Cracking the mobile advertising code

| Article

“Mobile first.” That phrase is increasingly shaping marketing decisions, and for good reason. In 2012, $10 billion in sales were made through mobile channels. That’s expected to rise to $30 billion by 2016. In addition, 55 percent of smartphone owners use their smart phones to research purchases. Those numbers have mobile advertisers salivating. But they need to focus on real opportunities and not false hopes.

While consumers are spending more time on their smartphones, recent research reveals that the vast majority of this usage—as much as 76 percent—is on mobile apps. Despite the popularity of apps, however, most mobile ad dollars go to search, which is better at targeting users and tracking ROI. Brands spend more than ten times as much on paid search advertising as they spend on ads on apps.

Why the discrepancy? There are a few reasons.

Limited targeting capabilities. Thanks to cookies, brands can target ads to customers online both on their site and on other sites users visit after they leave (aka “re-targeting”). That’s because cookies track what sites customers have visited and what they’ve clicked on. Cookies can’t do that well on mobile apps.

Lack of a closed loop. Though many purchases influenced by mobile are completed on other channels (e.g. in a store or online), there’s no way to track that. Without any way to credit mobile’s influence on purchases, it’s impossible to determine the ROI on mobile ads.

Ineffective ad formats. Most mobile ads are banner ads, which are already poor performers in the online world. Ads that are large enough to be seen on mobile screens are often considered invasive by users. Ads that are small are often too hard to see.

Audience fragmentation. The top 250 apps on Android and iOS have a total audience of 52 million people — equivalent to the reach of three primetime shows on broadcast television. Moreover, these apps are constantly changing, with 45 percent turning over every 30 days and 85 percent every three months. As an advertiser, the fragmentation makes it difficult to get to a critical mass of viewers and the turnover forces advertisers to constantly evaluate new apps.

What marketers should do

In our experience, companies aren’t thoughtful enough about where they allocate their mobile ad dollars. They tend to adopt a “spray and pray” mentality and use the excuse that the challenges of tracking mobile ad effectiveness make a more considered spend impractical. However, we’ve seen companies that thoughtfully align their ad spend to relevant stages of the consumer decision journey can have success.

Awareness and consideration. While mobile phone use is most closely associated with completing transactions or tasks, people are increasingly turning to their smartphones for entertainment. Our research shows that video traffic on mobile devices in Europe, for example, is expected to increase six times by 2016 while digital video advertising spend will increase four times. This trend has created an opportunity to develop engaging content that increases brand awareness. Kiip, a mobile rewards network, offers real or virtual rewards from brands when a user reaches a certain goal in a game. In 2012, it delivered 200 million rewards, with redemption rates of 10 to 25 percent per reward.

Evaluation and purchase. While mobile search is still a good place to buy ads, companies can find effective ad opportunities at a consumer’s evaluation and purchase stages. Photo ads inserted into Facebook’s mobile newsfeed, for example, have shown promising results to date. Some 50% of Facebook users are on Facebook’s mobile app when they’re in a store. Ads need to tap into this burgeoning mobile-social shopping behavior. Companies also should consider investing in automated algorithms to serve ads that recommend what product to buy next based on a user’s purchase behavior.

Loyalty. Consumers spent six times as much time on retailers’ apps in December 2012 compared with the previous year. According to the 2013 Maritz Loyalty Report, 91 percent of customers in loyalty programs are likely to download a loyalty program app. Ad dollars should go to developing useful and relevant apps that bond customers with the brand. Companies need to create compelling offers (such as discounts, free delivery, early access) to convince customers to download apps. Walgreens, for example, has seen a massive surge in its loyalty program that incorporates its app that customers use to earn rewards and manage prescriptions.

Even with a better understanding of how a customers’ decision journey should direct ad spend decisions, companies also need to be more deliberate about where they spend those dollars. User time is concentrated today on a handful of applications but marketers often simply spread their spending across a wide array of them. Until better targeting techniques come along, brands should focus their ad spend on the most popular and relevant apps.

We believe the industry will make significant progress to address mobile’s shortcomings in the next 6 to 12 months. In the meantime, marketers should drive deeper engagement across the consumer decision journey, test and learn, and build the capabilities needed to thrive in a mobile world.

This article originally appeared on the Harvard Business Review (HBR) Blog Network website