Why Advertising Dollars Are Shifting to Online Promotions

by Gordon Borrell Borrell Associates

We’re all tired of hearing about “tectonic shifts” and “fundamental changes” in the media world. But something truly remarkable did indeed occur a few years ago – something that signaled the end of a century-long Era of Advertising.

The marker appeared in 2007 as the economy was running on fumes and getting shakier by the day. That year, local businesses did something they had never done before. They began spending more on promotions and “owned media” — marketing channels that they control — than on classic advertising. And as the economy started to recover, they began spending a lot more. Promotions budgets, once relegated to things like coupons, windshield flyers and contests, were a lot bigger than ad budgets. They swelled to include things like website development, deal-of-the-day programs, loyalty clubs, and an array of techno-tasks that pushed SMBs into that vast digital cocktail party called social media.

While local marketers have fallen in love with promotions, it’s not sudden infatuation. The wheels were set in motion a few decades ago as advertising channels became overcrowded. Daily and weekly newspapers and local rack publications grew into the tens of thousands, swarming local communities. Newsstands exploded with magazines on golf, gardening, cigars, hunting, muscles, fitness, business, politics, and cooking. Ads appeared in cabs, elevators, convenience store checkout lines, on the back of grocery receipts, at gas pumps, in stadiums and even in bathroom stalls. Estimates now put the number of messages pummeling an individual every day at 5,000. How many are typically noticed? About a half-dozen.

The proof of what’s happening is in the numbers: Six years ago, local businesses spent 10% more on advertising than they did on promotions. Last year, they spent a stunning 81% more on promotions. Even as local advertising bounces back at a rate of 8% this year, the $101 billion they’re likely to spend will still be 16% less than what it was in 2007. Meanwhile, local promotions is forecast to be 33% more than it was in 2007, reaching $176 billion this year.

Is advertising dead? Hardly. Advertising can be a turbo jet on the flames of store promotions. Without advertising, contests don’t get very many entries, coupons don’t get redeemed and nobody shows up to get a free Independence Day hot dog at the local car dealership.

The money being plowed into promotions isn’t entirely coming from trimmed-down advertising budgets. It’s also coming from things like slimmer profit margins (taken through steeper discounting), the salaries of former workers who used to handle marketing tasks, and from agency fees, printing budgets and postage.

How can you take advantage of this trend? First off, realize that it is, indeed, a big deal. Local media companies that ignore the trend probably won’t die. But they won’t thrive, either. They are more or less the blacksmiths of 100 years ago who steadfastly refused to convert to auto-repair shops, thinking that horses, which still far outnumbered cars, would always be around.

I’d also suggest the following:

  • Adopt a formal plan to train your sales staff to employ a consultative sales approach. Advertisers are more confused than ever. The marketing world has become very complex to them. They need a marketing partner, not a salesperson.
  • Get proof that your sales staff knows their stuff. The world has changed, and good reps can become mediocre fast if they aren’t well educated. Consider a certification program like that offered by the Local Media Association.
  • Form a promotions team that meets once a quarter. Include some of your most creative people, as well as a leader and some do-ers. Work at least two quarters ahead on ideas to help local businesses market themselves around events and holidays. Right now, the team should be finishing up back-to-school promotions planning and starting on Halloween or fall weekend getaways.
  • Consider creating a digital agency like many other media companies are doing. This is a natural reaction to the marketplace demand for “services” type programs like social media management, app development, email management, etc.

I doubt we’ll ever see a return to the Era of Advertising we once knew, when a few TV commercials for Purell or Tide or a full-page newspaper ad for Sears were all it took to drive sales. But I am certain that someone who understands how to build a powerful promotional campaign fueled by the right kind of advertising will have local businesses beating a path to the door.

For even more ideas about how to capitalize on the shift to online promotions, read the top takeaways or watch the recording from our webinar about the future of online promotions and how to benefit. To learn more about how to use data to effectively target advertisers in your market, read this interview with Jim Brown, the Sales Director at Borrell Associates.

Get your copy of Your Planning Calendar for Promotions.