Though a banner space is small it serves multiple purposes for an advertiser

It is the advertisement message of the company/web page ,

Allows visual display of the business title , logo and the product

It is the click-through device

it is a concise sales pitch that can trigger customer click-through

It is the key for the affiliate tracking mechanism (if you run an affiliate
code )

Whats the point of banners if clicks are declining?

At the turn of the century it seemed like it was all over for banners when research showed that click-through rates had dropped to 0.5% or less from a level of 2-3% in the 1990s. Fortunately there was also research that showed that banners play a big role in improving brand awareness on the net.
In fact, in spite of the finding that click-throughs are falling one yardstick that gives us some insight that banners are still workable - is the affiliate program concept. It is well known that affiliates build a significant contribution to the Internet economy and as we all understand , affiliate programs utilize banners as the main advertising format. This implies that banners continue to work even at the reduced click-through rates and have most likely stabilized at this level after the heightened interest in the initial decades of the net.

If we draw parallels with the paper mailer based direct marketing industry, the lessons learnt in direct response selling show that the expectations in terms of response rates should be realistic and as a percentage of total mailers sent out, the response is actually as low as 0.5%. It is therefore not surprising that click-throughs on banners which is the online equivalent of an initial response to the ad are also at similar levels.

The point to be borne in mind is that banners still make business sense especially due to their ability to create brand awareness and maintain brand visibility.

What do banners do for brands?

Banner ads continue to be the internets most widely used form of promoting and the utilize of rich media in banners has improved impact and given a fillip to the usage of banners. For those who use traditional media forms like TV, Radio or Print ads, the make use of of Internet banners enhances brand visibility and provides response capabilities through click-throughs.
To quote from a Forrester Research report Online branding may boost brand impact at 60% less cost than piling on more offline ads -- under the right conditions. Marketers should utilize new technologies to plan an online/offline mix to increase brand impact.

For those who cannot afford mass media or ponder their products too niche for traditional media, the Internet banners might help establish brand title recognition. For such advertisers who depend mainly on the Internet to create brand awareness, the key lies in affixing their banners within website environments with focused and relevant content.

When customers view a companys banner ads, whether they click through or not, it adds to the overall brand building activity and brand recall at a low cost. There is a tendency to run banner ads as short-term campaigns of 4-8 weeks but it takes longer for a banner campaign to establish a brand. Brand building on the Internet has to be a sustained effort just like in the case of traditional media but you could adopt a strategy of regularly refreshing and changing your banner advertisement content. This will ensure that you keep the brand top-of-mind as well as renew interest with fresh copy/visuals.

The banner space is evolving in terms of sizes, location on page, interactive capabilities and audio-visual delivery. If you capitalize on these developments early in the game before all Internet marketers wake up to it, the forerunner advantage and the element of surprise will be yours and you might establish your brands quickly and effectively.