Banner Ad Strategy. A Brief Overview. Prepared by Frank Johnson. Internet Strategist & Webmaster

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1 Banner Ad Strategy A Brief Overview Prepared by Frank Johnson Internet Strategist & Webmaster

2 Purpose of Document The purpose of this summary is to describe the current state of affairs with regard to banner advertising: its uses and effectiveness. Average Cost The average banner ad rate (CPM) in June of 2000 was $ For entertainment sites, the average CPM is approximately $ For lifestyle sites, the average CPM is approximately $ In the U.S., the average is $25.00, while in Europe, it is approximately $ Music and streaming sites have rates ranging between $13.42 and $40.00, with the average being $ Cost per click (CPC) models run anywhere from $0.10 to $1.00 per click, with the average tending to be between $0.25 and $0.50 per click. General Effectiveness With the well-publicized decline in click-through rates for banner ads, is banner advertising worth pursuing in today s internet world? The average click-through rate is currently less than 0.4 percent. Why the slide in clickthrough rates? emarketer (http://www.emarketer.com) gives the following reasons: 1. Too many ads chasing too few viewers 2. The thrill is gone 3. Website clutter leads to over-saturation 4. Web surfers have evolved into searchers 5. Users are more discriminating While click-through rates are woefully low, other metrics are a bit more encouraging. According to research done by AdRelevance between January and May 2000, a strong positive correlation was found between online advertising and engaged visitors (those who spend at least three minutes a day viewing content at an online entity) at online retail sites. Of interest to us, the sector of books/music/movies showed a high correlation of 0.82 (with 1 indicating a perfect negative correlation, 0 indicating no correlation, and +1 indicating a perfect positive correlation). The Internet Advertising Bureau s 1998 Internet Advertising Revenue report found that a single online exposure can generate increases in brand and product attribute awareness and purchase intent. The survey of more than 200 companies, representing some 1,500 web sites and conducted by the newmedia group at PriceWaterhouseCoopers, also found that online advertising is more likely to be noticed than television advertising.

3 In November 1999, Andersen Consulting performed a nationwide survey of over 1,400 experienced internet users and found that banners were best at driving buyers to online stores: Ad Medium Percent who mentioned Banners 25% Newspaper / magazine ads 14% Television commercials 11% Radio spots 4% Billboards 4% In addition, a study of 365 respondents conducted by MediaCom Digital Executive Director Michele Mandansky last year showed that when interactive ads were viewed on a PC, or even on a TV, consumers recalled more message details from interactive ads than from traditional ones. Pogo.com, a free online games provider, recently released survey results regarding how consumers feel about web advertising on leisure-time sites. Here are the results: 1. 45% of respondents considered ads found on leisure-time sites to be less intrusive than advertising on non-leisure sites 2. Over 20% of all respondents indicated that they remember ads on leisure sites more than ads on other sites 3. 92% of respondents think that online ads are okay as a way to support leisure-time sites Much of this, it seems to me, can be attributed to the type of visitor who would come to a site which provides free online games (accustomed to staying longer, already attracted by sizzle, etc.). The same survey found that 2/3 of all online consumers spend four or more hours a week and almost 25% of users spend more than 11 hours per week at leisure-time sites. 54% of respondents chose ads for other online offers or websites while 32% chose ads for consumer products (as the ads which had the most impact on them). With regard to which advertising medium has the most influence on which sites they visited, 42% of respondents said ads on other websites, 32% said television ads, and 14% said magazine or newspaper ads. What Is Our Objective? The effectiveness of banner advertising depends to an extent on what our objectives are when utilizing banner ads. There are three major uses of banner ads: 1. Branding 2. Obtaining Conversion Events (sales, registrations, etc.) 3. Gathering Addresses (this is a relatively new development in the world of banner advertising).

4 Banner advertising, then, should be divided according to these three objectives (and its effectiveness should be evaluated separately according to these three objectives): 1) branding; 2) conversion events (in our case, sales and/or registrations); and, 3) gathering of addresses. Different metrics are important for each objective. Number and quality (targeted) of impressions is important for branding. Financial return on investment is important for sales and registrations (taking into account the financial worth of registered visitors). And volume and quality (targeted) of addresses gathered is important for the third objective. Branding Perhaps not surprisingly, in the face of declining click-through rates, internet advertising companies have recently begun to question the validity of the click-through metric. In a study performed by AdKnowledge (http://www.adknowledge.com) during the first quarter of 2000, it was found that banner ads serve as effective branding vehicles. The study found that 24 percent of banner campaign-related conversions (sales, registrations, etc. varies depending on what the site owner is after) resulted from an ad click; 32 percent came from users who viewed an ad but did not click; 44 percent came from repeat customers. The study concluded that, on average, across multiple advertisers and campaigns tracked by AdKnowledge over the last 6 months, there are more conversion events from users who only viewed an ad, but did not click, than from users who clicked. This yields three important conclusions: 1. The potential ROI impact of Internet advertising is much greater than previously thought, because advertisers only track sales from clicks and tend to ignore the brand impact on sales. 2. Advertisers who base decisions only on click or even post-click conversions may miss important effects of their campaign, including the impact of an impression on the propensity to convert. 3. As noted in AdKnowledge s Q Online Advertising Report, Repeat Conversions are also a significant source of returns on an advertisinginvestment. The study concluded that both the recentness of viewing an ad, and the frequency of having seen an ad, had an impact on consumer purchasing behavior. The pattern would suggest that a large number of purchases are a result of impressions, said Steve Findley, vice president of analytic services at AdKnowledge. The money being spent to reach people who don t click is bringing a return to the advertiser, he added. This shows that it is very important to try and track all conversions back to their source. Several ad management companies (such as AdKnowledge not surprisingly!) have the ability to track conversion events by serving the ads in a given campaign and placing one-pixel invisible GIFs on critical pages within an advertiser s web site. In tagging critical pages this way, the ad management company can associate requests for those pages with ad requests from a given user through the use of cookies. After crunching lots of data, the ad management company can tell us the number of conversions associated with a given ad placement, whether or not a user clicked on the ad.

5 According to the previously-mentioned research done by AdRelevance, successful online-only retailers such as Amazon.com and ebay have created a brand name by running regular online ad campaigns consisting of 168 million average monthly impressions. On the other hand, less successful companies, which often struggle with brand identity and differentiation issues, often have little to no online advertising and tend to operate in highly saturated or fragmented categories. The sobering thought for us in their research is that 168 million monthly impressions, at the average CPM of $34.06, represents nearly a $6 million monthly online advertising expenditure. With such an expensive point-of-entry, it seems to me that the most effective online branding approach for us is to run our banners through the Creative network (where our primary customer lives anyway). If we do decide to seek branding opportunities through banner ads outside of the Creative network, I would recommend the following limitations: 1. Simple branding can be accomplished by a small logo ad rather than a full banner. The cost will be less, but don t expect a lot of click-throughs. These would not be subject to the standard metrics described in this summary. 2. Similarly, sponsorships (where our name is tied to information) are meant to be branding avenues, rather than click-through magnets. A sponsorship is the linking of a brand with related content or context for the purpose of creating brand awareness and strengthening brand appeal in a form that is clearly distinguishable from a banner, button, or other standardized ad unit. Obtaining Conversion Events This is where the declining click-through rate becomes important. If the less than 0.4 percent clickthrough rate were the end of the story, it could easily be argued that banner advertising for the sake of obtaining conversion events is completely dead and that we should ignore it. However, there are two issues to keep in mind: 1. The less than 0.4 percent click-through rate is an average figure which takes into account both well-designed, well-targeted banners, and horribly-designed, horribly-targeted banners. With a well-designed and well-targeted banner, it is not outside the realm of possibility to garner a 5 or 6% click-through rate, which is obviously much more attractive. 2. When using banner ads to obtain conversion events, the effectiveness of a banner ad can be measured by simple return on investment calculations. With that in mind, the following metrics become important: How much is one visitor worth to us? (easily calculated by dividing monthly revenue by the number of unique visitors in a month) How many visitors does a particular banner ad bring? What does the banner ad cost us?

6 Then, if a visitor s worth multiplied by the number of visitors a banner ad brings is greater than the amount the banner ad costs us, then it is a good ad buy, regardless of how much the ad costs. Gathering Addresses This is one of the newest developments in the user of banner ads. It is now possible to include a text field within the banner ad where people can enter their address, click on a button to submit it, and never leave the site where the banner ad is displayed. This becomes the first step in the chain of permission marketing. The challenge with this approach is to make the banner ad so compelling that the end user will be distracted from the site they are on long enough to fill in their address and click on a Submit button. Miscellaneous Strategies The following is a list of recommendations which don t really fit in any of the categories above, but which we should keep in mind as we move forward with a banner advertising strategy: 1. While the standard banner size is overwhelmingly 468 x 60 pixels, there is no reason (other than a particular sites refusal) that we can t use odd banner shapes and sizes so that banners won t be initially thought of as banners by end users. We should also experiment with simple blue, underlined text on a transparent background to make the banner look like a link. 2. Banner Ad Campaign Steps a. Determine sites on which to buy banner ad space Fan sites Concert ticket sites General music sites General entertainment sites Etc. b. Determine keywords, categories, and web pages for banner ads (keywords for portal sites if any categories for directories, and web pages for individual web sites) c. Target banner ads stay away from general portal sites because the price will be too high and the audience won t be as targeted. On the other hand, who doesn t like music? Plus, we can buy keywords on music search results pages. d. Get rate cards

7 e. Get submission guidelines this helps you to maintain good relationships with banner ad reps (because you re making their jobs easier) which may lead to preferential treatment they may tell you in advance when certain keywords are coming available. 3. We should consider asking an ad agency to make banner ad buys for us so as to get an agency discount (but what will the agency s fee be?) 4. With regard to rich media format acceptance, html with pulldown menus, forms, etc. is still the overwhelming favorite, but acceptance of other formats (Shockwave, Flash, and many more proprietary formats) is growing. 5. Eye-tracking research shows that when a banner s creative aspects take precedence over the message, it tends to be less effective once engaged, users prefer messaging over gimmickry. This research also shows that a great banner on a poorly-laid-out site will do poorly. 6. We should think about buying banner ad space on printer friendly versions of high traffic articles because when the reader prints out the page with the banner ad on it, that represents continued branding opportunity. Think about types of pages which people will refer to over and over (maps, for example). This begs the question, though, of how many people actually use printer friendly versions instead of just printing out the article, map, etc. (from the socalled non-printer-friendly version of the page). 7. Since web site clutter leads to over-saturation (as suggested by the information above from emarketer), we should look to choose sites which are not cluttered on which to place our banner ads. 8. We should shy away from pay by impression models, at least at first. Using pay-per-click services will enable us to test our banners at a cost-effective rate prior to rolling out the banners to other sites. Burst Media will be a good candidate for us for a pay-per-click partner, as they have a relatively large stable of music-related sites on which they place banner ads. Even when our testing is done, pay-per-click services may be more costeffective, but we should test that theory using the formula under Obtaining Conversion Events above. We should also consider buying keyword-related banner space on major search engines, although I suspect the music market for such space is reserved for some time to come by the currently existing major players. 9. On a small note, and to place the banner ad issue in some context, we should be aware that conversion rates for visitors garnered through search engine optimization techniques are generally higher than for visitors garnered through banner ads (1.22 percent vs percent, respectively, according to a survey conducted by AdProve).

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