Time to Look for Advertising Bargains

CU360
January 8, 2010 | COMMENTS

Most credit unions purchase advertising in one form or another. But traditional advertising options—newspapers, radio, television, billboards—are now competing with online options, creating a buyers' market for advertisers. And the advertising rates you pay should reflect that.

This shakeup offers advantages for advertisers, according to a recent report from the Congressional Research Service. These include lower distribution costs, the ability to target ads to individuals rather than broad groups, and more precise tools to measure ad impact. The changing structure of the market is also forcing changes in ad presentation and content, with implications for consumer privacy, Internet regulation, and media profitability.

By most estimates, U.S. ad spending declined by 15% during 2009, prompting advertising agencies and media companies to lay off thousands of workers and curtail production. While online advertising has slowed during the recession, it's expected to claim a growing share of the market over the long term. Internet advertising has nearly doubled since 2005, to about 12% of the market. Some forecasts call for it to more than double again by 2014.

The online market potentially offers major opportunities for advertisers. Smaller businesses can place their ads in front of millions of people at a low cost. Technology makes it possible to measure the effectiveness of ads by counting the number of consumers who click on online offerings or watch online videos. Cell phones and other mobile devices give advertisers more access to more consumers for more hours of the day. And companies have increased ability to fine-tune ad strategies, with many now buying and adjusting media on a weekly or daily basis, rather than at set intervals during the year.

Advertisers can also directly tout their products online, which has spurred growth in so-called “below-the-line” marketing, such as corporate Web sites, blogs, and e-mail solicitations. Below-the-line marketing appears to be crowding out some “above-the-line” spending—the term generally used to refer to media-based advertising.

At the same time, the vast proliferation of ad-supported Web sites, online videos, blogs, and other offerings has created more supply than can be readily sold, helping to depress advertising rates in both online and in conventional media markets. Advertisers also are discovering that it can be challenging to connect with online consumers, who have more power to screen content via pop-up blockers and digital recording devices.

Consequently, firms are experimenting with new tools. The Internet, with its wealth of information about consumer behavior, is moving the practice of demographic targeting to a new level. Advertisers are using behavioral advertising in conjunction with online search and other strategies. And companies are aiming to become part of ongoing digital consumer conversations, tapping into social networks, creating mobile phone applications, and working with popular bloggers.

The most successful approach to date is search advertising, where companies like Google and Yahoo sell ads as part of consumer-initiated searches on their browsers. Search advertising accounted for nearly half of digital ad revenues in 2008, with the top 10 digital ad firms garnering 71% of online revenue in the second quarter of 2009.

Lawmakers are now debating the feasibility of updating advertising laws for the Internet age, without stifling growth or unduly hurting media outlets. House members are mulling legislation to enhance privacy rights, which could limit the growth of behavioral advertising. The Federal Trade Commission has released guidelines calling on bloggers to disclose paid product reviews. Other potential issues include looking at advertising in online games and online political advertising.