Is your advertising working as well as it should? Or not? Find out how advertising is evaluated and measured and what typical advertising response rates are.
TIP: Advertising media planners know the latest data on advertising response rates, along with what different types of advertising costs and how to negotiate the best rates. They have access to expensive research and data that most small businesses and individuals don’t. If you’re going to be spending any significant money on advertising, find a media buying agency or a freelancer with expertise in media buying (who has access to all the tools/data at work).
Advertising Response Rates
What’s the objective of the advertising are you planning? Remember, not all advertising is developed with the intention to get people to buy or call immediately. Direct response advertising has that objective and is measured like direct mail marketing. Other advertising is developed with “softer” measures, like building brand awareness, or creating awareness or preference for purchase.
There are typically three types of advertising:
1. Brand awareness advertising – this advertising is developed with an objective to create awareness for a brand (a company, a product or service).
This advertising is done to get people to remember a product or company name.
New and emerging companies invest in this type of advertising and so do well-established brands that use brand ads as “reminder advertising” to keep their brand top of mind with consumers.
2. Ads that are intended to drive preference to purchase
These are ads with a dual objective to create preference for the particular brand being advertised and preference to purchase (consideration). This is typically the objective for advertising done by manufacturers who sell products or services through a distribution channel.
The ads in the Sunday Circular for Best Buy and Target are examples of ads with this purpose. So are ads for Apple’s iPad on TV. See the range?
3. Direct response advertising to drive sales
On TV these are called infomercials. Their purpose is to get someone to call and/or go to a website to buy something. These ads are measured like direct mail – response rate and conversion to buy.
Online and search ads are measured for click through rate. That doesn’t mean someone purchases anything; it just means they did something (clicked the ad). It’s easy to get a high click through rate and poor conversion rate – offer a free iPad if someone clicks or a chance to win a new car. Those ads get high click through rate but may not convert those clickers into buyers.
The challenge in measuring ROI for advertising lies in how to measure any sort of interactive media in a way that equates it fairly with all other media like TV, radio, print and outdoor billboard advertising.
4. “Native advertising”
Since online banner ads are so rarely clicked on and advertisers are questioning if people are watching/engaged with/seeing their ads, the idea of “native advertising” has emerged. In native advertising, the material paid for by an advertiser looks like the website’s editorial content.
Know this: Typical response rate for online advertising and search advertising is 1-3%. That means that of 100 people who see an ad, only 1 to 3 people will click the ad. And that click may be a “mis-click” because they’re on their phone and their thumb pressed the wrong place. For search and online advertising to work well, advertisers have to buy a lot of advertising to drive enough click through to make the response and revenue worthwhile.
Search Engine Land reports:
Average click-through rate (CTR) in Q3 on Google search came in at 3.5 percent.. On the display network, CTR was only 0.18 percent…WordStream found that the average CPC on Google search was $0.53, and it was $0.35 on the display network. Both networks declined since Q2, with search dropping 16.5% and display going down 18.2%. Those numbers differ from what Google reported with its earnings. The company said aggregate CPC was down 15% year-over-year and down only 3% quarter-over-quarter. In fact, Google said the numbers would have been better but for unfavorable foreign exchange rates.”
AdAge reports other sources with lower numbers.
Paying for advertising based on clicks or any other immediate action works profoundly well for search, but with rates hovering around 0.09%, according to sources like DoubleClick and MediaMind, and research from sources like comScore showing that ad clickers are a distinct demographic and a rare one, the full value of that ad exposure — and the necessity for brands to pay based on exposure – becomes all the more crucial.” See the full story from Ad Age
How Brand Advertising is Measured
To determine the effectiveness of brand advertising, Fortune 100 marketers may pre-test the messaging, pre-test several ad concepts and then conduct in-market tracking research to learn if people who meet the media target audience criteria recalled seeing the ad and if so, what message they remember and how the advertising made them think and feel about the brand. Major advertisers typically invest 3% of their total advertising budget on research. This is an excellent investment for them. Why? The major cost of advertising is media placement (buying TV, radio, print or online), not creating and producing an ad. So the better the ad is that runs, the better return on their media investment the company makes.
Fortune 100 advertisers also typically invest in research to determine the optimal media mix and weight (spend) and frequency. They also pay to develop statistical models that can predict what sales will be in their distribution channels based on how well an ad scored in pre-testing, what the media weight and mix was and time of year.
Most small businesses don’t spend any money on advertising research. If you are investing any type of significant budget in national advertising, then set aside a portion of your budget for advertising research. The best ROI is generally message testing to know if the message is persuasive to the intended target audience(s). Next is an investment in ad testing. This can be done online and doesn’t have to be that expensive. It does take time though to pre-test ad concepts and then leave time to make adjustments before running the ads.
A challenge advertisers face that do test ads is learning none of their ad concepts test particularly well and they’ve already purchased the media so then what do they do? They try to “fix up” the ad or run it and work on developing a better ad. If you’re a small business, you may want to wait until you know you have an excellent ad and then buy media. That may mean you won’t get the best prices on media initially but if you keep running the ad, you’ll know it’s effective. Most ads don’t run enough to “wear out” with the target audience. Usually the company gets tired of the ad and wants something new. It’s a better ROI to run an ad that’s pre-tested well than to run an ad that is new and you don’t know how effective it is.
What are typical norms for brand advertising?
Many people have an opportunity to see (or hear in the case of radio) advertising but may not remember the ads.
In ad testing research for TV advertising, typically 50% of people who view a TV ad and are then immediately asked what brand was being advertised, can’t say. This is a best case scenario too. Someone is paid to pay attention to the ad and knows they will be asked some questions about it and still half of them can’t remember the brand. They’ll say something like, “It was a car ad” or “It was for a Mexican restaurant”. When prompted what car or what Mexican restaurant, they don’t remember.
Try it yourself. Sit down with a pen and pad of paper and watch the commercials on a TV show. Then record after you’ve viewed the 3-5 ads:
- what brand was being advertised
- what product or service for that brand was being advertised
- what key message you took away from the ad
- how persuasive that was to you
- then ask yourself would you do anything after seeing the ad (visit the website, call them, remember to buy the product, buy a trial of the product, tell someone else about it, take a call when their sales rep phones you, seek it out on YouTube, forward the link to the ad on YouTube to others, post a link of the ad to your Facebook friends…)
If someone can’t identify the brand sponsoring the ad then 50% of the media spend for that ad is worthless. There’s a HUGE difference between someone remembering an ad and remembering who the sponsor of the ad is. Think of how many times you’ve heard someone say, “I saw the funniest ad with this guy…did you see it?” And they never mention the company, product or service that paid for the ad and when asked they may not even know who the ad was from.
There are also ads that are memorable but not likeable. They have what’s called very high “stopping power” meaning that people stop what they’re doing to look at, read or listen to the ad, but stopping power doesn’t equal likeability. Think of it this way. If someone walked into a business meeting wearing a hot pink polka dotted suit with an Iguana on their shoulder, you’d sure notice them. But would translate into you wanting to talk to them? Hire them? Advertising works the same way. The best ads make the product “the hero” and most people can’t describe the ad without saying the brand name. The Apple iPad TV ads probably test very well for stopping power + likeability.
The success of brand awareness advertising depends on the several factors:
- Relevancy of the message to the target audience (are you reaching the right people when they are in a mindset to find your ad likeable, relevant)?
- The length of time that the ad is run. Longer is better if you have a good, persuasive ad.
- The multi-media effect. A clever media mix strategy that uses a combination of different media (TV + print + online) within the same campaign theme and message can help boost the awareness lift for your campaign.
- The type of media chosen. There’s a balancing act between the needs for high impact media and more sustainable, cost-efficient media.
- The budget or media weight. How much you spend on the advertising.
TIP: The top market research suppliers who specialize in Ad Testing will have norms for advertising effectiveness that you can use to judge how effective your ad is against all ads using that media (TV, radio, print, online) and norms by category so if you sell shampoo you can see how well your ad on TV performed compared to other brands selling shampoo. The companies/brands are not identified. Ask to talk with the sales people at these ad testing companies. Ask them for white papers and reports and advice on typical response rates and norms. That’s free!
This article may be helpful if you are developing brand advertising:
How to Determine the Effectiveness of Your Advertising outlines ways you can test and measure ads based on the objective(s) you’ve set.
Direct response advertising response rates
Direct response advertising works because of combination of things. For direct mail, industry experts say that the response rate is based on the following ratio:
- 40% is the list (who you mail to)
- 40% is the relevancy and value of the offer to the recipients
- 20% is attributed to the design or writing
The same ratio applies to direct response advertising:
- 40% is the media plan (reaching the target audience when they will be ready to listen and act)
- 40% is the relevancy of the offer
- 20% is the ad itself
Online advertising response rates
Online advertising response rates: are typically a 1% – 3% click through rate.
That means as many as 99% of the people who see online ads don’t click on the ad. Is the advertising then of no value? Is there value for someone seeing your brand name? Message? Other types of advertising (TV, radio, print, outdoor billboards) is not solely evaluated for the equivalent measure of click through (do something) unless it’s an infomercial or direct response ad.
The average ad is clicked on by less than a tenth of a percent of the site’s users, according to advertisers and analysts.
Facebook ads perform half as well as other online advertising according to a study done by WebTrends and reported in this story in Mashable. A study conducted by Webtrends looked at more than 11,000 campaigns on Facebook to try to establish benchmarks for brands looking to advertise on the platform. Typical click through rates for online advertising is 1%.
Google Search Advertising
Google’s own tools estimate typical response rates.
Typical response rates for paid search ads on Google are low (1.5% to 3.5%) and many advertisers run ads that are offering something for free so they are paying for someone to visit their website and the discounted or free item.
Google says businesses make an average of $2 in revenue for every $1 they spend on AdWords–that’s $1 profit.
iPad users are nearly twice as likely to respond to online ads as long as the ads are new, interesting and use the unique capabilities of the iPad. (according to a November 2010 survey by Nielsen). iPad users are often early adopters of technology and may be more likely to want to see what the ads on iPad are like so response rates may drop as the iPad becomes more mainstream.
Know this: Response does not always equal someone who purchases something. “Response rate” just means the person did something with your advertising (contacted the company, asked for the offer, set up a sales call, requested a white paper, went to the website landing page set up for the promotion, etc.).
More data on online advertising effectiveness
This is from a blog post by Nigel Hollis of Millward Brown, a global brand and advertising research firm. Nigel says,
“In a recent survey by Vizu of more than 450 advertising executives, marketers said that they will be allocating nearly 60 percent of their online budgets to brand advertising in 2012, indicating that spending on online branding may surpass spending on direct response advertising for the first time in the coming year.
In contrast, a survey by Collective finds that 64 percent of advertising and agency executives claim to use click-through rates (CTR) to evaluate performance and optimize their online spend. A further 61 percent use Cost per Click and 48 percent use Cost per Acquisition. They’re using these direct response ad measures to evaluate the effectiveness of their online ads in spite of the fact that the majority of online marketers claim to be using online ads for brand building.
On average, a tiny proportion of people actually click on an online ad. According to DoubleClick, one in 1,000 people actually clicked on the average ad in 2010.
Ted McConnell, exec VP-digital for the Advertising Research Foundation, recently reported an experiment he conducted in AdAge:
He and some associates ran six blank ads in three IAB standard sizes, and two colors, white and orange. The average click-through rate across half a million ads served was 0.08 percent, which would be good for a brand campaign and about average for a direct response campaign. When asked, half the clickers said they were curious, the other half admitted to a mistaken click. McConnell states:
At a minimum, the data suggest that if you think a click-through rate of 0.04 percent is an indication of anything in particular, you might be stone-cold wrong.
So if half the people who click on an ad do so by mistake, what does that imply about the value of online advertising as measured by click-through? ROI calculations based on click-through start to look even more dubious than they did before. And yet we know that the overall effect of an online ad is far greater than immediate behavior would imply. AdIndex continues to show that the brand building capabilities of online advertising far outweigh the tiny minority of people who click on an ad, and our CrossMedia studies continue to show that online can impact brand metrics and sales on a similar basis to other media.
Why is the click so dominant? Because it is easy. Because it is universal. Because it is free. Unfortunately, simple metrics win every time, even when they are inaccurate and misleading. Luckily, some of the more sophisticated marketing companies have woken up to the fact that brand building campaigns should be evaluated and optimized against their objectives. This does not mean they ignore behavioral metrics, but rather use them in conjunction with our attitudinal data to optimize their campaigns.”
Tips on advertising response rates
1. Decide what the “success measure” is for your advertising and measure it against that.
2. Know that if you are doing direct response advertising, the response rates may mirror what happens in direct mail where typically half the responses will be made within two weeks from the date that people received a mailer.