Advertisers spent over £800m in 2012 on Online Performance Marketing activities including affiliate marketing and lead generation
Generating £9bn in sales, equals £11 for every £1 spent
Driven by finance and retail advertisers
UK businesses spent £814 million on affiliate marketing and lead generation activities in 2012 which generated £9 billion in sales, according to the UK’s first ever study on the Online Performance Marketing industry – conducted by PwC on behalf of the Internet Advertising Bureau UK (IAB).
Online Performance Marketing
Unlike the best-known methods of advertising where the advertiser pays simply for an advert to be displayed, Online Performance Marketing (OPM) means that advertisers only pay once someone completes a defined action, such as making a purchase (affiliate marketing) or submitting their contact details (lead generation) because of the advertisement.
The most popular examples of OPM are price comparison sites (e.g. USwitch, CompareTheMarket), voucher sites (e.g. VoucherCodes.co.uk), loyalty/reward sites (e.g. Nectar) and cashback sites (e.g. Quidco).
In 2012, UK consumers conducted around 100 million direct transactions to the value of £8 billion as a result of affiliate marketing, and submitted around 70 million enquiries (indirect transactions) which resulted in £1 billion in lead-generated sales. This means OPM drives around 5-6%* of all UK e-commerce retail sales. In addition to the convenience and cost-savings common to Internet transactions, OPM is one of the reasons consumers can access so much informative content free of charge online.
Though the channel is pervasive, OPM is not credited with its contribution to the economy. Tim Elkington, Director of Research & Strategy at the Internet Advertising Bureau, says: “Despite around
3,500 advertisers and 10,000 publishers engaging in Online Performance Marketing it still has the air of a ‘best-kept secret’. This is particularly surprising, considering each year it drives more than two online purchases for every UK adult and causes the equivalent of every UK person to fill out a form showing interest in a product – generating £11 of revenue for every £1 spent.”
Finance is the top OPM advertiser sector
Driven mainly by insurance and credit card advertisers, the finance sector is the biggest spender, accounting for 45% of OPM expenditure in 2012. A significant proportion of the finance sector’s revenues generated by OPM comes through price comparison sites.
Driven by clothing & accessories and electrical and computing advertisers, retailers are the next biggest spenders – accounting for 20% of OPM expenditure. The five top OPM advertising sectors are completed by telecoms and media (10%), travel & leisure (9%) and gaming (6%).
In comparison, the biannual IAB/PwC Digital Adspend report for the first half of 2012 – which mainly measures the best known form of advertising where the advertiser pays simply for an advert to appear – showed that the consumer goods (FMCG) and finance sectors were the biggest spenders on digital display advertising. Both sectors accounted for almost 16% of display spend followed by entertainment & media (13%), retail (11%) and travel & transport (10%).
Interviews with industry participants revealed that the proportion of marketing budget allocated to OPM varies by sector. Although the finance sector allocates the most total spend to OPM – where advertisers only pay once someone completes a defined action – typically this will equate to around 2-10% of their entire online marketing budgets. However, the telecoms and media sector – driven by mobile providers and subscription sites such as film and publishing – will typically allocate 20-30% of their online marketing budgets to OPM.
Future growth estimates
The study estimates that between 2008 and 2012, advertising expenditure on OPM, as a whole, grew by 57% due to lead generation spend increasing by 136% and affiliate marketing spend increasing 50% over those four years.
Suppliers of OPM services and technology estimate their revenue to grow by 25% in 2013 – a combination of market share gain as well as market growth – whilst advertisers estimate they will spend 5-10% more on OPM in 2013.
Anna Bartz, Senior Manager at PwC, says: “Economically challenging times have seen marketing budgets squeezed and greater evidence required of return on investment. As a result, we expect that the attractiveness of paying for advertising based on an extremely measurable and specific consumer action will see more advertisers using Online Performance Marketing as a key channel for driving sales.”
PwC’s figures are based on detailed submissions from 23 companies. This was supplemented by a modelling methodology for companies not participating as well as a further 30 in-depth interviews with industry participants.
The Internet Advertising Bureau (IAB) is the UK trade association for digital advertising. With over 750 members, most of the UK’s leading brands, media owners and agencies take part in the IAB. Given the rapidly evolving nature of the digital landscape, the IAB works to ensure that marketers can maximise the potential of digital media and mobile devices, helping members engage their customers and build great brands. By disseminating knowledge and fostering dialogue through research, policy guidance, training and events, the IAB aims to be every marketer’s authoritative and objective source for best practices in internet advertising. To access the IAB’s current research, policy briefings, training opportunities and events schedule, please visit www.iabuk.net.
PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 161,000 people in 154 countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice. See pwc.com for more information.