by identified sponsors through various media (Arens and Bovee, 1994). This traditional definition of adverting will be elaborated later in section 1.3. We will argue that the traditional understanding of what advertising is should be reconsidered and expanded in connection with interactive media because of the different characteristics of these new media. While it can be argued that the World Wide Web holds a significant potential for business advertising as well as for consumer advertising, the main 4

13 Introduction focus in this report is on consumer advertising. This is because advertising has always been more important in consumer markets than in business markets, where marketing efforts are normally focused on personal selling and relationship marketing. Further, most of the large-scale advertising efforts implemented to date on the Web target the consumer market rather than the business market. Thus, the main emphasis in the report is on consumer advertising. This is not to imply, however, that there is not an important potential for business advertising on the World Wide Web. Traditional mass media The traditional mass media considered in the report are television, newspapers, magazines and radio. Furthermore, considerations about direct mail (which is becoming increasingly important for advertisers) are included in some parts of the analysis. There are several groups of stakeholders that are influenced by advertising on the Web: advertisers, advertising agencies, content providers wishing to attract advertisements to their Web site, and, of course, the audience. The point of view taken in the report is that of the advertiser considering whether to advertise on the Web, and wondering how it should be done. Time horizon The analysis is complicated by the explosive development of the object of analysis. Due to the speed and complexity of developments in this area, it is impossible to conduct long-term forecasting with any reasonable degree of accuracy. The main focus is therefore on the current situation, but considerations about development trends are included in order to give the analysis a dynamic perspective. The future validity of our conclusions probably varies widely: Theoretical considerations about general characteristics of the medium and their implications for advertisers are likely to remain reasonably valid in the coming years, whereas the empirically based analyses of size and usage patterns will probably be re n d e red invalid in the near future due to the massive changes sweeping across the Internet. The technical and operational aspects of developing an advertising presence on the Web, such as optimal hardware and software configurations, HTML programming standards, and types of Internet access to adopt, are not considered in this report. Geographical delimitation In terms of geographical delimitation, the unit of analysis will primarily be the American market. This approach is justified, since the Internet is an American innovation whose development is driven by American forces. The American market is by far the one with the highest Web usage rate - thus, some analysts argue that there are as many, if not more, Web users on the North American market than in the rest of the World combined. Network 5

14 Advertising on the World Wide Web Wizards (1996) found that 64% of all host computers connected to the Internet are located in the United States. Since most of the corporate players driving commercial use of the Web are American, this market is also where the most advanced use is found. As the lead user market, the American market is likely to contain the best practices in innovative Web use, and may offer valuable insights as to how the advertising use of the Web may develop in other parts of the world. Thus, many of the trends currently surfacing in the American market can be expected to spread to other parts of the World with a certain time lag. Moreover, the American market is also the largest in the world from an advertising perspective, with a 49% share of global advertising revenues (World Advertising Trends 1995). Finally, more valid data can be obtained in the American market, as this market has been more thoroughly analyzed than other markets. This allows the analysis to be undertaken with greater precision than would otherwise be possible. The American market is, therefore, an obvious unit of analysis from the perspective of descriptive forecasting as well as from the perspective of prescriptive learning. However, the Web is an inherently global medium, and examples and observations from other areas of the world have also been included when relevant. 1.2 Methodology In this section, we will explain the methodological approach we have adopted in order to answer the questions posed in the problem formulation. In the field of advertising research, no generally accepted scientific framework exists. Advertising theories are rather collections of operationally oriented systematizations and checklists than scientific theory. As a consequence of this absence of a general theoretical framework, the report is not structured after a general theory. Various models and frameworks from communication, advertising and marketing theory have been included on an ad hoc basis in the analysis where it has been found relevant. As indicated in the problem formulation, one of the purposes of our report is to develop general recommendations for how the Web should be used for advertising. Thus the methodology adopted is primarily of an inductive nature, in the sense that advertising recommendations of a general nature are induced on the basis of an (empirically oriented) analysis of the medi- 6

15 Introduction um. However, this analysis is not exclusively based on empirical observations but also includes considerations of a more theoretical nature. Thus, the analysis is not strictly inductive, as the process of identifying media characteristics involves an interaction between empirical observations and theoretical considerations. The reason for adopting this approach is that the World Wide Web is a new phenomenon and very little theory has been developed about the subject. Structure of the report As indicated in the problem formulation, the report has been structured in four main parts, where part I and II contain the body of the analysis. The overall structure of the report is visualized in figure 1.1. The questions in the figure show which issues are addressed in the individual chapters, and do not necessarily correspond to the titles of the chapters. The aim of part I is to gain an understanding of the World Wide Web, its users, usage patterns, and the medium s virtues and limitations as an advertising medium. This is achieved through a comparative analysis of the Web and traditional mass media. While parts of the analysis in part I are of a descriptive nature, it has been emphasized to maintain a critical and analytical approach to the discussions. The main reason for the somewhat Figure Structure of the report Source: Of own make 7

16 Advertising on the World Wide Web descriptive approach in part I is that the Web has not yet been adequately described in the literature, and an in-depth understanding of this new medium is an essential prerequisite for developing recommendations for its use. Chapter 2 contains a theoretical analysis of the communication processes on the World Wide Web, using theories of interpersonal communication and mass communication as a point of departure. The analysis in chapter 3 is primarily based on empirical data about the users and usage patterns of the Web. The chapter discusses how many users the Web has, what factors drive and impede the growth of the medium, who the medium s users are and how they use the medium. Chapter 4 identifies the main strengths and weaknesses of the Web as an advertising carrier compared to other media. The conclusions reached in chapter 4 are used in the discussion of how the Web should be incorporated in the company s media mix. The aim of part II is prescriptive. Based on the conclusions from part I, part II develops a series of recommendations for prospective advertisers about if and how they should use the medium. Chapter 5 discusses the products and services best suited for being advertised on the Web, and formulates recommendations for companies considering to advertise there. It also discusses how the Web should be incorporated in the media mix of the company. Chapter 6 establishes guidelines for advertisers that have chosen to integrate the Web in their advertising. In the chapter, a new approach to advertising on the Web is presented and a number of models are developed than can assist prospective advertisers in creating a succesful advertising presence on the Web. This report is written for people working with advertising: advertisers, the advertising industry, and other individuals working with advertising and communication. However, the report will also be of relevance for people working in the traditional media who want to know the kind of competition to expect from this new medium. As the majority of this target group has a very limited knowledge of the World Wide Web, we have in some places included considerations which may seem trivial to experienced Web users. We have found this necessary in order to ensure correspondence between the way the analysis is presented and the background knowledge of the target group. 8

17 Introduction Data collection The data used in our analysis comes from primary as well as secondary sources. A number of personal interviews have been undertaken with experts in the area, mainly in advertising agencies. Moreover, our own practical experience with the design of Web sites has provided valuable insights into how to use the medium in practice. The Web as a research tool A large part of the data used for the analysis in the report has been collected on the Web. In the list of literature, the URL (Uniform Resource Locator, the Web address ) of each source has been provided so the reader can access the source online if he wishes to. Using the Web as a research tool has proven to be extremely effective and efficient. Many of the sources available on the Web are not accessible in print, which means that using the Web for data collection has allowed us to access a much wider selection of relevant sources and use them as input for the analysis. Further, the time lag between knowledge generation and its dissemination is dramatically reduced on the Web compared to traditional channels. During the research for this project, we have in several cases used working papers which had been completed the day before. If such papers had to disseminated through traditional print media, the process of reviewing, editing, publishing and distributing the results in a journal could easily take six months, and in some cases several years. On the Web, this situation changes completely. Any researcher who wishes to can make working papers available to others instantly. This reduced time lag between the generation of knowledge and its use by others is a significant advantage, especially when the object of research is developing as rapidly as in the case of the World Wide Web. In addition to using the Web as a library, we have also used the medium actively to create a dialogue with other students, researchers and practitioneers. As a part of the work on this project we established a Web site 1 that describes our research program. The index page of the Web site is depicted on the following page. Within a two-month period the site generated more than 2400 hits 2. Via this site, we have received a large number of s from students, researchers and business practitioners in different parts of the world working on related issues. The dialogue generated through this 1 The URL of the Web site is: 2 Meaning that the site was accessed 2400 times. 9

18 Advertising on the World Wide Web Web site has provided us with valueable input and inspiration throughout the process. The reduction of geographical distance as a barrier to research dialogue and exchange of ideas and results is likely to keep accelerating and improving the quality of knowledge generation, as more and more researchers use the Web for dialogue and data exchange. However, data collection on the Web raises two problems: Firstly, validating the quality and authenticity of the information is an even more critical issue than in print media, since the gatekeeper function performed by editors and publishers is absent on the Web. This issue has been addressed through a critical examination of the data and conclusions of each source and by cross checking with other sources when possible. Moreover, the positions and institutional affiliations of the authors have been considered when assessing the quality and reliability of the sources. Secondly, there is a risk that sources are changed, updated, or moved to a different URL. Nevertheless, we have found that the benefits of using information from the Web fully outweigh these disadvantages. 10

19 Introduction 1.3 Towards a new advertising paradigm In this section, we will discuss what advertising is and what purposes it serves. The purpose of the section is to elaborate the definition of advertising presented earlier in this chapter and identify some of the defining characteristics of advertising as it is currently implemented in traditional mass media. This is done in order to set the scene for the discussion about how traditional advertising approaches should be altered for advertising on the World Wide Web. We will argue that a new advertising paradigm is needed as the traditional paradigm, based on a one-way information push, is not suited for interactive media. Promotion mix Communicating with present and potential customers is an essential part of any business. Any company is inevitably cast as communicator and promoter as well as producer and has to manage a complex marketing communications system (often re f e r red to as the promotion mix), which cons i s t s of four major tools (Kotler 1991): Advertising: Advertising is defined below. It differs from the other com ponents of the promotion mix by being persuasive communication, from the company to an audience through the mass media. Personal selling: Oral presentation in a conversation with one or more prospective purchasers for the purpose of making sales. Sales promotion: Short term incentives to encourage purchase of a pro duct or service, i.e. through special incentives discounts. Public relations: A variety of programs designed to improve, maintain, or protect a company or product image. The balance between the elements of the promotion mix depends on the market. In business markets, personal selling tends to be the most important promotion activity. In most consumer markets, advertising is by far the most important component of the promotion mix. There are also significant differences in the importance of advertising in different industries. Thus, Kotler (1991) argues that advertising expenditures as a percentage of sales are low in industries such as the auto industry and high in industries such as food, drugs, toiletries, and cosmetics. What is advertising? Arens and Bovee (1994) put forward a common definition of advertising: Advertising is nonpersonal communication of information usually paid for and usually persuasive in nature, about products, services or ideas by identified sponsors through various media. The word advertising origi- 11

20 Advertising on the World Wide Web nates from the latin ad veterre, which means to turn the mind toward (Russel & Lane 1993). Advertising represents one of the most important ways that companies convey messages about their products and ideas to potential customers and stakeholders, and advertising revenues constitute the financial basis for thousands of TV stations, newspapers, and magazines. In 1993, global advertising expenditures in the main media constituted $204 billion (NTC Publications 1995). The last decades have witnessed a strong rise in advertising expenditures globally. Without advertising, it would be difficult for companies to communicate the existence of new products or services to a larger audience quickly enough to make the investments in developing the product or service viable. The increased importance of advertising in the most economically developed markets is to some extent driven by the falling barriers to imitation, which have reduced the differences between the core products in many product categories. Competition has gradually become more and more focused on creating strong brand images and associating positive values with the product - and advertising is one of the most effective ways to achieve these goals. Overall, advertising has many different purposes, such as long-term buildup of the organization s corporate image, long-term buildup of a particular brand, or information dissemination about a sale, service or event. In general, current advertising is a one-way communication process whereby standardized messages are dispersed to large audiences. Advertisements have become bundled with the general information push of the mass media (Negroponte 1995), which pushes the advertisements into the consumers minds. The bundling of advertisements with TV programs has made it possible for the advertisers to develop efficient forms of intrusive advertisements, which have an effect on the audience even though they do not take any significant interest in (at least some of) the advertisements as such. As the classical purposes of traditional advertising is to inform, persuade, and remind, the actual sale normally does not take place in direct connection with the exposure to the advertisement. Since exposure and transaction are usually seperated in time and space, advertising is functionally seperated from sales (Wells, Burnett, and Moriarty 1992). The medium is the message The current attitude towards what advertising is, the functions it includes, and how advertisements are designed, has been shaped by the technologi- 12

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