Online Advertising Report: Creative budgets online - Putting a price on creativity

While increases in online advertising spend are reported, is enough money being spent on the creative side of digital advertising? Philip Buxton reports.

Something is stirring in the world of digital agencies. Since iTraffic resigned the Hilton International account in June (the hotel group's commitment to interactive advertising was focused on), other agencies have been voicing concerns about the proportion of budget devoted to the creative elements of online campaigns.

Traffic is reluctant to go into detail about its move, having agreed an official statement with Hilton at the time. However, it left little to the imagination: "We have a great deal of respect for both the Hilton business and all of the people that we encountered during our relationship with it. However, Hilton International's commitment to interactive marketing is less than that of our other clients with whom we typically have retainer-based relationships, and we feel the time is right for it to identify a smaller agency that would be better placed to meet its needs."

Hilton has now appointed Web Liquid, an agency set up by former iTraffic directors David Shiell and Alain Portmann, which claims that the company needs an agency to focus on its digital strategy rather than on online advertising alone.

But an open letter sent to Revolution by glue London creative director Seb Royce (see box, p58) suggests that iTraffic is not alone in questioning the commitment - at least in the form of bigger creative budgets and retainers for creative agencies - to online by some brands. Although strides forward have been made, the sense is that creativity could be suffering as the internet's position as an intensely cost-effective medium becomes more firmly established.

The Interactive Advertising Bureau (IAB) reported in July that online ad spend in the UK grew by 80 per cent in 2003, reaching a total of £350m - a record 2.5 per cent of total ad spend. Meanwhile, the IPA Bellwether report reported that online accounted for three per cent of ad spend in the second quarter of 2004.

However, according to Royce, the increasing awareness of digital media among marketers, while leading to a growth in online spend, is failing to bring a corresponding increase in creative budgets. Agencies feel that, in some cases, the fierce attention being paid to cost-efficiency has led to the neglect of the more creative elements of online advertising.

Sean Hanneberry, head of CMW Interactive, says: "There are still many online campaigns where the increased spend is reflected more in quantity than quality - the brief is for 10 cheap banners rather than three well-produced banners."

Agencies, along with many clients, continue to argue that quality counts, even for PPC-style campaigns, and that returns increase as attention to creativity grows.

Richard Bush, director of Base One, says: "We occasionally struggle to convince our clients that they should allocate more of the budget to the creation of online advertising, especially in business campaigns where volume tends to be lower and thus the cost-per-click is higher. But when they compare the overall results with offline activity it is invariably still more cost-effective.

"It's like saying that writing a letter to your target audience is more cost-effective than sending a complicated mailer with high production values. If it were the case, all direct marketers would only send letters. It is our job to create communications that stand out, that are noticed by the right people at the right time, intrigue or excite them and convince them to take action."

Helene Venge, digital marketing manager at Levi's Europe, adds: "Online needs to be seen as a contextual medium. It is important to spend more on creative and production to get results. Agencies need to show clients the economic benefits for increasing their spend."

Hanneberry feels that a vicious circle is emerging since the cost of creative staff is growing, but good creative is required to persuade clients to invest. "In terms of talent, good agencies are starting to realise that creative and design are two distinct skills, with creative responsible for ideas and designers in charge of production - just like in the world of print," he says.

"Hopefully, this will give online advertising's creative standard a lift. With little to show in the way of compelling, stand-out online creative, we are not really giving clients the confidence that an increase in spend will deliver a more effective ad."

Royce says another cause for the perceived drift between spend and creative is that the old model for the budget split between creative and media buying is being applied online. In this approach, 10 per cent of a campaign budget is devoted to creative and production costs, with the rest going on media spend. This model, as most agree, cannot be applied online, chiefly because media spends can be much lower - 10 per cent of not a lot equals hardly anything at all - but also because online creative can involve a wide variety of formats, technologies and mechanics.

Sean Kinmont, creative director at 23red, explains: "Creative budgets fail to reflect the costs of producing effective online advertising. Just because online is a comparatively cheap medium does not mean that the investment in the creation of the advertising should be less. Arguably it should be more, since the media allows for interactive, animation and technical considerations that traditional print media does not."

The issue lies with the greater complexity of working on the internet. While television campaigns are constrained within a set format, online work can encompass a vast range of formats and interactive components. Meanwhile, as a still immature market, there is great potential for innovation as new technologies, formats and knowledge emerge. Working out just how to execute a campaign - even once the basic creative has been established - is integral to the process and affects the time and the cost of creative work.

Darrell Wilkins, a partner at specialmoves, explains: "The problem is that, to create great interactivity, you need several elements to fall into place, some of which traditional media doesn't have. First, a simple, clear message - this is true regardless of the media that you're working in. Second, it has to be engaging. All advertising should be engaging, but online it's much more important. Interactivity demands that a two-way communication takes place. The user physically interacts with the medium: what they do changes the experience they get.

"Last, and perhaps most importantly, with interactivity there has to be a significant pay-back for the user. Unlike traditional media you are asking your users to actively do something, to make an effort to interact. You have to reward them for this."

Still, the problem of creative budgets is complex. Hanneberry thinks it has arisen as a result of the bust years, when agencies took on small projects at low prices, and without a retainer in hope of proving themselves and being well placed to gain larger projects in the future.

He feels that this atmosphere of ad hoc work at discount prices remains: "This has been online's problem since day one. Essentially, it is an issue of scale. Online advertising started with everyone testing the medium with small media budgets that resulted in an equally small creative allowance. As online media budgets have grown, (it hasn't been) reflected in the commitment to online creative spend."

However, Bush comments: "If all else fails then we say to a client, 'We'll produce (the ad) and you only pay us for it once it has increased the results enough to justify the cost'."

And Simon Mansell, managing director of TBG, says: "We generally begin working with clients on a smaller scale. As we prove ourselves and our media plans' success, we are able to increase client budget allocation."

This willingness to compromise reflects the legacy of the bust years, but also a realisation that web advertising remains a relatively immature market. Proving the case for its use is a continuing process, particularly as attention extends beyond the search and CPC banner campaigns that have helped prop up online advertising during the lean years. And it is the web's growing maturity in terms of technology that prompts some to call for a growth in the scope of budgets available to agencies.

Paul Carysforth, campaign manager at Moonfish, says: "The technical restrictions set on online advertising formats have meant that creative budgets, especially for production, have been traditionally quite low. Over the next five years, however, these technical shackles will disappear, as broadband uptake increases and the software used to create the ads advances, which will facilitate much larger file sizes. This will enable greater complexity in the creative and hopefully more engaging advertising, but it will also mean that the production time required will increase and budgets will therefore have to follow suit for (online advertising) to remain profitable."

But the web's place as a highly effective direct response tool takes much of the blame. The intense accountability of the web, especially as marketers were required to justify every pound of spend, helped to keep the wolf from the door of many agencies during the past. But its success in this respect has, for many, hampered its ability to go on to claim brand-building budgets, which are commonly larger and require much greater attention to creative elements.

Greg Paine, director of strategy, interactive marketing at AOL UK, comments: "Unfortunately, many advertisers and agencies still think of the internet as a direct response medium suitable only for relatively low-cost banner and button campaigns.

"In fact, online is a great platform for creative brand-building campaigns, particularly when used to complement offline work. Broadband is key to this, as consumers are spending more time online and are even more engaged with the internet, and are more likely to interact with and remember a brand."

The sector is entering a new phase in the long-running battle to attract weighty brand-building budgets to digital channels. Case studies from the US have been the main currency so far, often provided by major media owners such as MSN and AOL. However, Paine says the need for proof remains, and it needs to be more specific to persuade still hesitant marketers.

"There needs to be greater understanding about the impact online can have before it gets its fair share of total advertising budgets - and that's partly the responsibility of media owners such as AOL," he explains. "There is plenty of proof from the US, but then clients say 'that's the US'. Then the clients say 'but we're in the car sector', so we have to provide evidence from that sector, or the travel sector, and so on. We must keep proving our case, and once we have broken one company in a sector, its rivals soon follow."

For some clients, the case is simple: the internet offers the most measurable marketing platform, yet, for brand-building, it still lags behind the mainstream channels, particularly TV.

Stephen Leonard, director of brand marketing and e-commerce at Alliance & Leicester, is an online convert, committing 20 per cent of A&L's marketing budget - about £10m - this year to the web. However, he still feels that brand campaigns are best left to traditional media.

He explains: "I'm sceptical that this is an effective medium for developing the softer brand values - people come online with a purpose in mind. In time, we will see the emergence of more brand advertising online, but there are media better suited to that kind of campaign. Online is the best medium for direct response advertising."

Given the ROI-driven performance that marketers have come to expect from online, attention is turning to how the industry can provide similar accountability on 'softer' measures.

Many have noted how, if clickthrough rates average 0.5 per cent for a banner campaign, that leaves 99.5 per cent of consumers that might have seen the banner and formed an opinion about the brand, but about whom the advertiser knows nothing. It is measuring the impact of an online ad on these users that has become the new Holy Grail.

Marketing effectiveness research firm Dynamic Logic Europe has been measuring brand-building criteria through web marketing for several years and is convinced that providing these measures for advertisers will help agencies to win the argument once and for all.

Suzanne Moorey-Denham, managing director, says: "I wonder how often campaigns happen without any idea whether they really work. Clients and agencies have been using clickthrough rates, which doesn't bear any relation to how the brand has been received. It's about proof, but it's also about being smarter and understanding what you get out for what you put in. The client has got to go back to their marketing director or brand director and explain what they've done and why. So, until you can help them prove what you've achieved, you're never going to grow these kind of budgets."

Still, parity with traditional media creative is being sought. Thanks to the measurability of the internet and the recent slowdown in ad spends, pressure is increasingly on 'old media' to prove its worth to marketers, yet few argue that a TV campaign needs to justify itself in quite so precise a fashion as its online equivalent. Therefore, agencies are calling for a media-neutral approach, not only to media spend, but creative spend as well.

Kirsti Wilson, head of interactive, group marketing and brand at BT, explains how BT addresses the issue: "There should be a new model. We have one budget which includes all our online work and our agencies come back with a joint proposal that shows the spend by different media."

However, she believes that the onus must eventually fall on the contract process. "If (agencies) are complaining about fees, you have to say - they signed the deal in the first place."

SHOW ONLINE CREATIVE THE MONEY: AN OPEN LETTER

You know what they say: if you don't ask, you won't get.

There have been positive headlines recently about how online ad spend is on a healthy upward curve. While this is great, it remains that creative budgets for online ads are disproportionately small. Of course, we've been used to getting a fraction of what is pumped into media.

Remember, digital agencies go way beyond the banner. We are being asked to explore richer executions, combining audio and video with the interactive elements in which we are experts. We're up for it, but we need extra money to produce this type of work while retaining the best creative people.

Clients have got so much for their money from digital creative agencies. Our quality of creative and strategic thinking is what you expect from 'traditional' advertising agencies. The suppliers we use to get the best quality sound design or camera work are not dropping their rates for us. It is time to stand up for ourselves in terms of remuneration or we will always be the poor relation. We are the fastest growing advertising medium and case studies prove our worth. It is time for clients to recognise this through their budgets. Invest now and we can look forward to more cutting-edge campaigns that have greater stand-out, are even more effective, and will encourage more innovative and effective creative work.

Seb Royce, creative director, glue London.

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