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									Online Marketing and Advertising Trends




ONLINE MARKETING AND ADVERTISING TRENDS

MARKETING—ONLINE
• Internet business projections are extremely                          Source Comparisons for US B2B
  variable. Projections for 2003 worldwide B2B e-                eCommerce Revenues, 2003 (in $Billions)
  commerce range from $1.2 trillion to $10 trillion.                                                              $3,161
  Estimate variation is the result of different                                      s
                                                                                   ic
  definitions of e-commerce, different economic                                om
                                                                           con p
                                                                                                               $2,780
  thinking, and hype. Thus, caution should be used in                 rE
                                                                   ute          rou                       $2,210
                                                                mp          gG
  relying on one source. (“Ecommerce:B2B Report,”            Co
                                                                     su ltin       rou
                                                                                       p
                                                                  on          eG                        $2,043
  eMarketer, www.emarketer.com/).                           sto
                                                               n C anke
                                                                                    ste
                                                                                        r
                                                          Bo         Y          rre               $1,311
• Opt-in e-mail campaigns will continue to be                                 Fo
                                                                                       n
  the e-marketing technique of choice. Custom                                   V isio           $1,113
                                                                             an
  pricing is becoming increasingly popular (e.g.,                    K een achs
                                                                              nS             $747
  Priceline.com and Ebay). (“Emerging Web Trends in                      ma         ete
                                                                                        r
                                                                     old        ark
  1999 Business Strategies,”                                       G
                                                                             eM
                                                                                            $634
                                                                                     IDC
  www.webtomorrow.com).
• There is an increasing number of companies using data mining (the use of mathematical
  algorithms to seek hidden patterns or associations in data), and a growing supply of customer analysis
  software suppliers, as data mining is seen as a competitive weapon which, when used effectively, could
  separate the winners from the losers. (Reimers, Barbara, “Data Mining—Sharpen Your Edge,”
  InternetWeek, May 15, 2000).
• Marketers are realizing one of the best advantages for online selling is an offline store.
  Weaving these together seamlessly so the consumer can buy any time and anywhere is called
  “360-degree marketing.” (Farrell, Greg, “Companies Mix Online, Offline Businesses,” USA Today,
  10/5/99).                                                                               Online Ad Revenue
•   Advertisers will find ways to better target their messages                                           in 2003
    through tactics such as browser tracking, user profiling, data mining,                     ia
                                                                                                        $1.3
                                                                                          As
    and permission-based marketing. (“Future Trends,”                                                    $2.8
    http://web.mit.edu/ecom/www/Project98/G2/future.html).                             Eu
                                                                                         rop
                                                                                            e
                                                                                                                    $10.5
•   Global markets will grow faster than domestic markets, with a                          US
    rapid escalation of Internet use in Europe and Asia. (Stone, Martin,                     l                              $15.0
                                                                                           ba
    Newsbytes, “Web Ad Spending May Outstrip Broadcast by 2005,”                        Glo
                                                                                                        in US $Billions
    3/28/00, www.info-sec.com/).
•   North Americans will remain the worldwide online                                                World’s Online Population
    marketing leader in both online population and online ad                                        2
                                                                                                           March 2000
    revenue. (Marketing News, July 3, 2000).                                             Ea
                                                                                             st
                                                                                      le            3
                                                                                   dd r i c a
•   The Nordic countries have the world’s highest                               Mi A f
                                                                                                        11
    penetration rates for the use of the Internet. This growth                           eri
                                                                                             ca
                                                                                                                    69
                                                                                     Am fic
    has raised speculation that Sweden could become the “new                    uth       ci
                                                                              So a Pa                              63
    Silicon Valley.” More companies will migrate to this part of the               i
                                                                                As urope                                        137
    world to tap the IT expertise. Thus, competition will increase in                 E
                                                                                            ca
                                                                                         eri
    the e-commerce arena, as Scandinavian dot com providers and                 rth
                                                                                     Am                  in Millions
    retailers go global. (“Scandinavian Countries Blaze the Trail in an       No




Penn State University Outreach Office of Marketing Research (July 2000)                                                               1
Online Marketing and Advertising Trends


    Information Technology Revolution,” Financial Times, May 11, 2000).
•   Web traffic is splitting into two realms—a few broad-based portals and thousands of vertical sites
    (“vortals”). Forrester predicts that 57% of all online ad spending will flow to vertical sites and
    affiliate networks by 2004 as more retailers seek greater returns from their investments. Even
    though broad-based portals have higher traffic, vertical and affiliate sites are more efficient at delivering
    qualified leads and customers. (“Ad Dollars Flow to Vortals,” February 1, 2000,
    http://cyberatlas.internet.com/).
•   Client-side agent technologies are reversing the direct marketing paradigm. Users specify what
    they’re looking for, and have their agent go out and find it. Vendors have to start thinking about how well
    their business or site will respond to customer offers. (Matsuda, Y., Rosenstein, P., Scovitch, C, Takamura,
    K., “Future Trends,” Direct Marketing on the Internet,
    http://web.mit.edu/ecom/www/Project98/G2/future.html).
•   Using the Internet for its global marketing potential joins brand-building across borders as
    key issues facing marketers. Strategic alliances between U.S. and foreign-based companies will grow.
    (Tedeschi, Bob. “What’s That Noise on the Internet? The Sound of Alliances Being Forged,” New York
    Times, June 7, 2000).
•   88% of Internet customers pay by credit card. (Gallup Poll, “Americans Say Internet Makes Their
    Lives Better,” Feb. 23, 2000, www.gallup.com/poll/indicators/indPuter_Net.asp).
•   Marketers are increasingly using Web sites aimed at the so-called Generation Y market
    (Americans born between 1979 and 1992) to collect information and sell goods—staying within
    federal privacy guidelines, but also counting on parents’ inattention to how their kids are surfing the Web.
    They often focus on general trends rather than specific addresses. In response, parents’ concern
    regarding advertising to kids more than doubled between 1998 (17%) and 1999 (45%).
    (Littman, Margaret, “How Marketers Track Underage Consumers,” Marketing News, May 8, 2000, Lim, C.
    and D. Turco, “The Next Generation in Sport: Y,” The Cyber-Journal of Sport Marketing,
    http://www.cjsm.com/vol3/lim34.htm).
•   Better ad performance measures and the scramble among dot coms trying to sell ad space means media
    buyers will insist on performance pricing. (Some companies are discovering that customer acquisition
    costs were as high as $1,000 per person through major portals!) Second tiers will start offering more
    flexible pricing. (Tedeschi, Bob. “Many Analysts Think Expensive Portal Deals Deserve More Scrutiny,” New
    York Times, May 1, 2000).
•   The e-tailer ad/marketing/PR budget
    emphasizes customer acquisition.                                           Allocation of eTail Ad/
    (“The State of Eretailing,” eRetailing World,                               Marketing/PR Budget
    March 2000).
•   In Q1 of 2000, retailers were responsible for the                   Customer
                                                                         retention
    largest increase in online ad spending, 534%,                          18%
    and spent $25.9 million. Seminars, schools                                                         Customer
    and camps showed the second largest                                                                acquisition
    increase in online ad spending, 197.6% and                                                           49%
    spent $5.9 million. (Intermedia
    Communications, “Online Ad Spend Up by 80                               Brand
                                                                          awareness
    Percent in Q1,” NUA,
                                                                             33%
    http://www.nua.ie/surveys/).




Outreach Office of Marketing Research (July 2000)                                                               2
Online Marketing and Advertising Trends


•   Partnerships/alliances among e-commerce businesses are growing quickly and allow companies
    to string together a value proposition by creating a coalition of value. (Tedeschi, Bob. “What’s That Noise
    on the Internet? The Sound of Alliances Being Forged,” New York Times, June 7, 2000).


ADVERTISING—ONLINE
• Banner ads will proliferate, with a current average response rate of .5 percent, as they become
  increasingly targeted and interactive (live). (Ott, Karalynn, “Banners of Change,” BtoB, June 19, 2000).
• As broadband Internet access becomes widely available in the next few years, online ads will take on
  more television-like attributes through rich media. (Fox, Loren, “The Banner: Unsung Hero,”
  Upside, April 2000).
• New combinations of interactive e-marketing will be evident, with e-marketing paired with more
  traditional advertising such as TV and billboards. (Mack, Tim, “Electronic marketing: What You Can
  Expect,” The Futurist, Mar/Apr 2000).
• Click-through rates (CTRs) will become more irrelevant metric as banners become more
  interactive and are used more for branding. CTR will be replaced by offline research (e.g., focus
  groups) and Cost Per Acquisition (CPA). (Ott, Karalynn, “Banners of Change,” BtoB, June 19, 2000).
• The #1 barrier to online advertising continues to be no proof of ROI (49%). However, the level
  of viewer involvement and low level of “click-throughs” cited by 35% of respondents and non-impacting ad
  formats (29%) are new, important obstacles. (“Fourth Annual ANA Web Site and Internet Advertising
  Survey Shows Major Increase in Use of Web to Develop and Improve Brand Loyalty: Internet Advertising
  Spending Triples as Marketers Focus on New Challenges,” May 9, 2000,
  www.ana.net/about/ananews/05_09_00.htm).                                US Web Advertising, in billions and
• By 2004 Internet-Based Ads Will See the                                       as % of Total Spending

  Sharpest % Growth Within Marketing Budgets,                         25
  But Online Will Remain a ‘Poor Relation’ to
  Broadcast. (BW, Fletcher-Research, FORR, “By 2004                   20          Billions $ Spent
                                                                   Percentage




  Internet-Based Ads Will See the Sharpest % Growth                   15          Percent of Total
  Within Marketing Budgets, But Online Will Remain a
  ‘Poor Relation’ to Broadcast,” Jan. 24, 2000).                      10

• While online advertising accounts for only a                          5
  small percentage of overall ad budgets, its share
                                                                        0
  is increasing. (“eAdvertising Report,” eMarketer, June
                                                                                  97

                                                                                  98

                                                                                  99

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                                                                                  01

                                                                                  02

                                                                                  03

                                                                                  04

  2000, www.emarketer.com).
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• Hybrid pricing continues to account for over half                     Est. US Ad Spending Allocation 2003
  of industry revenues (combination of impression-
                                                                             Others
  based pricing plus performance-based compensation).                         20%
                                                                                                      Newspaper
  (PriceWaterHouseCoopers, “IAB Internet Advertising                 Online
                                                                                                          31%
  Revenue Report: Executive Summary, 1999 Second-                      9%
  Quarter Results,” www.iab.net/).
• Online advertising spending levels tripled for                          Radio
  major US companies in 1999 to an average of just                          7%
  under $2 million per company. (Association of National            Magazine                      TV
                                                                       8%                        25%
  Advertisers. “Fourth Annual ANA Web Site and Internet
  Advertising Survey Shows Major Increase in Use of Web to Develop and Improve Brand Loyalty,”
  www.ana.net/about/ananews/05_09_00.htm).


Outreach Office of Marketing Research (July 2000)                                                             3
Online Marketing and Advertising Trends


•   The more targeted the advertising gets, the more it will cost. Expect an increase of 25% for one
    targeting element, 30% for two, 35% for three, etc. (Ad Resource, Sample Ad Rate Guide,”
    http://adres.internet.com/adrates/).
•   Dot-coms are cutting ad spending. The first quarter of 1999 showed an average of 83% of revenues
    spent on sales and marketing (SMR ratio). In the second quarter of 2000, the SMR ratio dropped to 61%.
    (Mowrey, Mark, “Dot-Coms Cut Ad Spending,” The Standard, June 12, 2000).


E-MAIL MARKETING                                                                                   SMR Ratio
• Partnership e-mail marketing (opt-in/opt-out partnership between the                       83%
   buyer and the seller) will grow. Most will follow the “40-40-20 Rule” of                                61%
   direct-mail success (copy, graphics, etc. 20%, the right price, product, deal
   and seller mix, 40% reaching the right audience, list, media, advertising
   forum)(Mack, Tim. “Electronic Marketing: What You Can Expect,” The
   Futurist, March/April 2000).
                                                                                         First Qtr '99 Second Qtr
• With the amount of commercial e-mail being sent to US consumers                                           '00
   projected to grow 40 times over the next few years, a host of strategic
   issues arise for e-mail marketers including falling customer
   response rates and security/privacy issues. Therefore, it’s imperative to improve outreach efforts
   immediately —integrating messages across media channels, growing house lists, and incorporating
   feedback for improved targeting—or risk increasing opt-out rates. (Regan, Keith, “Report: E-Mail Marketing
   to Reach $7.3B by 2005,” E-Commerce Times, www.EcommerceTimes.com, May 9, 2000)
• Not all e-mail marketing is equally effective. Marketers must use e-mail to open dialogue with
   customers, starting slowly and gradually building a rapport to allow more personal information to be
   gained. This will enable a fine-tuning of the marketing and sales message. (Regan, Keith, “Report: E-Mail
   Marketing to Reach $7.3B by 2005,” E-Commerce Times, www.EcommerceTimes.com, May 9, 2000).
• E-mail is a cost-effective, high response rate vehicle to acquire and retain customers, sell and
   promote products, drive loyalty and reinforce branding efforts. It can boast a swift time-to-market
   and a strong ROI. (Jupiter Communications, “Explosion in Commercial Email Likely,”
   www.jup.com/company/).
• Marketers can increase the value of e-mail through:
   o Integration across media, channels, and data.
   o Maintaining message consistency across all media; the tone and message of e-mail should reflect
       the look and feel of print, banner, and broadcast campaigns.
   o Growing one’s internal e-mail database effectively.
   o Capitalizing on the closed-loop environment that e-mail provides by integrating all available
       data; marketers must leverage and feed back into e-mail efforts as much consumer data as possible,
       including response rates, purchasing behavior, and demographics.
   o Viral Marketing is a low-barrier, low cost, highly effective new Internet strategy. The concept—also
       known as referral marketing—centers on the premise that computer users read e-mail forwarded from
       friends and forward that e-mail to others (Fanous-Samaan, Sarah, “Viral Marketing Spreads Messages
       with Entertainment,” BizJournals.com/Tampa Bay, December 20, 1999). (Jupiter Communication. “E-
       mail Marketing to Soar to $7.3 Billion in 2005 Cannibalizing 13 Percent of Direct Mail Revenues,” May 8,
       2000, www.jup.com/company/).




Outreach Office of Marketing Research (July 2000)                                                              4
Online Marketing and Advertising Trends




BRANDING—ONLINE
• The gap between informational uses and
  commercial uses of the Internet is widening.                         How Consumers Use the Internet
                                                                                     5.55
  While more people use the Internet to research products,             6
  privacy and security concerns greatly hamper online                  5
  purchases. 58% of survey respondents don’t believe                   4
                                                                           3.89           3.55      Informational
  there is any way to make e-purchases secure. 85% think




                                                                    Likelihood
                                                                                                    Use
                                                                                2.69
  that privacy intrusion will increase. The survey results             3                            E-Commerce
  suggest that an effective way to reduce privacy intrusion            2                            Use
  concerns is by developing brand equity. While everybody              1
  is expending energy to create brand awareness, few have
                                                                       0
  tried to develop key brand attributes that address
                                                                           Current    Future
  consumer needs such as privacy and security. (Gervey,
  Ben and Judy Lin, “Obstacles on the Internet,”
  Advertising Age Special Issue: The Interactive Future).
• There is no consistent correlation between ad spending and “top of mind” brand awareness
  for Internet companies, according to a survey conducted by Greenfield Online for HMS Partners (Ad
  Resource, “Ad Spending Doesn’t Equal Brand Awareness,” http://adres.intenet.com/).
• Companies have realized the Internet’s potential for brand advertising, as opposed to direct
  sales. (Tedeschi, Bob, “Net Advertising Potential is Large,” The New York Times on the Web, August 18,
  1999).
• Intuitive Domain Branding is threatening markets long dominated by the giants. Before the
  Internet explosion, building an authoritative brand required large marketing staffs, multi-million dollar
  budgets, and decades of hard work. Today, a single individual can accomplish the same task on a modest
  budget in a relatively short period of time by acquiring strategic domain names in large quantities to build
  a proprietary network which is just a click away after entering a few key words into a search engine.
  (Yeager, Trisha, “Intuitive Domain Branding, Ad Resource, July 7, 2000, http://adres.internet.com/).
• Because of the number of Internet sites and messages consumers get bombarded with, people need a
  shortcut to understand what’s valuable. Branding provides a consistent, unifying message that boils down
  to “Here are the promises we keep”. It’s imperative to instill brand identity on the website
  homepage. (Association of National Advertisers. “Fourth Annual ANA Web Site and Internet Advertising
  Survey Shows Major Increase in Use of Web to Develop and Improve Brand Loyalty,”
  www.ana.net/about/ananews/05_09_00.htm).
• Helpfulness Marketing is an emerging trend that is replacing manipulation marketing.
  Helpfulness brings the visitor to your site, makes him a client, and keeps him loyal. The three major
  principles that form the foundation for Helpfulness Marketing are:
  o Learning
  o Cooperation
  o Community
  (Paul Siegel, “Helpfulness Marketing,” Internet Marketing Tips, http://linz1.net/freep150.html).




Outreach Office of Marketing Research (July 2000)                                                               5
Online Marketing and Advertising Trends


•   Branding Venues:
    o Ezine/newsletter advertising
    o Regular mailing
    o Custom domain name
    o Newsgroups, forums & online communities
    o Exchanging Links
    o Media/press releases
    o Web site URL/E-mail tags
    o Publishing articles
    o Banner ads
    o Traditional media
(Jobst, Joseph, “Branding on the Net,” JosconNetworks Inc.—Global Internet Marketing, Inc.,
http://linz1.net/).

ONLINE COMMUNITIES
• The Internet’s power to create, sustain, and leverage communities of customers will become
  an increasingly powerful marketing tool. (Barlow, Richard, “The Net Upends Tenets of Loyalty
  Marketing,” Advertising Age, April 17, 2000).
• Successful marketers will cultivate and manage their online communities through customized
  messages (identifying the individual by name), rewarding the individual for their continued support and
  interest, and recognizing the passage of time and the strengthening of the relationship. (McWilliam, Gil,
  “Building Stronger Brand Through Online Communities,” Sloan Management Review, Page 43, 4/1/2000).
• Online communities created by the seller offer many attractive links with key buyers/users.
  Marketers contact them about new product design and enhancements, testing new products, and
  capitalizing on members as opinion leaders. (McWilliam, Gil, “Building Stronger Brand Through Online
  Communities,” Sloan Management Review, Page 43, 4/1/2000).


CORPORATE OBJECTIVES FOR BUILDING WEB SITES
• The top two objectives in developing web sites as reported by corporations remain providing product and
  service information and increasing brand and corporate awareness. However these two reasons have
  declined somewhat in importance over the last year. Using the Internet to develop and improve
  brand loyalty and providing customer service rose in importance as corporate objectives.
  (Elliott, Stuart, “A Study Says Many Traditional Marketers are Quickly Becoming Devotees of Cyberspace,”
  The New York Times, 5/9/2000).

•   Web Site Management Statistics (for Large US companies)
     Average number of web sites per
                                                               6.1
     company
     Total staffing to support web sites                       35
     Average development cost of web site                   $536,000
     Average maintenance cost per web
                                                            $591,000
     site
    (Web Site Benchmarking Survey of the Association of National Advertisers 2000).




Outreach Office of Marketing Research (July 2000)                                                             6
Online Marketing and Advertising Trends




•   Web Marketing Measurement (for Large US companies)
     Media most successful in driving
                                                Percentage of ANA Respondents
     traffic to web sites.
     Traditional media                                        24%
     Search engine registration                               14%
     Internet advertising                                     13%
    (Web Site Benchmarking Survey of the Association of National Advertisers 2000).

•   Advertising (for Large US companies)
     Percentage of US companies
                                                               64%
     advertis ing online
     Average spending level of US
                                                            $1.9 million
     companies on online advertising
     Online advertising as a percentage of
                                                              2.8%
     companies’ total advertising budgets
     Average online advertising production
                                                             $441,000
     costs
     Predicted level of Internet advertising
                                                             $9 billion
     by 2002
     Web site cost per 1,000 viewers                            $5
     Direct mail cost per 1,000 viewers                        $50
     Spending by US companies on
                                                           $87.5 billion
     traditional advertising in 1999
     Overall ad spending worldwide in
                                                          $431.6 billion
     1999
     Projected overall ad spending
                                                          $464.4 billion
     worldwide in 2000
    (Web Site Benchmarking Survey of the Association of National Advertisers 2000, Jupiter Communications,
    Wall Street Journal Europe, and McCann-Erickson Worldwide).

•   Barriers to Online Advertising (for Large US companies)
                                                Percentage of ANA Respondents
     No proof of ROI                                          49%
     Low level of click-throughs                              35%
     Ad formats not impactful                                 29%
    (Web Site Benchmarking Survey of the Association of National Advertisers 2000).




Outreach Office of Marketing Research (July 2000)                                                            7
Online Marketing and Advertising Trends




•   Commercial E-Mail
     Average number of commercial e-                1999—40
     mails received annually by the US              2005—1600
     consumer
                                                    1999—$164 million
     Commercial e-mail market                       2005—$ 7.3 billion
     Percent of US companies spending
     between 1% and 5% of marketing                      65%
     budgets on commercial e-mail
     Percent of US companies spending
     more than 5% of marketing budgets                   22%
     on commercial e-mail
     Decline in direct mail revenues as
     result of commercial e-mail                         13%
    (Jupiter Communications).




Outreach Office of Marketing Research (July 2000)                        8

								
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