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Whose ad budget is it, anyway?

By Scott Setrakian, Setrakian@PredictiveTechnologies.com

Who should manage your company's digital ad budget dollars? In an advertising world where digital advertising dollars have now been proven to impact in-store sales, who should own the digital ad budget — the dot.com division, or the stores team?

There has long been a simple split of advertising budgets within companies. The dot.com division gets digital advertising; the traditional business gets all the other media. Too easy right? Digital advertising works for online sales, traditional media for the brick and mortar stores business. No problem.

It turns out that there is a problem. Overall it’s a good problem, but it’s a problem. Study after study has shown that online advertising not only impacts online sales, but also improves sales and profits in the store network. And since, for most companies, over 90% of the sales are transacted through the store channel, the payback of online advertising can be even bigger for the traditional businesses than online.

This opens a can of worms.

The online division has been running the digital ad budget since the beginning of digital time. They have the relationships with the digital media, they know how it works, it’s their baby.

The stores division owns the lion’s share of the ad budget, and drives the lion’s share of value through its activities. It needs to control all of the key media to support its mission to maximize sales and profits, and to present a coherent message to customers.

The stage is set for an internal battle over management of the digital ad budget.

What’s the size of it? Current estimates are that digital advertising represents about 9% of total ad spend in the USA. While that’s big, it’s not huge, but two phenomena are worth noting:

  • It’s a growing piece of the pie. Online advertising as a percent of total has been growing rapidly, and some sources expect it to double to 20% of all ad spend by 2014;

  • The newspaper industry (especially) is being crushed by online media, in both readership and influence … and advertisers are moving their ad dollars elsewhere. The stores ad budget needs an alternative to this traditional channel, to maintain its presence in customers’ eyes.

So what happens now?

The legacy of separate dot.com and stores divisions seems to now be counterproductive, for one. The original rationale – that the requisite management skills were so different that they couldn’t co-exist (and the juicy possibility of taking the dot.com business public for a huge fortune) – no longer make sense. It’s time to rethink how these channels should be managed in a more integrated fashion.

Regarding ownership of the digital ad budget, the emotion of the turf fight could be modified by understanding some facts. How does digital advertising impact store sales? What is the relative effectiveness of different digital alternatives (banner, search, etc.) both against each other and more importantly against other media: TV, newspaper, radio, mobile, etc.? How do each of these media impact online sales and store sales? In the end it’s all about the integrated company, and making the ad dollars work best overall, not by division.

Scott Setrakian is managing director of Applied Predictive Technologies, a provider of market testing services (Predictivetechnologies.com). He can be reached at Setrakian@PredictiveTechnologies.com.

© 2014