A new report by Forrester claims that the current ad model has lost its effectiveness and CMO’s should shift spending to relationship building.
The report, titled The End of Advertising As We Know It argues that ‘society doesn’t need advertising like it used to.’ The current interruption-driven model of display ads is being usurped by new digital tools and less receptive consumers.
So, what is going to replace the current model?
The system worked – for a while
In many ways, advertising has been an important part of modern life, and a vital element of the economy and society.
Its importance is tied to its ability to reach customers in a fast and responsive way, creating a system ‘through which thousands of companies and millions of consumers could negotiate shared commercial interests’.
An entrenched system of interconnected marketers, agencies, publishers and tech companies has built up around the current model of advertising.
The initial reaction of CMOs to the ongoing digital revolution was to find a range of new ways to advertise and measure responses.
The problem was that for these ads to be effective, they have had to work on a ‘user-interruption’ model. It was perhaps inevitable that consumers would learn to tune them out after a while.
The report highlights a number of ways in which digital is introducing novel alternatives to many of the tasks that companies have counted on advertising for:
Things like in-app purchases and Kickstarter campaigns are making it easier to spend money on the things they like in a more frequent manner.
Huge digital marketplaces like Amazon not only sell goods from thousands of vendors, they also publish information about products and suggest similar products for future purchases.
User reviews, online comments, YouTube product demonstrations are all new, user-generated ways of conveying product information and helping people make purchases.
Are display ads effective anymore?
The report contends that US marketers wasted roughly $7.4 billion in 2016 on display ads alone.
Of that ad spending, only 40% was actually seen by a real human. Meanwhile, a growing number of US online adults have installed ad blockers to avoid these types of interruptions.
Some key findings:
– 38% of US online consumers have an ad blocker installed
– the average click-through rate of a display ad in the US is 0.35%
– 50% of US online adults actively avoid ads on websites, while 47% avoid mobile in-app ads
– 67% trust online reviews while 47% trust display ads that appear next to search results
The power of relationships
The report predicts that CMOs will begin to move some of the spend previously allocated for ads to relationship building in the coming years.
Some figures are highlighted in order to illuminate this shift:
– 56% of loyalty scheme members actively seek out a deeper connection with brands they like
– subscription based models are growing in number and popularity
– 33% of US adults already use intelligent agents such as Siri
– by 2021, 16 billion IoT devices will be sending customer data to brands
The report states:
“CMOs will go beyond merely talking to customers by building meaningful relationships with them. This is not the tired CRM of keeping customer information and transaction histories in multiple databases; rather, it’s a relationship that is high-frequency, emotion-rich, and hyperconvenient.”
You can read the full report here.