Taking the guesswork out of advertising: why performance marketing works

For the first time ever, we have real clarity about the size and scale of affiliate marketing and online lead generation through the Internet Advertising Bureau’s work with PwC and the members of our Councils.

The figures speak for themselves: online performance marketing is a form of marketing and advertising that works. It delivers a strong and highly measurable ROI – £1 spent equates to £11 worth of sales. That’s an estimated £9bn in sales in 2012 alone. There are few other marketing channels that can make similar claims.

That’s because online performance marketing is highly trackable and efficient. Since advertisers pay only for a consumer’s specific action (completed purchase, data submission, call request etc), wasted spend decreases greatly and can disappear entirely when campaigns are properly optimised – usually by specialist experts.

Given the current climate, it’s unsurprising then that the online performance marketing (OPM) channel is booming. PwC estimate that 3,000-4,000 advertisers are actively engaged in spending on the channel, and around 10,00 publishers monetise their content through OPM. Together they represent 7-9 per cent of the UK’s digital marketing spend and drive 5-6 per cent of retail e-commerce.

It’s easy to see why seasoned marketers are devoting more of their marketing resources to the OPM channel... and why more advertisers are turning their attention to the channel: simply that it pays directly attributable dividends.

The amount spent on performance marketing in 2012 was £814m. With this much investment committed by marketers to OPM, the IAB needed to make sure that this most measurable of all advertising channels was measured with a little more accuracy itself.

As part of this first ever in-depth study of its type, PwC carried out 30 one-to-one interviews with key players, including 14 with advertisers from across retail, telecoms & media, finance, travel, auto and gaming sectors. This was in addition to gathering detailed quantitative data from its survey that was completed by 24 companies.

The interviews revealed some fascinating insights for marketers. For instance, one major advertiser said: “Affiliates drive the highest value customers compared to other channels like paid search, display and offline channels”. When you consider that the affiliate channel produced 100m completed transactions in 2012 (or roughly two completed purchases by every adult in the UK), it sounds clichéd, but predictable targeting of higher value customers through this highly effective channel is something of a no-brainer for marketers under pressure to justify every marketing penny.

These data and insights underpin statements like that of Maureen McDonagh, Nectar’s director of e-commerce, who said at the IAB’s launch of the OPM study: “Increasingly we’re deepening working partnerships with our performance channel so we can optimise the value we give back to our customers across the many different channels that exist.”

And those channels are broad. At the one end blogger- power fuels, for instance, high street fashion retail OPM investment into blogs such as Style Bubble, while at the other, cashback and voucher sites like vouchercodes.co.uk satisfy the growing trend for savvy consumers to deal- search as an integral part of their shopping behaviours.

So which marketers are optimising the channel? It’s probably unsurprising that financial services account for 45 per cent of the channel’s spend. Lead data always has and remains the focus for financial services marketing, and online is providing a far more efficient and measurable platform for permission-based data collection.

But there are probably other factors behind the rapid growth in spending on online lead generation: an impressive 140 per cent in the last five years since 2008. Social media is playing a major role in changing relationships between brands and customers. The ability to personalise offers and message communications based on an individual’s profile and preferences is a key marketing objective.

And it’s a growth outlook. In a separate survey carried out by the IAB’s Affiliate Marketing Channel at the end of 2012, 23 per cent of advertisers set up their affiliate marketing programmes within the previous 12 months. Hardly surprising now that we know that last year, the equivalent of every adult in the UK made up to two purchases through an affiliate link, and that we have all provided data in response to an online lead generation campaign more than once – 70m leads were generated in 2012, producing £1bn worth of sales, according to the study.

We were delighted by PwC’s findings, most especially with the £9bn sales contribution figure. This beats the industry average by a fair margin. In recent stats released by the Advertising Association, advertising as a whole contributes £6 for every £1 spent; an impressive figure, but made much higher with the contribution of online performance marketing.

It feels like it’s time for OPM to feature even more strongly in the marketing mix, so that marketers no longer have to guess about their results, but instead have the confidence to know what they will be.

This piece was first published in The Drum's Performance supplement, sponsored by Affiliate Window. The supplement is available for purchase, or download for subscribers.

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