Digital ROIs are dropping

The return on investment for online marketing continues to drop.

Although the average return on investment (ROI) for online marketing is still higher than offline, that may not always be the case. According to a new marketing intelligence report from Analytic Partners, paid search ROI has decreased 27% in the last 6 years, online video ROI has decreased 32% and digital display ROI has decreased 14%. 

But why are online ROIs dropping? According to Nancy Smith, CEO of Analytic Partners, part of the reason is because the cost is increasing. 

"Costs have gone up and supply has not increased as much as demand," she told FierceRetail. "So marketers are spending more on online ads but not getting as much in return as they used to. While online ROIs are still higher than offline, we will continue to see spend increase there until it is not an efficient place to spend the next marketing dollar. The increase in things like ad blocking can also be seen as a way the consumer is driving the efficiency of online ads downward."

Still, brands continue to invest heavily in online marketing. In fact, 61% of brands increased their online marketing spend from 2015 to 2016.

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Yet omnichannel marketing is still the most effective advertising, as combing the two efforts is 50% more efficient than TV alone and 20% more efficient than online alone.

"One thing retailers may not realize is the large indirect effect TV ads have on other marketing—across paid, owned and earned efforts. One thing we were trying to get across in this report is that marketers should not plan in silos. Online and offline media work in very synergistic ways," Smith said.

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Therefore, as marketers have a clearer view of their all of their efforts, and factors that influence the results of those efforts, they will start to think less in online versus offline, or paid versus owned versus earned.

Smith said that overall, marketers are becoming more sophisticated and spending efficiently, but if they are not taking advantage of unified measurement, they may be focusing too much on the tactics that are the most easily measured. So looking forward, she recommended that marketers pay attention to the drivers of the ROI by tactic.

"For instance, 62% of ROI for video is driven by creative elements, but when looking at digital display, 65% of ROI is driven by executional elements. Invest in quality creative where it makes the most sense," Smith added.