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.”
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