Ad Industry Trends Pose Real Risks to Advertisers

26 Oct

Risks

“There are risks and costs to action. But they are far less than the long-range risks of comfortable inaction.” ~ John F. Kennedy

The advertising industry is an important, dynamic, complex, and rapidly evolving part of the global economy. As such, it is susceptible to the same challenges facing other business sectors… inflation, rising interest rates, recessionary pressures and geopolitical uncertainty.

However, there are unique aspects of this industry that pose challenges to advertisers, agencies, media owners and AdTech companies alike. If you’re a marketer and have not conducted a compliance and financial management audit of your ad agency partners, consider the following:

  • The global economic climate is uncertain for the coming year with economic growth projected to slow from 6.1% in 2021 to 2.7% in 2023 (Source: International Monetary Fund).
  • The economic slowdown is causing advertisers to reconsider and often curtail advertising budgets for the coming year, with ad spend growth projected to slow from 8.3% in 2022 to 2.6% in 2023 (Source: WARC “Ad Spend Outlook 2022-23” Study).
  • Media inflation is anticipated to grow by 6.2% or more in 2023 (Source: ECI Media Management).
  • Marketing and advertising expenditures are a material SG&A expense, with organizations spending between 7 – 8% of gross revenue in this area (Source: Deloitte CMO Survey – 2017)
  • The advertising industry works on an “Estimated Billing” basis, with advertisers paying their agencies in advance of expenses being incurred, with the understanding that estimated costs will be reconciled to actual outlays at the time jobs are closed.
  • Agencies can take months to close and reconcile production jobs and media campaigns, which delays the identification and issuance of credits to advertisers, impacting the accuracy of budgets and subsequent planning.
  • Final Invoicing from ad agencies that reconcile advance billings to actual costs incurred rarely, if ever, include copies of third-party vendor or affiliate invoices. Without documentation to support actual expenditures, your Finance and Marketing departments can only compare final billed amounts to an estimate.
  • Almost one-half of advertisers listed “Transparency” as their leading concern when it comes to their marketing investment (Source: WFA survey, 2017).
  • Digital will represent 61% of U.S. advertising spend in 2023 (Source: Statista).
  • In 2022, 90% of all U.S. digital display advertising ($123 billion) was placed programmatically (Source: eMarketer).
  • Marc Pritchard, Chief Brand Officer of Procter & Gamble referred to the digital supply chain as “murky at best, fraudulent at worst.”
  • In 2021 over 20% of programmatically served ad impressions in the U.S. were “fraudulent” (Source: Statista).
  • Digital ad fraud in the U.S. is forecast to be over $80 billion in 2022, representing 15% of U.S. digital media spend (Source: Statista).
  • Between 35% – 60% of U.S. marketers’ digital ad spend goes toward the “AdTech Tax” or the fees spent on each vendor or intermediary down the supply chain (Source: ANA Study)
  • The Association of National Advertisers (ANA) study on AdTech Transparency being conducted by PwC and Kroll, originally scheduled to be released this month, has been delayed until 2023. Digiday reporting cited “conflicted reporting methodologies,” vested interests,” a lack of full participation (i.e., Google and The Trade Desk are not participating in the study) and the complexity of tracking payments between “relevant parties” as contributing factors.
  • The annual agency employee turnover rate is estimated to be around 30% (Source: Association of National Advertisers and Forbes).
  • 96% of consumers “don’t trust ads” (Source: 4A’s 2019 study).

The preceding stats are alarming to both an organization’s stakeholders and shareholders. A marketers’ ultimate leverage and truth lever is the “Right to Audit” clause contained within the client/ agency agreement. Enacting that right, conducting a formal compliance and financial management review of your agency partners to validate actual costs and time-of-staff along with assessing third-party billings makes good business sense. Such reviews result in financial recoveries, future savings, stronger controls, improved supplier alignment, and enhanced levels of trust in a marketers agency network.

Best of all, each of these outcomes has a positive impact when it comes to optimizing your organization’s advertising investment.

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