Advertising is a form of marketing communication that aims to reach a target audience with a non-personal message (in contrast to personalized selling). Typically, the owner of a media property (such as a website, TV channel, social network, search engine, etc.) that accumulates an audience is paid by advertisers to carry an ad message.
There are of course many different forms of advertising that have specific characteristics in terms of their cost, reach, depth of engagement, measurability, and target demographic.
On the highest level there are two distinct forms of advertising:
- Brand advertising that intends to improve awareness of a brand and/or product in the target audience. The goal is to make the target customer aware of the product and its promised value proposition. Brand advertising usually focuses on media channels with wide reach, such as TV or display advertising. Because its impact is indirect, it tends to be relatively hard to measure.
- Performance advertising (formerly called direct-response advertising) aims to directly trigger an action with the recipient of the ad message, ranging from simple engagement such as a click up to an actual product sale. On average, performance advertising is easier to measure in its impact, and its effectiveness can be more easily attributed to sales, often down to the individual user. Popular forms of performance advertising include search ads, social media ads, and email promotions.
Advertising strategy for startups
Not surprisingly, the right ad strategy depends strongly on the nature of the product and target market, as well as the maturity of the market sector, and of course the available budget. Traditional consumer products that are sold through retailers tend to land on one extreme on the side of heavy brand advertising, while highly specialized products are typically strongly sold through performance advertising.
The most important thing to get right is finding the right mix of advertising channels for your startup. This is certain to change over time.
Young startups often initially focus on easily measurable and directly effective performance advertising channels to conserve cash. As the company grows, brand-oriented channels are typically increasing in importance.
The essential dimensions of an ad strategy are:
- Channels: which ad channels should be used and for which purpose?
- Targeting: how can the target audience be reached most effectively? Each channel tends to have different options for targeting and different levels of precision.
- Creative: how are ads going to communicate the company's value promise? Which creative formats (display, video, text search ads, stories, interactive, etc.) are going to be used and with which goal?
- Funnel and customer journey: It is very rare that a target audience member converts to a purchase after just seeing one ad on once channel. More typically they will encounter multiple marketing messages on multiple channels. Understanding and optimizing this journey is crucial.
- Measurement: how can the results of an ad campaign be measured in the context of desirable business outcomes? What infrastructure is needed to measure outcomes with sufficient precision?
- Cost: Channels differ strongly in terms of how much it costs to reach a member of the target audience. An ad strategy should therefore have a defined ROAS (return on ad spend) goal that measures how much incremental revenue is generated per ad Euro spent.
All these dimensions can be optimized individually, but the most effective ad strategies optimize multiple dimensions simultaneously.
One rule of thumb in advertising is that you don't know how effective something is going to be unless you have tested it.
Fortunately, modern digital ad channels such as search advertising make massive testing relatively easy.
It is important not to neglect any of the dimensions outlined above in your testing strategy. For instance, slightly different creative messages (even just a differently phrased search ad) can yield very different results with everything else being equal. Similar differences can result from changes in targeting, budget balancing between channels, etc.
Best practices for testing:
- Make sure that you have a reasonably consistent measurement strategy in place before you start spending on advertising. For example, to measure the effectiveness of search or social ads, you need to install the respective measurement code snippets on your website to measure visits and conversions. There is nothing worse than flying blind when testing your ads. On the other hand, don't go overboard. Absolute perfection is expensive to achieve and not needed.
- Start small, ideally with a subsegment of your market and only a handful of ad channels. As you learn from initial results, you can quickly roll out your ad strategy to other channels.
- Run many small campaigns to get insights into what is working. Google and other channels allow you to test a campaign for just a few Euros, and this will already provide meaningful results. Advanced campaign setups sometimes run thousands of micro campaigns that add up to a significant budget but are so granular that results can be optimized dynamically.
- Use testing as a free source of market research. User reactions to your ads can tell you a lot about which marketing message resonates with your target audience. For example, you can run multiple different versions of the same ad against the same targeting setup and learn quickly what people react to.
- Expect diminishing returns to scale. A search or social sub-campaign that performs well with a budget of 50 Euros a day will not work equally well when the budget is 5000 Euros a day. This is just a function of available ad inventory and the underlying auction process that prices ads. Similarly, a brand campaign can use a saturation level after a while.
Agencies vs. in-house
Most startups initially dabble in advertising with their in-house marketing team in order to save costs. This is understandable and fine for initial experiments, but very quickly this strategy can become inefficient if you are not willing to hire experienced experts.
The world of online advertising in particular is complex and changes very rapidly. Campaigns need to be constantly optimized to yield the best results, and that's often overwhelming for in-house teams that have to cover a lot of different tasks.
Working with an agency is therefore often a good solution since specialized agencies have the knowledge and economies of scale to be more efficient.
Criteria for selecting an agency (or qualified freelancer):
- Pick somebody who is familiar with your industry or at least general type of business. B2C consumer goods work very differently from specialized B2B products, for example.
- Choose an agency that has worked with startups or companies of your size before. Agencies that specialize in very large corporate customers might be very skilled, but they often have significant overhead to accommodate the complexity of their customers. A startup typically doesn't need that and is better off with agencies that specialize im smaller clients.
- Build a true partnership, not a transactional vendor relationship. The best agencies often go the extra mile for their clients when needed, but this requires an equal partnership that is built on respect and a mutually beneficial business outcomes. Clients who nickel and dime their agencies rarely get the best service. Be transparent, pay a fair price for the service you expect.
- Shape the contract to align incentives. Most agencies are willing to be paid based on their performance (e.g. cost per customer acquisition through ads) if results are measurable and expectations are realistic. This is often the best model for startups. Make sure that measurement is sufficiently transparent and clear, and test the sensitivity of the financial model.