Should a Company Use Banner Ads in Its Marketing Mix? (Part 1)

Recent news reports (including one by AdWeek) have suggested that banner ads, also called display ads, are on a path to extinction. Ad rates for nearly all types of websites have fallen precipitously throughout 2008, due in part to shrinking ad budgets, a glut of inventory, and serious doubts about banner ads’ overall effectiveness.

With the cost to run banner ads falling so low, is now a good time to consider adding display ads to your media plan? Are banner ads effective? And what does the research say?

The following is a two-part report. Part 2 will be posted on Wednesday, December 29.

Part 1: The Exposure Effect

Clickable ads have been around since at least 1994 when HotWired, Wired Magazine’s online version, first ran a 468 x 60 pixels banner ad for AT&T that asked, “Have you ever clicked your mouse right here? You will.” Some have pointed to similar efforts going back to the late 1980s by proprietary online services like Prodigy. The point is that the clickable concept has been around almost as long as the current-day Web.

Not long after the inception of banner ads, it seems, their effectiveness was hotly debated. Click-through rates (CTR) initially provided empirical evidence of their successes, and allowed marketers to create accurate return-on-investment (ROI) analyses based on the number of times a banner was displayed on a web page and made an impression on the viewer – akin to direct response marketing.

Over time, CTRs declined and consistently delivering a positive return on the advertising investment became more challenging. Marketers were becoming disenchanted with the approach.

Then research emerged that argued measuring Internet banner ads only by the number of times that viewers click through was faulty. In 2002, the Institute for Operations Research and the Management Sciences (INFORMS®) presented findings contradicting much of the popular thinking at the time. It suggested that the more often consumers see online banner ads, the more likely they are to make a purchase, even if they don’t click through immediately to the advertiser’s internet storefront. (Summary of findings.)

Co-author Jean-Pierre Dubé from the University of Chicago explained, “We are finding strong evidence of exposure effects… In other words, even if a consumer does not click through on the banner, they still see it and, thus, there is an impression.”

This became known as the “Exposure Effect,” in which people develop a positive perception of stimuli not presented to them on a noticeable level. Agencies and media companies make similar claims for traditional advertising to explain the positive effect of TV commercials on consumer behavior.

Subsequent research supported the idea of this Exposure Effect in online banner advertising. A Spring 2007 study by Chan Yun Yoo of the School of Journalism and Telecommunications at the University of Kentucky (summarized here) concluded that just seeing an ad on a Web page could impact memory, and therefore, positively predispose a consumer to a certain brand.  He encouraged using ad impressions as a better metric when a company is trying to build a brand image with online advertising.

Similar results were reported in the 2007 June issue of the Journal of Consumer Research (summarized here). In a series of experiments, the researchers, Xiang Fang (Oklahoma State University), Surendra Singh (University of Kansas), and Rohini Ahluwalia (University of Minnesota), discovered that even if people could not recall the content of the ad, repeated exposure led to familiarity, which then led to positive feelings. “Regardless of measured click-through rates, banner ads may still create a favorable attitude toward the ad due to repeated exposure,” concluded the researchers.

While the Exposure Effect was gaining advocates, another group of thought leaders began issuing research results that cast serious doubt on any positive effect of display ads due to “Banner Blindness” – a term first coined in 1998 by Jan Panero Benway and David M. Lane of Rice University (report here).

Banner Blindness would go on to have significant consequences through today.

Next Weeks’s post: Banner Blindness and Its Impact on Today’s Online Marketer.