Why are Online Advertising ROIs Dropping?

In our recent report “ROI Genome: 2017 Marketing Intelligence Report,” one of the key findings we shared was the coming convergence of Offline and Online ROI and how it will force marketers to be more sophisticated in their approach to their mix and analytics. But what does ROI convergence really mean? And why is it happening?

First let’s take a good look at the chart:

Looking back all the way to 2004, Offline ROI seems pretty stable. That makes a lot of sense. Offline advertising, which, by spend is predominantly TV, is a mature channel. It has reached an equilibrium between supply and demand. Online, however, currently has a higher average ROI (across all tactics) but has been dropping over the last few years.

This does not mean that online ads are less effective. In fact, in many ways they have increased in sophistication of targeting. But the costs of these ads have rose steadily and supply has not increased at the same rate. The ads work, which is why more brands buy them, which causes the price to increase.

This is clear from what we saw in the report. Of the brands included in the ROI Genome Report study, 61% increased online marketing spending from 2015 to 2016. Within these brands, the average contribution of online spending more than doubled, increasing from 6% of total marketing spending to 15%.

Eventually the price will increase to the point there is no online ROI advantage when compared to offline. At this point the ROIs will be on average, equal.

At this point it will be much more important that you understand the effectiveness of your advertising and marketing. You won’t be able to just put money into digital knowing it will provide a good return on investment. And as all channels and efforts interact and have indirect impacts on each other, you will need to be sophisticated about your marketing mix.

But of course, converging ROIs are just one small part of the insights you’ll find in the “ROI Genome: 2017 Marketing Intelligence Report.”

Download the full report to learn more. Or contact us to discuss these findings or to learn how we can help you get the most out of your marketing and advertising.