This graph shows the search interests of digital marketing, outdoor advertising and tv advertising. TV advertising and outdoor advertising were much more popular back then. Until 2008-2009 when the search interests started to converge.
Before 2009, digital marketing was a marketing channel that majority of business owners called a waste of time. On the other hand, digital marketers during this period raked in millions upon millions of dollars because you can grab the #1 spot in AdWords for less than $0.50. Because there was no competition back then.
Today, you would have to pay 1000% more for the same search term.
The green box shows the interests in digital marketing (blue line), outdoor advertising (red line) and tv advertising (yellow line) from 2004 to 2008. During 2009-2010, digital marketing took off and the costs (CPC and CPM) took off too.
Out of all the marketing channels, the decline of Yellow Pages was the worst out of them all. 10-20 years ago, everyone was on Yellow Pages. Business owners were there. Consumers looked up their big yellow book to find the products and services they need. Today they’re non-existent.
Will digital marketing take over OOH advertising?
Organisations don’t allocate ALL their budget to one marketing channel
Organisations rarely allocate 100% of their marketing budget to one single marketing channel. It’s the same as how you don’t put all your investments into one basket.
You don’t see Apple allocating 100% of their marketing budget to digital.
You don’t see Google allocating 100% of their marketing budget to digital.
You don’t see Amazon allocating 100% of their marketing budget to digital.
The reasons why are because:
- Even with digital, you can’t reach 100% of your target audience. Banner blindness exists, a phenomenon where website visitors consciously or subconsciously ignore banner-like information, which can also be called ad blindness.
- Different marketing channels have different levels of influence in a customer’s purchasing decision. For example, trade show is a marketing channel with one of the highest influence in a B2B’s purchasing decision. Your chance of closing a six-figure B2B deal from a shopping cart is similar to winning the lottery.
- Different marketing channels target different levels of the customer journey. For example, someone looking to purchase a pair of shoes might browse the retailer’s website first and after they found one they like, they walk into the store, try it and if everything is good, make the purchase.
- Different businesses have different levels of competitiveness online. Some businesses do well online because they might be able to track their marketing campaigns down to the click whereas some businesses have a hard time doing that because the majority of their payment transactions are done offline.
More advertisers = Higher CPC and CPM = Lower ROI
As more and more businesses and advertisers move towards digital marketing, the landscape becomes more competitive. CPC starts going up. CPM starts going up. And we all know what is going to happen when both of those costs go up, ROI drops.
One of the biggest reasons why digital marketing has skyrocketed in the past ten years is because of its affordability. You can pay $0.50 for clicks back then. Right now, that click for that same search term would cost you $5 and as more businesses enter into the digital marketing landscape, that cost will only go up as more advertisers are competing for the same search term.
The advertisement cost for Google and Facebook is priced via an auction-based system. This means your advertising cost is based on what other advertisers are willing to pay.
Let’s say right now you are paying $1 CPC on AdWords and you’re ranked #1. Tomorrow, an advertiser can come in and set his CPC budget to $10 per click and that pushes you down to #2. To claim back your #1 spot, you would essentially have to increase your CPC budget to $10.01.
The above scenario assumes all other factors remain equal such as your ad relevance, CTR, etc.
As more and more budgets are getting allocated towards digital, the cost will gradually increase until the point where only the top advertisers are left. Look at TV, there are only a few advertisers and you see the same businesses all the time.
This will eventually happen to digital as the ones who can’t compete stop showing up.
The good news for traditional marketing channels
The good news for this is as more budget is allocated towards digital, less budget goes into the “old school” channels such as TV and radio. As fewer advertisers are advertising here, media companies would drop their cost to compete with digital.
For example, advertising on 99.7 Bridge FM will cost you approximately $0.08 CPM vs Facebook’s ~$7 CPM.
The assumptions I took:
- Time of ad – Breakfast
- Total reach of radio station – 141,000 listeners
- Reach during breakfast hours – 91,650 (65% of total audience)
- Costs – $900 for 120 x 15 sec ads ($7.50 per ad)
- CPM – $0.08 (Cost per ad / Reach per 1000)
If you would compare this to Facebook’s average $7 CPM (Source: https://adespresso.com/blog/facebook-ads-cost/), a $0.08 CPM radio ad is very VERY attractive.
Another example is printed displays such as pull up banners or window signage. If you’re a retail store located in a high traffic area, these printed displays will present a very high ROI.
For example, a pull up banner will cost you approximately $200 (depending on the quality). The on-going cost is $0 unless you replace the print or when something breaks.
Let’s also assume 1,000,000 people walk past your store every year and you have your pull up banner right in front of the store. Your CPM for a pull up banner would be $0.20 ($200/1,000).
The trend will change
A report conducted by Wells Fargo and Nielsen showed that the average CPM for digital ranges from $5 all the way up to $17.50 whereas OOH advertising such as bus shelters and posters ranges from $3.38 to $8.65.
Radio is even cheaper coming in at a CPM of as low as $2.10.
Smart marketers who know what they are doing will capitalise on this trend and create top of funnel (ToFu) and middle of funnel (MoFu) marketing strategies via marketing channels like OOH and radio to generate the most amount of brand awareness at very low CPMs and most marketers won’t even know who is stealing their market share.
The rise of traditional marketing channels
Investment decisions are made based on metrics such as ROI, NPV and IRR.
Marketing decisions are rarely made based on any metric because:
- Old school marketers (TV and radio) don’t understand digital.
- Modern marketers (Digital) don’t understand TV, radio and OOH advertising.
Hence, they just stick to what they know.
However, the organisations and marketers who understand this will be able to capitalise on this changing trend.
Look at Amazon.
Every retailer’s worst nightmare has been opening up bookstores since 2015 and they have a total of 12 stores now (based on their Q3 2017 report). But they generate almost zero profit from these bookstores.
So why do they keep opening up bookstores eventhough they generate almost no profit from them?
If you look at it from an advertisement point-of-view, advertising for all the books on Google would cost a fortune. Sometimes, using a retail store as an advertisement is an overlooked strategy by most organisations and marketers.
Amazon CFO Brian T. Olsavsky told investors that the stores represent another way to reach the customer. That means Amazon isn’t using their stores to generate sales but as a marketing channel to reach customers. He also said the stores are also a great way to showcase Amazon’s hardware devices.
Digital marketing will completely takeover OOH advertising when…
Everyone stops going out. There is a reason why they call it OOH advertising or out-of-home advertising.
If I’m going to place my bets, I would place a huge bet on us still getting out of our homes which means OOH advertising will continue to exist for decades to come. The only thing that will change is the technology used in those advertisements.
Right now, digital marketing continues to dominate and as more and more advertisers allocate their budget towards digital marketing, the costs will continue to increase. This will make traditional marketing channels more attractive and based on the report shown above by Nielsen and Wells Fargo has shown radio and OOH have already become very attractive.
- OOH advertising will continue to exist unless we stop going out of our homes.
- Organisations don’t allocate all their marketing budget to one marketing channel.
- More advertisers on digital = Higher CPC and CPM = Lower ROI.
- As digital marketing becomes more expensive, budgets will flow back to traditional marketing channels like OOH.