(2008) Online Promotions: The Big Shift

We would like to thank Charlene O’Hanlon, an editor and researcher who helped us compile this report, and several promotions experts and local media managers who contributed their thoughts and experiences.

Acknowledgements

Borrell Associates Management

• Gordon Borrell, CEO
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• Colby Atwood, President
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• Kip Cassino, Vice President of Research
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• Peter Conti, Jr., Senior Vice President
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Table of Contents

• Executive Summary
• CHAPTER 1 – PROMOTIONS TRUMP ADVERTISING
  • Fig. 1.1: Consumers rank legacy media high for emotion, and Internet high for utility
  • Fig. 1.2: U.S. “non-advertising” and advertising category expenditures, 2007
• CHAPTER 2 – ONLINE PROMOTIONS: WHAT HAPPENS, AND WHY
  • Fig. 2.1: Legacy media channels compared to Internet marketing channels
  • Fig. 2.2: “Online promotions” surpasses all other online advertising categories by 2012
  • Fig. 2.3: TV/Online combos may be most effective in driving Web promotions
• CHAPTER 3 – THE NUTS & BOLTS OF ONLINE PROMOTIONS
  • Fig. 3.1: Online promotions spending estimate by industry, 2007
  • Fig. 3.2: Types of online promotions by spending share, 2007-2012
• CHAPTER 4 – EXAMPLES OF LOCAL IMPLEMENTATION
  • Fig. 4.1: WECT 6 Pizza Hut/The Office Pizza Party Promotion (Home Page)
  • Fig. 4.2: WECT 6 Pizza Hut/The Office Pizza Party Promotion (Landing Page)
  • Fig. 4.3: WGHP Flow/24 Challenge Promotion (Home Page)
  • Fig. 4.4: WGHP Flow/24 Challenge Promotion (Landing Page)
  • Fig. 4.5: Buffalo.com Contests (Home Page)
  • Fig. 4.6: Buffalo.com Contests-Basilcars.com Hidden Tresure (Landing Page)
  • Fig. 4.7: Syracuse.com Promotions (Home Page)
  • Fig. 4.8: Syracuse.com Promotions (Landing Page)
  • Fig. 4.9: WAVE 3.com/Kentucky Lottery “Win, Place, Show” Promotion (Home Page)
  • Fig. 4.10: WAVE 3.com/Kentucky Lottery “Win, Place, Show” Promotion (Landing Page)
  • Fig. 4.11: the WKRN pitch to advertisers
  • Half-Price gift certificates: easy money
• CHAPTER 5 – CONCLUSIONS AND RECOMMENDATIONS
• Appendix A
• Company Profile

EXECUTIVE SUMMARY

As the Internet grows more legs than a centipede, we’ve been watching a phenomenon unfold. Businesses are continuing to ramp up their spending on the Web, but not in the way most media companies would like to think. We are seeing a distinct shift of business spending away from classic online advertising per se toward non-advertising marketing expenses – the more nebulous category of “promotions.”

The Internet provides tens of thousands of marketing channels that allow businesses to reach consumers directly with information on pricing, sales, features and new products. Interested in a Ford truck? Go to www.Ford-trucks.com. What about the latest deals, coupons and new items at the TEMA Furniture store in downtown Albuquerque? Go to http://tema.rightvue.com/. Got a beer to sell? Create a clever video about it that people will forward to their friends. The allure of creating one’s own advertising channel is attracting more and more spending . . . much of which comes directly out of budgets once earmarked for traditional advertising.

Not long ago, the only way that businesses could get the word out to millions of consumers was by going through a traditional media company. That’s changed, dramatically. The message for media companies today is painfully clear: The deer have the guns.

This report contains a wake-up call for media companies trying to use the Web to merely attract a big audience with local news or classified listings and then sell banner advertising around it.

• Startling revelation #1: Online display ads (Web page banners, pop-ups, etc.) have lost their luster; spending on them has been generally flat for the past two years. We believe it will peak this year at $12.6 billion, and then begin a precipitous decline to less than half that amount over the next four years.
• Startling revelation #2: Paid search advertising is likewise facing a luster-loss. We foresee it hitting its peak next year at $16.9 billion, followed by a gradual decline.
• Startling revelation #3: Online promotions, including the revitalized and expanded practice of public relations, was an $8 billion category last year. We expect it will nearly triple over the next five years to $22.8 billion, surpassing all other online advertising categories paid search, banners, email, and online audio/video advertising.) As with off-line promotions, most of the value of online promotions is the cash value of incentives that are given to motivate short-term sales.

To many, these may seem to be more strange predictions than startling revelations. But they flow from a series of trend analyses, panel studies and advertising data we’ve been collecting over the past several years.

What does this mean for local media companies? For most, it will force an adjustment in their product mixes and sales strategies in response to advertisers who are no longer interested in just buying home-page banners. For some, it is already opening new opportunities to exploit the Internet to create new revenue streams. Online contests, give-aways, coupons and sales of half-price gift certificates are proliferating – many of them bringing in hundreds of thousands of dollars annually and generating warm partnerships between the media company and the advertiser. The utility of the Internet holds fascinating possibilities for local businesses. Local media companies that are genuinely helping those businesses grow – rather than merely selling advertising to them– are well positioned to succeed in this brave new world of marketing.

PROMOTIONS TRUMP ADVERTISING

In 2007, businesses spent $806 billion to get the word out about their products, services and companies. Of that, $323 billion went toward traditional forms of advertising, such as yellow page ads, newspaper inserts, direct mail, billboards, and TV and radio commercials. The lion’s share of it, though – nearly 60 percent – went toward promotions – non-advertising marketing expenses that range from discounts, contests, coupons, rebates and sponsorships to white papers, public relations and viral marketing campaigns. We expect marketing budgets to tilt even more toward these non-advertising activities during the next five years.

In practice, the line between advertising and promotions is quite fuzzy. Decisions-makers in many businesses – especially smaller organizations – see expenditures such as content sponsorships, online coupons, and even the costs of their own Web sites as “advertising” and make them part of their ad budgets. In a recent survey by B2B magazine, more than 4,000 marketers were asked which categories of advertising they intended to increase during the coming year. The answer from more than 40 percent was "My own Web site." This is the equivalent of a shopkeeper thinking of costs for his storefront sign, awning, and window display as “advertising.”

An old quote sheds more light on the distinction than a half-dozen marketing textbooks: “Advertising makes people want to buy. Promotions make them want to buy now.”

It should not be surprising that businesses spend more on promotions than they do on advertising. Promotions are less of a gamble, they are easier to control, and they deliver measurable results quickly. Product promotions typically generate a lot of excitement within a company and provide an immediate, measurable lift in sales. The results are quantifiable (3,000 people asked for a free sample, and 12 percent of them redeemed the coupon that came with it, resulting in $50,000 in sales directly attributed to the promotion) rather than intuitive (the radio commercials aired last week, and sales picked up this weekend, so they must have worked).

There are three reasons that we believe spending on non-ad online marketing is about to go through the roof.

1. Overall marketing spending is migrating away from traditional advertising and toward promotions and public relations.

Advertisers are demanding larger and more measurable returns from their marketing investments. New technologies are increasing marketers’ targeting and tracking capabilities – and their expectations – across the board. This is driving the movement of advertising toward promotions and to the Web. Even within online advertising there is demand for more targeting, more measurement, and better ROI. If current trends continue, advertising's share of all marketing expenditures will have dropped by almost 10 percent between 2005 and 2010.

2. The Internet is better for research and fulfillment than for conveying emotion and excitement for a product.

The attributes ascribed to traditional media – that of product identification (Hey, that Hummer is ME!) or emotion (That woman’s weight-loss story was incredible. I’m going to try Nutri-Systems!) – make them a perfect choice for advertising messages. While the Internet can certainly contribute to brand and product awareness, its unique attribute among media is its interactive, ondemand, action-oriented capabilities – which makes it a perfect choice for promotions. (Figure 1.1)

3. Online promotions are poised to catch up to their off-line counterparts.

The ratio of non-ad spending to ad spending for total marketing expenditures (local and national) is 60:40. For online marketing, the ratio is 22:78 (Figure 1.2). The ratio for online spending is out of synch because the Internet is still a relatively new medium; businesses are still exploring its marketing capabilities. As this mixture of creativity and technology ignites, the growth will be explosive.

In a recent interview, Adam Smith, Futures director at media investment management firm Group M, commented on the shift into non-ad marketing vehicles: "Mass audiences in the West are getting harder to reach. Marketers are beset with choice, much of which doesn't involve advertising." Smith's data show the shift from media to marketing happening even faster in the U.S. than in the rest of the developed world. "We have seen the end to the economic cycle effect,” in which marketers invest in advertising when times are good and retreat to non-ad marketing techniques when they are bad "So once money has moved into marketing services (from media), it tends to stay there."[1]

ONLINE PROMOTIONS : WHAT HAPPENS, AND WHY

Before we describe how spending on online promotions will overtake all other forms of online marketing, we need to step back and examine the undercurrents. These undercurrents are pointing to a precipitous decline in standard online display advertising over the next three to four years and an inevitable decline in paid search advertising.

When it comes to understanding the Internet, it is helpful to think of it as not so much a singular media channel but rather as a platform for launching many forms of media communications. As such, it extends traditional methods of delivering commercial messages. Figure 2.1 lists legacy media channels with their online counterparts, each of which is moving through the standard product lifecycle of slow growth, rapid growth, leveling and decline.

Now in its 14th year as a commercial medium, the Internet is beginning to spawn its own set of “legacy” marketing channels that are in turn giving way to newer online channels. The standard advertising-supported Web site is the granddaddy of them all. It has already shown signs of maturity; our research indicates it is poised to flatten over the next few years and then decline. Search engine advertising is not far behind, having burst onto the scene just four years ago. It faces a few more years of increase before its growth rate slows and turns negative. Online audio and video advertising have just begun to accelerate and are likely to remain high-growth categories for several years. E-mail has been around as long as the Web, relying on massive lists to become marginally viable. Marketers are becoming savvier about targeting e-mail, and consumers are becoming comfortable about opting into newsletters that fit their particular interests; this second phase of e-mail advertising will produce strong growth in the near-term as well. (Figure 2.2.)

Growth in online ad spending won’t outpace the overall advertising market forever, though. The growth rate for “legacy” online ad formats (pop-ups, banners, etc.) has already slowed among national advertisers. We have seen that local ad spending lags national spending online by about two years. So, look for growth of pop-ups and banners to go negative in many local markets about two years from now.

On the non-advertising side of the marketing ledger, we saw spending for online promotions hit $8 billion in 2007 – roughly the same amount spent on e-mail advertising but well below the spending on paid search and banner ads. By 2012, however, we expect promotions spending to exceed $20 billion, surpassing all other forms of traditional online advertising.

Does this signal an end to the often-wild 14-year ride of online advertising? By no means. All of this shifting and re-allocation is part of a larger, worldwide trend. More and more – perhaps conditioned by the statistics-laden Internet – marketers are demanding measurability. Offline media resist. The old saying, “I know half of my ads don’t work, I just don’t know which half!” is no longer said with a smile. The inability of newspapers, magazines, radio, and TV to prove return on advertising investment has led to a swing toward promotional spending.

The groundwork for understanding the shift toward online promotions was laid six years ago when the Interactive Advertising Bureau – ever the proponent of seeing more ad budgets devoted to online media – engaged in a series of Cross-Media Optimization Studies, also known as XMOS. Participating companies such as Unilever and McDonalds discovered that a campaign involving newspaper and television advertising drove better results when an online component comprised 10 to 15 percent of the advertising budget and was designed to:

• Provide a greater level of detail to consumers about their products
• Provide measurable results, immediately.
• Deliver fulfillment of things like coupons or the collection of addresses for sending free samples.

That last item is perhaps the most important. It speaks directly to the desire of advertisers to obtain the names and addresses of potential customers and dovetails with the Internet’s ability to leverage customer databases. Unilever knew a lot of people bought Dove soap, but it never knew exactly who those people were and thus had to rely on the media to reach potential customers. Unilever now has its own Dove channel, offering coupons, free samples, sweepstakes, video, and a form that lets you tell the folks at Dove all about yourself. (www.dov.us.)

The significant discovery was that the Internet provided a powerful way for advertisers to build direct one-to-one relationships with their customers and prospects.

Imagine the possibilities at the local level, where the vast majority of businesses have yet to harness the utility of the Internet. Media companies with Internet savvy have the opportunity to educate those businesses and create marketing partnerships that involve more than just selling them banner ads on a Web page.

The opportunity should be especially attractive to legacy media that are trying to tackle the Web. Figure 1.1 showed that the Internet was perceived foremost as a utility by consumers, and that legacy media ranked high on conveying emotion, identification and transformation. Translated: The Web might be the ultimate utility channel for a promotional campaign, but the promotion requires legacy media to drive awareness and a call to action.

Figure 2.3 suggests that television may be the best legacy medium for driving traffic to an online promotion. Among people who were online and using another medium at the same time, television ranked the highest – indicating that a TV spot had a better chance of delivering immediate results online.

THE NUTS & BOLTS OF ONLINE PROMOTIONS

We track two categories of non-advertising online marketing expenditures – promotions and public relations. Advertising, promotions and public relations budgets are all sub-sets of marketing expenditures.

The definition of online promotions that we use in this report is very focused. We track the value of marketing incentives designed to create clear and measurable short-term spikes in sales, including:

• Discounts, coupons, rebates
• Samples, premiums
• Contests, sweepstakes

Most of the spending in these programs is accounted for by the cash value of discounts given, coupons redeemed, shipping charges waived, and so on. It is important to distinguish the value of the promotion from the cost of advertising the promotion. The $1,000 discount that a car dealer gives on new cars purchased by the end of the month is a promotion expense; the ad campaign that tells people about the offer is an advertising expense.

The ability to closely associate the marketing activity with specific sales results is central to promotional marketing, and while this doesn’t define it, an inability to quantify the impact of a particular campaign suggests it is advertising rather than promotion. (If you’re still lost, we offer specific examples in the next chapter.)

Public relations is a marketing communications activity that has been revitalized and expanded by the technologies of the Internet. Public relations is about shaping and managing an organization’s image or perception in the marketplace, primarily through means other than paid advertising. Traditional PR techniques and tools include press releases, media kits, employee involvement in community groups, facility tours and the like.

The Internet has allowed organizations to take more control of their image management by communicating directly with the public, rather than relying on editorial decisions by media gatekeepers to “get their side of the story out.” E-mail lists and social networks are powerful and – crucially – cost effective new tools that organizations are using with increasing sophistication.

The following paragraphs offer examples of how online promotions and public relations work in practice.

A visitor is drawn to a Web site and by either passive (fill out a form) or active (answer three questions correctly) means enters to win a prize. ROI: Advertiser sponsoring the contest or sweepstakes receives a list of the contestants for future direct or e-mail marketing.

A company offers its existing customers discounts, special offers or other forms of preferential treatment. ROI: Promotes customer loyalty and increases the chance of customer retention and new customer acquisition via recommendations.

A company hosts or financially supports an event, Web page or other tangible entity, “attaching” itself to the product or cause it promotes. ROI: Helps build a more solid presence within that community of users than regular advertising, be they skateboard enthusiasts or Web developers.

Although online promotions lend themselves to any industry or advertiser category, certain verticals have embraced the concept quicker than others. Specifically, companies in the financial and general retail categories are utilizing online promotions at an increasing rate.

Games, contests, and sweepstakes are naturals for the Web, and these promotional tools have become popular on many sites. “It used to be that sweepstakes were really one dimensional,” said Bruce Hollander, an executive of Don Jagoda Associates. “You filled out an entry form, and then mailed it in or dropped it in an entry box.” Not so with new media, however. Now, contestants submit rap videos or sing the Banana Boat song, get judged by visitors to the contest site, and vie for prizes that range from $10,000 Gibson guitars to the deed to a tropical banana grove. The interactive capability of online contests and sweepstakes will lead to rising popularity for this kind of online promotion during the next five years.

A study conducted by Promo Magazine among more than 1,500 subscribers found that almost half planned to increase their online promotions budget in 2007. Among these, 15 percent reported that funding for the increase would come from reducing budgets for conventional media (TV and print), while 9 percent indicated shifts from traditional “offline” promotions spending.

Spending on events – trade shows, seminars, and exhibitions – has become dependent on the Web. According to another Promo survey, e-mail has become the most popular way to drive attendees to events. Nearly twothirds rate it as “important to extremely important” for its low cost and viral capabilities, the magazine said.

Events themselves have come to the Web as well. More than 50 virtual trade shows were conducted in 2007. These events are much like their offline counterparts, with vendor booths, keynote speakers, and breakout sessions. But every part of the event is online, from the solicitation of attendees to the presentation of vendor booth give-aways. Because they are the perfect answer to the lost time, discomfort and rising costs of transportation associated with offline events, we expect the demand for online trade shows to grow substantially during the coming decade.

Although online promotions spending is forecast to more than double during the next five years, its composition will evolve. Spending for online discounts and rebates (for example, the reduced ticket prices offered by some airlines) will continue to dominate, although spending on online games and contests will grow.

Research suggests that people will tell three others about a positive experience and 11 others about a negative one. Viral marketing is the online equivalent of word-of-mouth – a marketing phenomenon that occurs when people spontaneously spread the word about a product or brand by forwarding e-mails about it to other people they know.

Hotmail and Gmail used viral marketing to gain prominence. Hotmail began with a promotion budget of only $50,000. It spread the word by e-mailing people about its service. The recipients forwarded the message because they perceived the service as valuable and wanted to “give” it to their friends. Six months after the campaign began, Hotmail had 1 million users. Google’s Gmail began on an invitation-only basis in early 2004. If you were one of the few people who got an early beta account invitation, you could invite 100 other people to join. This carefully orchestrated scarcity heightened the “gift” value; By the time, Gmail hits its fourth birthday this June, it will have nearly 100 millions users.

Viral marketing has soared with the rise of broadband and the popular YouTube video service. Businesses are posting funny, clever, shocking commercial- like videos in hopes of attracting an audience that will share and pass the video along.

In an a viral-video test conducted in November 2006 by MarketingExperiments. com, researchers posted eight videos ranging in length from 15 seconds to 8 minutes on YouTube and Google Video. Each video had a 3- to 5- second promotion of a newsletter at the end of it, specifying the URL of a Web site that might be interesting or relevant to the viewer. Among the major findings:

• Although the video clips themselves had no promotional message or content, 1.49 percent of viewers went on to become newsletter subscribers. Within 60 days, the videos were viewed more than 324,000 times at no cost to the researchers.
• Had the researchers used pay-per-click advertising to acquire the same number of new subscribers, based on a cost-per-click of 30 cents it would have cost them $20 per subscriber.

Text messaging opens another promotion and public relations channel. Gartner Inc. estimated that 189 billion mobile text messages were sent in 2007 in North America. This is forecast to reach 301 billion in 2008. More and more, businesses use text messaging to interact with automated systems and send notifications to registered SMS (short messaging service) users. These services, known as premium rated short messages or PRSM, typically command a fee of 10 cents to 25 cents per message. In the U.K., a service known as Any Question Answered (http://www.issuebits.com/) is an example. It charges £1 per question (about $2 USD), quickly responding to any question asked by SMS.

A U.S. newspaper company, Jones Media, has begun selling a text-messaging service to local hospitality businesses, allowing people in the area to obtain instant information about local hotels and other businesses in the area.

Most airlines offer a text message feature which will notify a flyer if there is a delay or change in their flight information. Fliers can opt-in to the service when they buy a ticket online. Retailers are adding Sale Item text alerts for customers who opt to receive them. Real estate agents are beginning to offer their clients alerts about new home listings the instant they appear on the market. Television shows like American Idol have harnessed the power of text message marketing for years.

According to estimates by Analysys, a global research and consulting company, mobile messaging alone will account for 10 percent ($16.4 billion) of U.S. operators' total mobile services revenue this year.

EXAMPLES OF LOCAL IMPLEMENTATION

Rob Salerno, president of Online Promotions Group, stresses that promotions are effective because they create a direct relationship between the company and the recipient – a new spin on the relationship marketing model – rather than through an advertising intermediary. His company, which hosts a sweepstakes/contest portal, works with clients mainly in the entertainment industry to create contests at both national and local/community levels. The contests are promoted on certain Web sites, and when visitors click to sign up for the contest, they are redirected to OPG’s portal where they fill out a form. The form includes contact information as well as demographic information such as age and gender. The result is a much richer lead generation that clients can use to further that sense of relationship, according to Salerno.

In addition to using local sites, OPG uses networking portals such as MySpace.com in a public relations as well as promotion role. One client is Robin English, a country singer who has a MySpace page managed by OPG. OPG uses the “friends list” on English’s page as a lead-generation tool, qualifying potential “friends” before allowing them to join. The friends then receive e-mails and/or text messages from English promoting tours, albums, and appearances.

Salerno sees relationship marketing as a trend in the online space, especially as companies recognize the value in building customer loyalty in the “infinite universe of the Internet.” This is consistent with what is happening across the Big 3 classified advertising verticals of automotive, real estate and recruitment. Increasingly, advertisers are investing in their own Web sites and databases. For example, real estate brokers and agents are spending billions of dollars to encourage sellers to use their services and buyers to visit their sites. This allows the brokers to build e-mail lists and develop ongoing end-user relationships. Similar thinking is behind the auto manufacturer and dealer sites, with features such as “build your new car” and online financing applications. Large corporations and government departments routinely place job postings on their own sites as well as requiring job seekers responding to print ads to come to those sites to initiate applications. These examples illustrate the growing trend to create a direct relationship with customers and prospects – and with it the opportunity to target future advertising.

The emergence of Web 2.0, with the next generation of Web communities and hosted services that facilitate collaboration and sharing among users, also foster the expansion of online promotions. National sites like Myspace. com, YouTube and Facebook have their local counterparts in community portals that are cropping up to provide access to information focused on a particular locality or community (in both the geographical and non-geographical sense). Examples are SanAntonio.com (city information site) and Hotrodders.com (a site for the hot rod enthusiast community).

Increasingly, companies seek to bring a local presence to their national marketing campaigns through the use of targeted advertising and promotions. As a result, major national advertisers are now partnering with these local sites to promote their products through the use of contests and sweepstakes.

Promotional campaigns are typically short-lived. Of the examples we have chosen, some may still be current, while most are no longer running.

One recent example is a tie-in promotion with the NBC sitcom The Office by restaurant chain Pizza Hut on the WECT-TV Web site in Wilmington, NC. The promotion, which is highlighted on the station’s home page and has its own landing page, gives site visitors the chance to sign up to win an office pizza party.

These types of promotions also are gaining traction with local advertisers. Another recent example is WGHP Fox Channel 8 in High Point, NC, which partnered with local automobile dealer Flow Automotive to create a contest around the prime time show 24. The contest also was highlighted on the home page and had its own landing page.

Such promotions are becoming more popular as local advertisers seek to increase their name recognition and sometimes – although still not always – take advantage of the lead generation opportunities such promotions offer.

Newspaper sites are also offering opportunities to advertisers looking for an online presence without buying standard online advertising. Buffalo.com, owned by The Buffalo News, has been running contests for advertisers since the site launched in 1999, according to Leigh Balcom, sales and operations manager. But rather than use contests as a way for advertisers to gain sales leads, Buffalo.com offers them more as an incentive program for advertisers who place ads in The Buffalo News, and then mostly as tie-ins to events such as movie premieres.

Another newspaper-created promotion is being driven by The Post-Standard, which operates Syracuse.com. Its Web site regularly sponsors multiple promotions.

WAVE-TV in Louisville, KY, has offered online promotions for at least seven years, with success reaching both local and regional advertisers, according to Internet advertising manager Doug Garrett. The Louisville Zoo, for instance, has been running a discount season pass promotion on the site for the past six years. Its most recent promotion was a “Name the Baby” contest, in which visitors to the site could enter suggestions for the zoo’s baby elephant and other baby animals. Current promotions include “Win, Place, Show,” a contest tie-in with the Kentucky Derby sponsored by the Kentucky Lottery, in which contestants choose their three favorites in order for the Kentucky Derby, the Preakness and the Belmont Stakes. The person with the highest number of points – awarded for each correct choice – wins a color television.

So, what are the business models? One that we looked at is a recent campaign run by WKRN-TV in Nashville. The station ran a contest for its viewers around the College Bowl games in 2007. Here’s how it worked:

With 32 College Bowl games last year, WKRN decided to capitalize on the opportunity by creating a contest, dubbed College Bowl Frenzy. The goal was to increase page views and unique visitors.

Jamie Camp, Internet sales manager, says her favorite part of the contest was that it was fun. “It puts us in touch with participants at a more personal level,” she said. With more than 1,000 participants, it offered WKRN a chance to gain more knowledge about the audience. Since implementing contests, the traffic to their site has quadrupled.

Expenses were minimal, and the revenue – well, at least it outpaced the costs. The game cost $1,500, and the station made more than $6,000. The contest offered 15-second video spots on the site before the news and weather clips. Advertisers included KFC and RJ Young. Sponsors were able to choose among three different packages. The first package sold for $5,000 per sponsor. Second-tier sponsorships were called “Field Goal Sponsors” at a cost of $3,500, while the third tier was called the “Extra Point Sponsor” for $2,000. These sponsors had online tile ads and displays on the College Bowl Frenzy pages. All the sponsors had the opportunity to create a sign-up survey to collect user information. They were also able to offer giveaways of their own.

Camp said the promotions were a fairly easy sell. Most people she presented to had some interest in at least one of the bowl games, and WKRN offered category exclusives.

Online couponing has already established a redemption rate five times higher than that for its legacy ancestor, coupons delivered by mail or newspaper insert. Although overall coupon distribution dropped 13.3 percent last year, online couponing increased by more than 75 percent, according to data from NCH Marketing.

Local media companies are in a powerful position to leverage their ability to drive consumers to the Internet. As shown in Figure 2.3, TV and radio hold the most promise for driving Web-based promotions. An online coupon promotion involving legacy media – and a fulfillment strategy online – is at the core of a novel way of driving product promotions. Such promotions have begun to generate hundreds of thousands of dollars in annual revenue for a handful of radio-based or TV-based Web sites and are worth examining more closely.

A common scenario is a program that enables a broadcaster’s Internet sales division to enlist small businesses (most often restaurants) in a coupon promotion. The business provides a number of discount coupons at no charge. The media company then sells the coupons online at half their face value, and promotes the offer. The business gets advertising and new customers who will probably spend more than the certificate value, the customer gets a discount, and the site keeps most of the revenue after paying a vendor to handle these essential functions:

• Managing fulfillment / shopping cart functions of online purchases of coupons or gift certificates via the media Web site
• Designing and creating the coupons or certificates
• Mailing the coupons to the consumer
• Providing online reports – inventory, revenue, customer databases

One cluster of seven radio stations we examined saw revenues from this program swell to more than $250,000 last year. The key is low overhead and an easy sell. The station group has achieved this with one person managing the sales of this program to area businesses, which are generally happy to participate, since they are getting deeply discounted marketing exposure.

• The business agrees to let the radio station’s Web site sell a number of coupons.
• The station commits to selling up to 75 coupons worth $50 each at $25 apiece. The fulfillment vendor keeps $3 and gives $22 to the radio group. After sales commissions, net revenue per certificate to the radio group equals about $16.50. It is not uncommon at this radio group to sell 1,000 coupons on behalf of various businesses each month, netting $16,500.
• The fulfillment vendor sends a monthly check to the radio group, in this case, typically around $22,000. Current revenues from this promotions program are about $250,000 annually.
• 30-second on-air spots promote the program (which typically have catchy names like BIG DEALS, or HOT TICKETS) and drive viewers to the Web site to purchase (where they are exposed to other ads). With only a limited number of coupons available, and a limited time to buy them, usually one week, a sense of urgency is built-in. The coupons almost always sell out.

Another example is a News Talk Radio station in a mid-sized market. This station uses a different fulfillment vendor but the outline of the program is nearly identical. The station is realizing about $10,000 per month from the program.

Another coupon program we examined involved a local TV station in a midsized market. The station runs on-air promos for the “deal of the week,” and every Thursday morning viewers go online and pay $25 for a $50 gift certificate for the featured business that week. Participants have included restaurants, golf courses and day spas. Monthly income has been about $9,000.

Integrated Platform Promotions

In February 2007, Global Television launched Deal or No Deal Canada (DONDC), the all- Canadian version of the very popular American game show. Key program sponsors/partners included the Pontiac Division of General Motors Canada, Rogers and Sunquest Vacations.

• Objective
• To drive sponsor brand awareness
• To integrate partner brands with the thrill and emotion of playing DONDC
• To generate qualified leads among a mass audience of Adults 25-54
• Strategy

Integrate TV, Internet and mobile platforms to provide sponsors with high-impact engagement and interactive access to potential customers through opt-in components. All integration elements and high-value prizing (each prize worth more than $25,000) were designed to generate brand interaction as viewers could engage in multiple ways:

• watching TV
• visiting the DONDC mircrosite on Globaltv.com, and
• texting in their votes to win.

Forty-five-second spots ran at the beginning of each; fifteen-second promotional spots ran throughout the program to highlight the contest and partner prizing. Online, viewers could also watch previously aired episodes, behind-the-scenes footage and learn more about the contestants and models through the co-branded microsite. Further promotion of the brands occurred the day after each show when the prizewinner was announced on ET Canada. Each text entry received a custom “thank you” message back from that night’s sponsor, providing further brand exposure. In the case of Pontiac, opt-in lead generation data was collected online.

Results
• The text-to-win contest was so popular that the contest deadline was extended to allow all text entries to be received.
• 550,000 of the 880,000 entries came from text entries
• 330,000 entries came from the microsite and globaltv.com
• More than 21,000 participants opted-in to receive more info from Pontiac, giving the sponsor access to the most interested potential buyers.
• Sponsor received highly successful and effective brand awareness.

Conclusion

The combination of mass reach TV with emerging mobile and online media produced outstanding results, exceeding all expectations.

The utility of the Internet appears to be accelerating the pace of a long-term shift in marketing expenditures away from legacy media advertising and towards promotional spending. But while advertisers at the national level are taking advantage of this phenomenon, those at the local level are not. At least not yet.

The opportunities for traditional local media companies are abundant. To us, everything points toward a new alliance between media companies and local businesses – a marketing alliance, possibly replacing or at the very least threatening traditional ad agencies. Local media companies are highly motivated to recreate themselves. The smartest of the lot have already begun the shift from mere selling to collaborating with their advertisers.

So how can a local media company capitalize on this trend?

Local media companies have a great deal of marketing savvy that we believe is extremely valuable to local advertisers. With a growing cornucopia of marketing choices, local businesses truly need all the help they can get.

APPENDIX A

COMPANY PROFILE

PRODUCTS AND SERVICES

Market Data Products

WebAudit™ - Get a detailed look at online ad spending in your local market. The data include local online ad shares by type of Web site operator (pure-play, TV, newspaper, etc.) and comparisons with peers. A WebAudit helps managers identify and size strategic sales opportunities by comparing the local spending patterns of individual business categories and major vertical market segments (Auto, Jobs, General Merchandise, etc.) with U.S. norms and analyzing the differences. Ad reps can use the report to strengthen presentations and enhance their role as consultants in the sales process.

Ad$pend™ - This market data provides comprehensive estimates of ad spending across 11 major media types (newspapers, TV, billboards, online, etc.) by each of the top 100 business categories in a market. Conversely, the report also presents the amounts that each medium receives from each of the business categories, with a summary of their relative shares of total ad spending. Both views give estimates of spending by advertisers located inside and those located outside the market.

WebSegment™ - This data divides a market’s population into five segments defined by the amount of time a person spends using the Internet (ranging from no time to more than 20 hours per week). The report offers insights into a market’s demographics, media usage patterns and purchasing behavior based on the amount of time a person spends using the Internet.

Media Profile – This report provides a snapshot of local media usage – including usage of newspapers, coupons, online services, and overall broadband and Internet patterns – in a specific market. This report also illustrates levels of online spending by consumers on key items such as clothing, computer software, books, etc. We use a combination of Scarborough Research’s data (updated twice a year) and data from Claritas.

Custom Market Data - Our researchers can generate unique data sets that provide insight for a variety of market segments. For example, we have developed detailed trending analyses of local automotive ad spending in multiple markets for a network of cable companies and have provided deep segmentation of ad-spending data by business size for a national portal.

OTHER PRODUCTS AND SERVICES

Online-Sales Training

Our program provides hands on, in-the-field training that utilizes local Web usage patterns and ad spending data from your market to build dynamic, compelling sales pitches. The program also offers guidance on sales recruitment, compensation, staff structure, rates and marketing materials. The typical program is two to three days per market, including one day of "classroom" training followed by sales calls with your sales team.

Consultation

Uncover the advertising potential in your local marketplace by drawing on the research we conduct throughout the year on thousands of local media operations. We work with Internet businesses, online media companies, newspapers, TV and radio stations, and vendors who provide enabling technology to these outlets. We provide executive-level strategies that focus on helping your company grow local advertising revenues exponentially rather than incrementally.

Research Reports

We publish 10 to 12 research reports per year that provide an in-depth look and analyze major trends in local online advertising. Reports include annual revenue benchmarking for local media sites; reports on the automotive, real estate and recruitment verticals; and an annual outlook report published in early fall designed to provide next-year budget guidance.

Presentations

We conduct a large number of presentations every year, typically for executive management, industry seminars and trade conferences. Each presentation is tailored to your needs. We tie the "big-picture" analysis into actionable information about the audience's specific markets. These presentations are challenging, insightful and filled with facts about the future direction of new advertising formats and trends.

Web Site Evaluations

We will evaluate your Web site, assessing key features such as design, user interface, content, interaction, ad formats, ad utilization, search-engine rankings and other key site components. These evaluations produce a "scorecard" showing how a site rates against industry standards. We can also conduct simple user surveys (such as user satisfaction, demographics, usage habits, etc.) on your Web site.