It’s no surprise that when consumer packaged goods (CPG) giants like P&G and Unilever cut ad spending, it makes for big news.
This is even more unnerving when it’s in emerging channels such as digital. However, in dissecting news coverage of P&G and Unilever’s significant decreases in digital spending, the false narrative being portrayed belies a much larger truth—systemic shifts are being made away from traditional advertising.
One could read the headlines and quotes only to deduce that digital ad spending is on the decline and that marketers are running back to the “more proven channels” like TV and print to gain “more reach.” Yet anyone who understands media, and more importantly, digital, realizes that this is not the substance of the news that has been released regarding these reductions in digital ad spends.
But first, let’s start by getting our facts straight. In comparison to all other media channels, digital is growing at a 10% annual growth rate, nearly 2X that of its nearest competitors, who are all tied at 3% (OOH, TV, and radio)…and digital is leaps and bounds ahead of the print market, which is declining at a rate of 5-9% annually.
Digital ad spending grew by 20% in 2017, is forecasted to increase by nearly 19% in 2018, and should experience double-digit growth until 2022.
Programmatic in particular grew by 25% in 2017 and is forecasted to grow to $38.5B by 2020, representing 6 straight years of double-digit growth. Certainly, none of these trends, nor other well-documented research on the health of the digital advertising market, indicate a segment in decline.
Looking beyond the health of digital advertising, it’s more important that we understand why large advertisers haven’t been happy with the results they’re experiencing with their digital media investments; after all, this is the real reason why the big guys are pulling back millions of dollars in digital ad spend. It’s not because digital doesn’t work, and it’s not because digital isn’t growing; it’s because they’re not seeing the return on media investment (ROMI) that they expect.
The lack of results isn’t being driven by digital media’s failure to deliver on its inherent value; it’s because the advertising industry is plagued with fundamental flaws with regard to how advertisers (especially the big guys) engage with agencies to plan, buy, manage, and optimize digital media campaigns. The key deficiency is the lack of transparency on ad platforms to discern if they actually achieved the status objective.
There are 5 pitfalls negatively impacting the performance of digital campaigns:
1. Buying Power
For years, marketing executives, brand teams, and procurement execs explained that they get buying power from large media agencies. But the actual proof is missing. Where’s the logic that a large media agency is going to get a better deal bidding on search terms, or that they’ll get a better rate buying impressions programmatically, or perhaps a better CPM from a direct publisher? In reality, this is simply not the case.
Regardless of the size of an agency, the concept of buying power in digital advertising is simply not a factor. Search and programmatic, for instance, are based on bidding models, so the concept of buying power is irrelevant. Getting a better deal on CPMs from direct publishers is a function of the skills of the media planner/buyer; after all, the salespeople for these publishers are commission based and are looking to cut a deal with everyone they can. What’s further, and as the ANA report in 2016 pointed out (http://www.ana.net/content/show/id/industry-initiative-media-transparency-report), in cases where discounts or value-added inventory is provided to media buyers, this almost NEVER flows through to the clients. In fact, these financial incentives are almost always retained by the agency. Until advertisers accept that the concept of buying power is irrelevant in the world of digital media, they will continue to make mistakes in who they hire to manage their digital media.
Yes, it’s a dirty word in our industry but one that we must use. For many years, advertisers have believed that having a single media agency will result in greater integration between digital and traditional media channels. As is the case in other large holding company models, the media teams across the paid, earned, shared, and owned (PESO) media spectrum rarely co-create media plans to ensure a strategic mix is established to drive the utmost performance from their spend. This lack of integration persists through to the reporting and measurement of media as well. In fact, it’s frequently the case that these groups are so siloed that they actually fight for their own budget specific to the channel in which they buy media (ie, search teams fighting for budget from display fighting for budget from broadcast). The reality is that a separate digital media agency can just as easily integrate their digital plans with traditional broadcast plans. Consolidating digital and traditional media into a single organization rarely drives integrated planning or reporting.
The concept that there is greater innovation and access to tools, systems, and data within large media agencies vs small to mid-sized agencies is also not the case. In fact, in many cases we see much greater degrees of innovation coming from companies that have tremendously more competition; after all, that’s the only way they can differentiate in a competitive market. Limited access to data, systems, and tools is sometimes the case for small groups, but not the case with mid-large teams who have 10’s of millions of dollars under management and still require these tools to deliver for their clients.
4. Contract Structure
Here’s the big one and the elephant in the room—contract structures that pay agencies a commission based on the level of media spend. Relationships are built on foundations of trust and a mutual beneficial goal between parties. If that’s the case, why do advertisers incentivize their media agencies by allowing them to charge commissions on their media out-of-pocket expenses? Allow me to clarify. Commissions on media spends incentivize agencies to spend more media dollars rather than drive better results. Why? Because the agency will make more money if the advertiser spends more on media. It’s such a simple concept but one that is frequently overlooked, if not blatantly ignored. Agencies should be incentivized to drive desired results, not just digital media KPIs but actual business results. This means that advertisers should be looking to non-commission-based compensation models if they want to get more performance out of their agencies and their media.
Determining if a digital campaign is performing has much to do with content that entertains, interests, inspires, educates, and resonates. There also needs to be very specific slash and cut efforts for digital ads that don’t perform or are ineffective.
The game is not to interrupt consumers but engage them in a manner that is seamless with their lives. And for marketers, it’s about eliminating ad fraud and not tying ads with inappropriate content that would compromise the brand.
As marketing strategists, we should not get too focused on the recent declining digital media spends of the large CPG advertisers but seek the truth behind them. The reality is that many advertisers are reshaping their approaches to reflect a shifting consumer environment. And in doing so, some are focused on fixing symptoms rather than addressing the root causes.
The time is now to pivot to a steadfast focus on driving RESULTS. After all, if we’re doing the right thing and being as intelligent as we can in how we plan, buy, manage, and optimize digital media campaigns, the results will be clear:
- Reduce costs by being more efficient, not by selling on a perception of buying power.
- Ensure digital media campaigns are tightly integrated with other channels, whether they be paid, shared, earned, or owned.
- Innovate in ways that will generate greater degrees of engagement by thinking beyond the media placement and instead about how to motivate changes in customer behavior.
- Attract marketers who seek to invest with agencies that drive business results vs soft digital KPIs.
The current news cycle fails to explain that cuts in digital advertising are a method of rethinking and reshaping content, cadence, frequency, and effectiveness.
The goal is to focus on leveraging digital media for all that it’s capable of delivering, in an honest, straightforward, and forthright manner.
If you truly believe in the power of digital as a channel, there is no need to defend its efficacy but rather what truly matters—RESULTS!