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Does online advertising work? A retailer pulls online ads to find out
To test the effectiveness of its online and offline advertising, TechnoScout.com halted all of its online ads for three months. It found that offline ads didn’t carry the load as much as it had expected but that online ads need an overhaul.
Talk about testing a marketing strategy. Joel Skretvedt, director of Internet marketing and operations for Techno Brands Inc.’s TechnoScout.com, wondered how effective his online advertising was. There’s only one way to find out, he reasoned. And so from mid April to mid July, he halted all online advertising. “We knew we were getting a portion of sales from offline advertising, but we weren’t sure if spending for online media was also producing sales,” Skretvedt says.
He quickly learned the answer: Online ads are crucial to sales, but they could be doing a better job.
Online sales fell 45% at the privately held company after three months of not advertising online, Skretvedt reports. The test involved pulling all ad placements from Yahoo.com and other major sites. The decline was more than TechnoScout had anticipated, since it continued its extensive print and radio campaigns, including 250 million monthly print ads. “Offline ads didn’t carry the load as much as we had expected,” Skretvedt says.
The test revealed that online ads account for 45-50% of online sales, catalogs for 25%, offline advertising for 8% and word of mouth for the rest. Since online ads went back up earlier this month, online sales are moving back up to their prior levels. They currently account for about 19% of company sales, compared to about 26% before the halt of online advertising, Skretvedt says. He expects online sales to recover to pre-test numbers as online advertising grows.
Now, TechnoScout will work on making online ads more productive. While the test-halt resulted in a drop in sales, it had less impact on profits, indicating that TechnoScount needs to improve the ability of online ads to produce better results per dollar spent, Skretvedt says. He says he must not only make ads more creative and effective with special offers, but also negotiate better contract terms. “Now we’re spending $1 in online advertising to get $2 in sales, but I’d like to get that to spending $1 to get $3,” he says. By comparison, he says, Techno Brands strives to keep its offline advertising within 38% of sales.