Online Advertising - The Cost Effective Option

After a dismal 2001, the entire advertising industry is looking forward to a more robust 2002. CMR, a leading advertising research firm, projects overall ad spending to rise 1.5% in 2002, up to $96.1 billion from an estimated $94.6 billion in 2001. The outlook is even better for the online advertising sector — eMarketer estimates that online advertising will grow 11% this year, far outpacing the anticipated growth given by CMR for advertising channels like network TV (2%), magazines (0.6%), and newspapers (3.1%).

One of the main reasons why online advertising is projected to grow in 2002 more than other forms of advertising is *cost effectiveness*. The recent Internet fall-out has led to rock bottom media costs and creative agencies that are willing to work for less than before. When examining the raw costs of producing and placing an ad in a variety of media, we predict that online advertising will continue to make in-roads into traditional ad budgets as long as costs are contained and the medium continues to deliver targeted results.

Let’s look at the cost comparison.

Network TV

Network TV is still the preferred method to reach the masses with virtually unlimited creativity and emotional appeal. Because of this, network TV is favored by enormous brand advertisers in the consumer products, auto, pharmaceutical and financial industries. Of all the media available, the TV spot remains the most expensive, both to produce and to place. A 30-second spot produced by a reputable advertising agency will cost anywhere from $30,000 to $300,000 (or more if the spot employs a famous spokesmodel, athlete or TV personality, or was shot in an exotic location).

Air time is purchased in large blocks far in advance and is difficult to change. A 30-second spot during this year’s Super Bowl cost $2 million. The season finale of ER will cost less…but not by much. At these costs, TV allows no room for error, with testing being regulated to focus groups only.

Print

Print ads are the staple of the advertising world. There are literally thousands of newspapers and magazines to advertise in. The majority of publishers provide their advertisers with remarkably similar creative options (black & white vs. color, full-page vs. half-page or quarter-page, front cover vs. back cover, etc.). Agency production costs for a 4-color print ad usually runs in the $30,000 - $50,000 range depending upon the strategy, copywriting and art/photography required. Again, if the ad uses an image of a celebrity, the costs can increase exponentially.

Rates for ads in major newspapers and magazines are based upon subscriber quantity and quality. For example, the Wall St. Journal, with a circulation of about 4 million readers, charges $150,000 for a full-page black & white ad and $200,000 for a full-page color ad. Half-page ads run about 55 - 60% of that cost. And these prices are for ads that have a “shelf life” of only one day!! Fortune magazine charges $75,000 for a full-page black & white and $107,000 for a full-page color ad. People Magazine, a non-business but widely read magazine, is even more expensive, at $128,000 for a full-page black & white and $160,000 for a full-page color ad.

Direct Mail

Direct mail, which comes closest to the Internet model and its pricing, is nonetheless still considerably more expensive than a similarly sized email marketing campaign. Production costs include not only the copywriting, design, and development of the creative, but also the costs of printing and mailing (don’t forget that every time the U.S. Postal Service raises the price of stamps they raise the prices for direct marketers as well).

Graphic design for a simple DM package (outer envelope, personalized letter, brochure, and reply card/envelope) can range from $2,000 - $5,000 or more. The custom laser printing, sorting, and mailing of the piece will cost several thousand more depending upon volume. The Gartner Group estimates direct mail costs at $500 to $700 CPM.

Direct mail efforts geared toward generating a response is called direct response marketing, and with it can come additional costs such as P.O. box rental (to collect all those mailed in responses) and lockbox/caging (the process of collecting, sorting, and recording money sent in via response mail). Lastly, while DM campaigns offer greater testing capabilities than TV or print, costs can rise dramatically if a campaign is changed/optimized too often.

Which brings us to…

Online Advertising

Online advertising can be the least expensive of the four mediums examined, and as marketers gain more experience, it is becoming one of the most efficient ways to advertise. There are a variety of creative executions possible - banners of varying sizes, HTML emails, text emails, rich media, etc. A static banner should cost around $1,000 - $2,000 to produce. HTML emails can be up to double those costs, while text emails should be cheaper. Rich media is more expensive to produce and can range from $4,000 to $10,000 depending upon the complexity of the piece and the shop doing the work.

In addition to low production costs, online media is typically the least expensive placements to buy. CPM’s for graphic banners, buttons and links have dropped to single digits on many sites, with some publishers even offering Cost-Per-Click or Cost-Per-Acquisition deals in order to attract advertisers (options that are not even feasible in the other mediums). On the email marketing front, CPM’s for double opt-in lists are generally in the $150 - $400 range (which includes targeting selects like geography, job title, etc).

What does it all mean? Online advertisers can reach more people for less money while building their brand and enjoying measurable direct response. In 2002 try shifting more of your marketing dollars online. You’ll get more bang for your buck.

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