The experience of one of the world’s largest advertisers, Procter & Gamble (P&G), suggests that it is. As detailed by the Wall Street Journal, the CPG giant reduced spending on digital ads by more than $100m last quarter.
According to CFO Jon Moeller, almost all of the company’s cuts came from digital and he explained the rationale behind the decision:
What it reflected was a choice to cut spending from a digital standpoint where it was ineffective, where either we were serving bots as opposed to human beings or where the placement of ads was not facilitating the equity of our brands.
We got some data that said either it was in a bad place or it was not effective. And we shut it down and said, ‘We’re not going to follow a formula of how much you spend or share of voice. We want every dollar to add value for the consumer or add value for our stakeholders.’
Despite the reductions, P&G said that its business wasn’t harmed. “We didn’t see a reduction in the growth rate,” Moeller told investors. “What that tells me is that the spending we cut was largely ineffective.”
P&G’s move raises a number of questions. Perhaps the biggest: just how much more wasteful spending can P&G identify and eliminate without hurting its business?
Interestingly, it appears that it might not take as much effort for advertisers to at least start separating the digital wheat from the chaff. For example, in March, the New York Times revealed that JPMorgan Chase had reduced the number of sites its ads appeared on from 400,000 to 5,000 with “little change in the cost of impressions or the visibility of its ads on the internet.”
JPMorgan Chase’s approach? It first eliminated all of the sites that didn’t generate any activity beyond an impression and then had an intern review the 12,000 sites that remained after that initial filter was applied.
One might suggest that JPMorgan Chase’s approach was somewhat crude and therefore subject to some risk, but the initial results spoke for themselves and seemed to confirm what a lot of people already knew: there is a significant amount of junk inventory out there.
To date, the high ROI of digital ads has enabled many brand advertisers to keep buying inventory of questionable quality, particularly sucky banner ads, but that dynamic could very well be changing.
Canaries in the coal mine
While it’s too early to tell if more brands will follow the lead of P&G and JPMorgan Chase, it seems more than likely that brands will be forced to make changes as the digital ad market matures.
One of the reasons for this is that the return on investment for digital ad spend is dropping as demand for quality inventory grows faster than supply. According to the 2017 Marketing Intelligence Report published by Analytic Partners, ROI on paid search, display and digital video ads has fallen by 27%, 32% and 14% respectively over the past six years.
“Online ROIs will continue to fall until they are on parity with offline, largely made up of TV spend,” Joe LaSala, Analytic Partners’ VP of marketing, stated.
That means that advertisers large and small will have little choice but to get more vigilant about where their digital ad spend is going. After all, if the ROI of online ads eventually reaches parity with offline ads, advertisers will simply not be able to continue purchasing the same amount of inventory without spending significantly more money. And if they aren’t careful about where they continue to buy, and where they cut, they could see dramatic drops in ROI.