Why Clients Withhold Ad Spending Online

NEW YORK It’ll come as no surprise to even the most casual industry observer that many marketers are shifting more of their ad dollars online. And perhaps even less surprising is that there are significant obstacles preventing an even greater flow of dollars to the Web.

So the release last week of a McKinsey & Co. report called “How Companies Are Marketing Online” reaffirms what many already believe: that an absence of meaningful metrics and adequate capabilities are the key issues troubling many marketers today.

McKinsey polled 410 marketing executives in five sectors, and among those already advertising online, 52 percent said “insufficient metrics to measure impact” was the biggest barrier, followed by insufficient in-house capabilities (41 percent), the difficulty of convincing management (33 percent), limited reach of digital tools (24 percent) and insufficient capabilities at agency (18 percent).

Taken collectively, the capabilities problem inside client companies and agencies represents a larger percentage of the responses (59 percent) than the metrics issue (52 percent). The result was similar among respondents not currently advertising on the Web. Still, client consultants and industry officials believe accountability is the biggest hurdle marketers face when looking to boost their presence online.

“The foundation is clearly there to ramp up in accountability. [But] it ain’t as easy as it would seem initially,” said Bob Liodice, president and CEO of the Association of National Advertisers. “These are levels of science that are evolving, and they are not as black and white as measuring the number of boxes coming off an assembly line.”

Indeed, although a majority of the respondents to McKinsey’s survey find online vehicles to be more efficient than traditional advertising, the relative newness of the medium and its still developing benchmark data make it a hard sell internally to bosses who demand accountability, said client consultants. What’s more, the multiplicity of online channels can make it difficult to isolate what’s working and what’s not, digital agency chiefs said.

“The whole issue of measurability is very big,” said Peggy Mitchell-King of Aquent Consulting in New York. “A classic corporation demands accountability for its investments.”

Added TBWA chief digital officer Colleen DeCourcy: “I’ve heard clients say that what they’re looking for is more accountability. People want to have that proven because nobody gets fired for making a TV commercial at the moment.”

McKinsey did not identify the global companies that the survey respondents work for, but said they came from sectors such as retail, telecommunications, technology, business services and energy.

In a footnote to a report about the study, McKinsey wrote: “We asked respondents about the frequency and effectiveness with which they applied Web-based digital techniques to five core marketing functions: sales, services, advertising, product development and pricing. We also asked about future plans for digital marketing, including where the respondents anticipated spending more money in the future.”

A third of the respondents that advertise online are already spending more than 10 percent of their budgets on it; by 2010, twice as many expect to spend at least that much online, according to the survey. And 11 percent of all respondents expect to spend more than half of their budgets online within three years.

With online spending climbing into double-digit percentages of the overall marketing spend, the potential bounty for digital players is huge. For example, telecoms, technology companies and retailers alone last year spent more than $30 billion domestically, including $2.5 billion online, according to TNS Media Intelligence.

Within the online realm, video and search efforts are rising in popularity, with display ads and e-mail receding in the mix, the survey confirmed. Respondents are most likely to increase spending on the former efforts and least likely on the latter.

The emphasis on search in particular makes sense given how consumers typically seek information on the Web. “We’re search driven. So search is really, really, really important,” said DeCourcy. “It just puts a fine point on how do you measure word of mouth?”

That said, whatever today’s popular mode of communication is could become passé or obsolete in three years, a virtual lifetime in the Internet era. “I am very wary of format predictors that go three years out because the variety of tools and means of reach there is changing so quickly in the marketplace,” said Young & Rubicam chief digital officer Tarik Sedky.

Regardless of the mode, clients and agencies are all scrambling to keep pace with consumers whose desire to live and shop online is growing. By 2010, McKinsey’s survey respondents expect a majority of their customers to discover new products or services online and a third to purchase goods there.

Indeed, the surging popularity of Web commerce has left more than a few marketers kicking themselves for not getting there sooner. “Yeah, I think we’re all behind,” said Liodice, with a laugh. “But we’re all ahead for wanting to do that.”