Gideon Spanier: Online ads rush causing long-term brands harm

E-commerce is changing advertising for better and for worse.

Online generates about 16% of retail sales in the UK, up from 10% in 2013, according to the Office for National Statistics, and is on course to hit 20% by 2020.

The benefits are clear for businesses and consumers. It’s usually cheaper, faster and more efficient to shop online, and there is virtually limitless choice.

Companies have a direct, transactional relationship with the consumer and they can track and measure every step of the customer’s purchase journey. At least, that’s the theory.

Many firms, from FTSE 100 giants to small businesses, have been increasing their investment in digital advertising because they can see how their marketing is having a direct impact on sales, plus they can collect tons of data on their customers, particularly from mobile apps. Companies are also able to use self-serve technology to buy and target ads on Google and Facebook, rather than rely on an ad agency for it.

Digital marketing and data are becoming too important to outsource. So much so that some firms are letting their e-commerce team have a say over the marketing budget, rather than let marketing remain a distinct part of the business in its own right.

The influence of the chief marketing officer is under pressure as companies introduce new roles such as chief customer officer and chief growth officer in the boardroom.

Coca-Cola replaced its CMO with a chief growth officer this year. Tesco has a chief customer officer to oversee its marketing. The rationale is companies interact with consumers in lots of ways that go beyond marketing, so it makes sense to understand the whole customer experience that leads to a sale.

It’s a particular challenge for the consumer goods manufacturers such as Procter & Gamble and Unilever, the world’s biggest advertisers, because they don’t have a direct sales relationship with customers and rely on third-party retailers.

Nelson Peltz, an activist US investor, warns “changes in technology and consumer behaviour” pose “existential threats” to the consumer goods giants. He is pushing Procter & Gamble to break down its internal silos between sales and marketing to reignite growth.

However, firms are taking a risk if they decide marketing should be chiefly about generating a sale or another direct response from a customer.

Advertising has traditionally had two purposes: to build brands and to drive sales. Ideally, there should be a 60-40 split between brand advertising and sales activation to increase a company’s profits, according to a 2011 study, called The Long and The Short of It, by the Institute of Practitioners in Advertising, which examined 1000 ad campaigns over 30 years. When there’s too much focus on delivering an immediate short-term response, what’s known as performance marketing in the ad industry, the value of long-term brand building is in danger of being forgotten.