Optimizing Online Ad Spending

McDonald’s, Colgate-Palmolive, Kimberly-Clark and Unilever learned the value of shifting ad budgets online. Now IAB President and CEO discusses what you can learn from their participation in the Cross-Media Optimization Study

18 April 2003

“…There is real growth coming back to online advertising, and this time, the emphasis is on real: it is from the traditional advertisers…. We believe that there is increased awareness among traditional marketers that the Web is a powerful and cost-efficient medium that is heavily underutilized. This does not mean that there will be an immediate shifting of the budget allocations from other forms to online, but it does indicate the beginning of what we believe may be a robust double-digit growth for online publishers…. We believe over the next three years, we will see a major evolution in the way marketers use online media.”
–Safa Rashtchy, Senior Research Analyst, US Bancorp Piper Jaffray, in the “Silk Road Weekly” newsletter, 14 April 2003

If only there was some research to back up Mr. Rashtchy’s comments.

Actually, there is.

The Interactive Advertising Bureau (IAB) just completed a seven-city road show to present findings from its Cross Media Optimization Study (XMOS) conducted with four well-known brands: McDonald’s, Colgate (Colgate-Palmolive), Kleenex (Kimberly-Clark) and Dove (Unilever).

Each study sought to determine the optimal media mix for reaching marketing goals. For example, without spending a dime more on advertising, could McDonald’s raise brand awareness for its Grilled Chicken Flatbread Sandwich by shifting some of its budget from television to the Internet?

The results consistently suggest that all participating brands could benefit by shifting more of their advertising budgets online. Three of four brands spent 3% or less of their budgets online, yet the research shows the optimal mix for all four involves spending at least 10% of budgets online.

This is just the beginning. IAB President and CEO Greg Stuart told eMarketer what’s next.

eMarketer: Looking at these XMOS findings, how universally applicable are they? Can most companies improve results by shifting a portion of advertising budgets online?

Greg Stuart: I’m going to say yes. But in fairness, let me say that certainly the studies that have been conducted now have all indicated that same pattern, so it would seem pretty clear to us that with different dynamics, we would really believe that. But at the end of the day, to be really legitimate, you’d probably want a couple hundred studies before you make such a broad, sweeping statement.

One of the biggest drivers is that online is significantly undervalued relative to its effectiveness. As long as that condition exists, then yes, we probably can expect all the studies to be pretty positive towards online.

eMarketer: You mention how you’d like to see hundreds of studies on this. Is the IAB prepared to help make that happen?

GS: Yes and no. Yes, we’ll do everything we can, but we ourselves would never do a hundred studies. We are in the process of patenting the methodology, and we are in conversation with a couple professional research organizations for them taking on and adopting this methodology as a product that they make available. From that standpoint, yes, we are trying to create the dynamics in the marketplace so that hundreds of these studies can be going on.

Interestingly enough, a lot of the other media have done cross-media effectiveness studies in the past, but to the best of my knowledge, nobody has ever gone out and tried to change the basic infrastructure, which is really what the IAB’s trying to do here. We’re trying to provide a new toolset that allows marketers to make better decisions, and nobody’s ever done that before.

eMarketer: Did any of the results surprise you?

GS: I’ll tell you a couple things that surprised me, and I’m going to speak on behalf of Rex [Briggs, principal, Marketing Evolution, an XMOS research partner] for a moment, if I could, since he’s more of a purist in terms of starting with a clean slate as a pure researcher — he has said very publicly that he is astonished at how dramatic the results were. He expected to see maybe 4% or 8%. He didn’t expect to see low-involvement categories as high as 15%, and we should expect to see even higher percentages for the high-involvement categories, so that’s pretty dramatic.

But again, if you look at how the pricing dynamics have acted, there’s a part of it that says, “Okay, that makes sense.” It just is a dramatic shift as to where a marketer’s been. In fact, a marketer, Colgate, looked at this thing. Everybody grilled it, drilled it, pulled it apart and really tried to tackle the whole thing. In the final conclusion, Jack Haber [Colgate-Palmolive Vice President of E-Business] goes, “The biggest problem I have with this research…” And everybody’s like, “Yeah, what’s the big problem?” He says, “The results are just too damn good.” The data’s the data.

eMarketer: You’ve been touring awhile now. Has there been any different reaction among the different cities you’ve gone to, or are there any different types of questions being asked?

GS: One of the differences was the San Francisco audience was, I think, even more positively hyped about the business than some of the other cities. I think that in the sort of home of the Internet, you would expect that kind of thing. There seemed to be a certain amount of, “Well, of course this is the way it would work.”

It was interesting speaking to Morristown, New Jersey in that those were marketers, and they were able to articulate pretty clearly the challenge that they have within their own companies of getting this message out. They really feel that everyday, where the San Francisco people are all about change. It’s a much different dynamic.

We had 350 people in New York, 250 in San Francisco and we had 200 in LA.

eMarketer: I was also impressed, when I was at the New York presentation, by the kinds of people coming.

GS: Yes, definitely. They weren’t IAB publishers or IAB members. The thing that got my attention in New York is that I looked out at the audience, and I did not know most of the people in the audience. That told me we had done the right thing.

The other thing too is that we’re getting a lot of interest from marketers who now want to go do this research. I mean, I’ve got probably 12 different brands in the pipeline at various stages who have expressed a strong interest in doing this research.

eMarketer: You said you’re trying to patent it, but how many more will you take on yourselves?

GS: We’re looking for the right marketers who have a real desire to learn, and not just prove a point. We’ll probably continue to do this through the end of 2003.

eMarketer: How hard was it to get the original companies to be the guinea pigs for this?

GS: We purposely chose to work with big brand names, so big brand names tend to take a little bit longer. It took us initially four to five months to get the first one and then within two months all the original six were involved. Now that the information’s out there, we’re finding that process to be so much easier. You’ve got to applaud the courage of the marketers who stepped forward originally.

We had Jack Haber with us in New York, we had Neil Perry [Senior Director of Digital Marketing, McDonald’s] with us in Chicago, Jack came out and did New Jersey with us and Brad Santeler [Interactive Services, Kimberly-Clark] just did San Francisco and LA with us. It’s nice to have those marketers put their personal names behind this.

At the same time too, I think what we’ve recognized is change comes slow. It’s going to take time.

You can reach Online Editor David Berkowitz at [email protected].

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