Why Demand Generation Doesn’t Work Online

Google’s search advertising is the foremost example of this, but this is also what personalized retargeting does. However, the argument is that the Internet is incapable of demand generation, creating user engagement with an advertiser before the user is actively focused on buying your product.

This won’t be true for much longer.

Demand fulfillment does deliver terrific ROI for advertisers, which explains Google’s massive growth. This is why we’ve seen the collapse of newspaper classifieds business, the yellow pages business and the direct-mail business as advertisers migrate to the much higher ROI they can find online. If you can show users highly relevant ads for something they are interested in, they will click and buy.

Despite the protestations of the direct-response zealots, demand generation works. P&G and Unilever have built their businesses on the fact that we all buy much more of their branded soap powder, deodorants and tinned goods than we would if we hadn’t been exposed to their marketing. Luxury brands are even better at this. Do you really pick your car and your watch purely because of its driving characteristics or ability to tell the time? Building exposure to a brand long before the consumer is involved in a purchase decision can have a big impact on the product she finally buys.

Demand generation hasn’t been working well online, though. We have not found anything that is as good for marketers as the 30-second television ad is at telling stories. Worse, from a marketer’s perspective, online users have been trained to believe that being forced to listen to an ad is an unacceptable imposition. While we may all like to watch and share a cool video or Facebook page, this leaves the makers of impotence
medication and soap powder in a challenging position, leaving major consumer packaged goods companies and automotive manufacturers heavily underweight on online advertising.

As a result, a lot of branding display dollars online are really performance dollars pretending to be something else. Since advertisers have not been able to replicate the branding impact of TV ads, they have inevitably switched to focus on performance — an area where online reigns supreme. Unfortunately, this has been challenging for traditional display, since its performance is so much weaker than demand-fulfillment channels like
search. This has led to the display industry pushing measures with weak statistical links to sales, such as post-view tracking, as well as a conscious effort to separate the tracking of display from search so as not to directly compare the ROI of these channels.

This situation has started to change. The fact that branding has mainly failed via IAB standard display ads explains a lot of the excitement marketers have shown for Facebook and Twitter. Facebook is transforming the way marketers can engage with consumers, in ways that are not yet fully understood. Part of this change will be better advertising opportunities for demand-generation marketing.

The biggest opportunity, in my mind, is the application of technology to traditional display across the Internet, which remains where the majority of users with credit cards spend most of their time. The cost of servers has finally fallen to the point where the technologies once applicable to a few lines of text in a search ad can now be applied to a rich graphical ad and leverage rare patterns hiding in petabytes of noise. As a result, we will start to see marketers able to stop advertising to rating points and start marketing to individuals, even while they are at the top of the funnel. With enough insight, there is no reason a marketer can’t show the right message to the right user. Obviously, acquiring such disengaged users will be more expensive, but this is the lifeblood of every business.

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