Tag Archives: advertising

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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Keeping Pace with the Rate of Change in Ad Industry Can be a Challenge

31 Jan

lexiconDo you sometimes wonder how you will ever keep up with the dizzying array of change that has become a constant in the ad industry? The good news is that you may not be alone in your angst. Just take a look at how industry lexicon has evolved in recent years to reflect the technological changes that the industry is dealing with and one can easily surmise why practitioners feel stressed out…

Industry Lexicon for the 21st Century

Algorithm, artificial intelligence, programmatic media buying, header bidding, second-price auctions, big data, fraud, domain spoofing, viewability, demand side platform, Pinterest, supply side platform, data management platform. Ad tech, exchange, tech stack, human marketing, voice activation, block chain technology, deep learning, managed service model, the duopoly, GDPR, hyperlocal media, ad spoofing, biometric recognition, virtual reality, winning bid log metadata files, econometrics, transparency, martech, Facebook, linear TV, Snapchat, digital content production, ad tech integration, ads.text, brand safety, publisher addressable marketplace, blackhat SEO, walled gardens, proprietary tech integration, trading desks, principal-based buying, PII-based consumer ID’s, brand safe environments, push notifications, mobile-app fraud, spoof impressions, ad networks, e-commerce analytics platform, contextual fit, attribution fraud, HULU, curated inventory, general data protection regulation, CX strategy, cyber security, white list, multi-screen viewing, bid management fees, Instagram, PAM, PII based identifiers, automated monetization, onboard connected TV, app-install, exchanges, click spam, downstream metrics, dynamic creative optimization, sustainable ecosystems, dynamic personalization, performance media platform, extremist content, audience engagement, monetization, fake followers, hard news, enterprise brands, CPI, retargeting, data controller, software development kits, mediation products, combinatorial bidding, people-based marketing, waterfalling,  trust, content recommendation guarantees, Alexa, frequency capping, probabilistic methodology, addressable IDs, over-the-top video streaming, TAG, streaming environments, cross-channel messaging, influencer marketing, direct-to-consumer brands, brand activation, experiential marketing, growth hacking, social selling, fake news, user generated content, storytelling, illegitimate traffic sourcing, private marketplaces, sandboxing, non-human viewing, synchronized nodes, decentralized ad networks, voice assistants, cross-channel attribution, verification technologies, internet of things, personalization, social search, facial recognition platforms, 3-D printing, hyper-relevance, automated buying, voice activation, first-price ad auction, AI machine learning, in-home sensors, smart re-ordering services, digital workspace, multi-channel ecosystem, native advertising, organic posts, privacy settings and controls, FVOD free-video-on-demand, clearing price, net neutrality, invisible bots, Spotify, voice strategy, audio logos, autonomous vehicles, behavioral DNA, spot cloaking…

Never a dull moment for ad industry professionals to be sure. Consider the words of the twentieth century American writer, Alvin Toffler:

“Future shock is the shattering stress and disorientation that we induce in individuals by subjecting them to too much change in too short a time.” 

The questions to be considered are; “Can the industry sustain this rate of change, without compromising its ability to deliver? Can you?” Only time will tell.

 

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The Ad Industry is Metamorphosing

30 Jun

dreamstime_xs_83082522“It was the best of times; it was the worst of times…” Most of us are familiar with the opening line from Charles Dickens in his epic work A Tale of Two Cities. Many marketers may even consider it an apt description of both the current state of the advertising industry and the challenges that they face in sustaining brand relevance and driving growth.

Phoenix risingSo, who will marketers count on to assist them with the tasks of deepening brand engagement with core target segments, revitalizing sales and profits in a low-growth environment and in differentiating their brands for competitive advantage?

Over the course of the last few years, many have opined on the viability of the ad agency model and what it portends for advertiser/ agency relationships going forward. And with good reason. Concerns cited include threats from non-traditional competitors such as management consulting and technology firms encroaching on their turf, talent recruitment and retention challenges and margin compression due to downward pressure on fees and expanded scopes of services.

It may be as some predict that management consulting firms will leverage their capabilities in the area of strategy and integration to pirate work from ad agencies and that ad-tech providers will enable marketers to take certain tasks in-house. The question remains, how will marketers adjust to this dynamic and the evolution of their agency networks to potentially include consulting, data and ad-tech firms? There are already very real challenges related to agency stewardship today due to under-resourced client marketing staffs.

The aforementioned challenges, combined with the rate of digitization and the emerging role of artificial intelligence occurring within the ad industry, certainly pose challenges for advertising agencies and could serve to lessen their stranglehold on the marketing and advertising sector. In a recent McKinsey article entitled; “The Global Forces Inspiring a New Narrative of Progress” the authors note that “disruption is accelerating.” They opine that this dynamic is raising serious concerns for many organizations relating to the question, “How long can their traditional sources of competitive advantage survive in the face of technological shifts?”

That said, in spite of these risk factors and other marketplace developments, ad agencies are doing just fine:

  • Agency holding companies have continued their aggressive acquisition drives, supporting both their horizontal and vertical integration strategies. While overall M&A activity is down from 2016 levels, WPP and Dentsu have consummated twenty acquisitions with a combined value of $700 million through the first 4 months of 2017. (Source: R3’s “State of Agency M&A report” for January – April, 2017).
  • While down from 2016’s 5.7% growth rate, global ad spending is projected to grow 3.6% in 2017 (Source: Magna Global, June, 2017). Of note, this is higher than the International Monetary Fund’s projected increase for global GDP growth.
  • Even though 1Q17 Advertising Industry gross margins fell to 44.15%, the industry itself is healthy. For instance, within the services sector, the Advertising Industry achieved the highest gross margins, net margins, EBITDA margins and pre-tax margins for the quarter (Source: CSIMarket.com).
  • Some 86% of mid-sized ad agencies are confident that this year will be better than last in terms of profitable growth (Source: Society of Digital Agencies (SoDA) survey).

Importantly, since the demise of the “good ole days” of full-service agencies and the fifteen-percent commission remuneration model, agencies have demonstrated a unique ability to not only keep up with industry changes, but to take the lead from both a thought leadership and innovation perspective. They have been able to scale, attracting more clients and deeper talent pools, they have invested in emerging technologies to deal with increasingly complicated, data driven processes and to pioneer the use of algorithms and artificial intelligence to efficiently execute deliverables ranging from digital media investment to creative adaptations… all while dealing with evolving client expectations.

Further, it bears noting that the publicly traded holding companies; WPP, Omnicom Group, Publicis Groupe, Interpublic Group of Cos. and Dentsu, had combined estimated worldwide 2016 revenue levels of $60.7 billion (Source: Advertising Age, June 2017). When one considers the pre-dominance of the estimated billing process and agency remuneration schema that includes direct labor and overhead cost reimbursement plus guaranteed profit margins of 14% to 17% or more, one must also respect the financial clout that these publicly traded entities wield.

Is there a need for near-term belt tightening to offset softer 2017 ad spending levels? Yes. Do the holding companies need to consolidate agency brands and realign capabilities to boost the efficacy of their service delivery models and generate much needed efficiencies? Yes. Will agencies need to improve their talent recruitment and retention practices, across a diverse range of specialties? Yes. But no business is immune from these challenges, including management consultants, ad-tech platforms and publishers.

The big question the industry in general and marketers will need to assess is related to whether these players will be able to boldly transform their current business models, repositioning their firms to deliver integrated, multi-specialist services in a nimble, cost efficient, on-demand manner.

Broadly speaking, all participants are facing challenges as the ad industry undergoes its current metamorphoses. We believe that it is too early to predict winners and losers or to suggest that marketers adapt an attitude of empathy toward any of their marketing supply chain partners. After all, it is their marketing spend that has built this sector into a $457.4 billion global machine in 2017 (Source: Statista, 2017). And they must vigilantly safeguard and optimize that investment.

Below is one of the closing lines from A Tale of Two Cities, one that many may not be as familiar with:

“It is a far, far better thing that I do, than I have ever done…”

With this parting thought, Dickens’ suggests that the main character in his novel and the city of France will be resurrected, rising above their present strife and “made illustrious.”

Here’s hoping that the ad industry achieves similar transformative success.

 

 

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3 Reasons Why Marketing Accountability Matters

1 Jan

AccountabilityAs 2015 has come to a close, many of us who are involved in the marketing and advertising industry will most certainly reflect on some of the challenges faced and lessons learned during the prior year. Rightly so, as future success is often based upon the knowledge gleaned from reviewing past experiences. 

We work in an industry that is dynamic and exciting and yes, at times, trying. The dizzying array of issues which industry practitioners deal with on a daily basis are not for the faint of heart; big data, ad technology, media fragmentation, changes in consumer media consumption behavior, industry consolidation, talent procurement and retention and a myriad of financial oversight challenges ranging from ad agency compensation to optimizing an advertiser’s return-on-marketing-investment (ROMI). 

One of the highlights from this past year is that a significant spotlight was cast upon a handful of seminal issues that have a direct and meaningful impact on the industry. These include conversations on improving transparency, mitigating the risk associated with fraudulent activity, particularly in digital media, and the need to strengthen client/ agency relationships. 

As importantly, we believe that a key takeaway from an advertiser’s perspective in 2015 is that accountability matters, perhaps more now than at any point in the recent past. There are three reasons why we believe that it is important for client organization’s to implement marketing accountability measures in the coming year: 

  1. Marketing expenditures represent one of an organization’s largest SG&A expense line times. As such the dollars spent in this area need to be closely monitored to insure that they are allocated and stewarded in an effective manner.
  2. Optimizing ROMI is the primary responsibility of marketers and their agency partners. This has never been truer than it is today given that CEO’s, CFO’s, CPO’s and Internal Audit are more focused on enterprise wide accountability initiatives than ever before. Further, many of these stakeholders view marketing as an expense to be managed tightly on a line-item basis, rather than an investment.
  3. Client marketing departments are the first and last line of defense when it comes to protecting an advertiser’s fiduciary interests. Gone are the days when ad agencies served as principal-agent for their clients. Ad agencies, ad tech firms, trading desks, publishers and fraudsters are all in competition to increase their respective share-of-wallet, often at an advertiser’s expense. As such, it is imperative that CMO’s work with their C-Suite peers to put in place the appropriate financial management processes and safeguards to protect the dollars entrusted to them. 

Ironically, in spite of these truisms, most advertisers have yet to implement formal accountability initiatives inclusive of agency contract compliance reviews, financial management audits or performance assessment programs to protect their marketing investments and to boost ROMI. 

While the reasons are many and varied, they are immaterial in the context of the current state. The reality is that client organizations which fail to embrace marketing accountability initiatives will be at risk when it comes to insuring that their hard earned budgets are spent in an appropriate and effective manner. In the words of Noreena Hertz, the noted English academic, economist and author: 

“Transparency, accountability and sustainability have become the slogans of the market leaders.” 

There are many within the industry, including both client-side marketers and agency executives, who would argue that the move to improve advertiser controls takes time away from the business of creating and executing ad campaigns. 

Quite the contrary, in our experience, we have seen the implementation of accountability initiatives within the marketing area actually improve work flow, project briefing and approval processes; enhance client/ agency alignment, boost clarity around roles and responsibilities, provide rationale to upgrade marketing ops and clearly establish the expectations of both stakeholder groups. In the end, this can improve efficiencies, freeing up time for client facing activities and can help solidify the client/ agency relationship, all while enhancing transparency and controls. 

The primary reason for this is that accountability initiatives are predicated on enhanced levels of communications between clients and their agency partners and they ultimately drive understanding and trusts among C-Suite personnel at the advertiser in their agency partners. 

It is for these reasons that we believe that marketing accountability is a practice whose time has come. The stakes are too high for advertisers not to implement improved controls in 2016. Further, we know from experience that what is inspected is respected and respect is not a bad foundation on which to base a relationship. 

Interested in learning more about launching a marketing accountability program? Contact Cliff Campeau, Principal at Advertising Audit & Risk Management at [email protected] for a complimentary consultation on the topic.

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The Value of Consistency in Building Brands

11 Mar

brandingMarketing pundits the world over have long championed the role of consistency when it comes to building great brands.  When citing examples, we frequently here about creative expressions of that consistency ranging from Budweiser and the Clydesdales to Nike and their “Just Do It” slogan to McDonald’s and their “Golden Arches” or Coca Cola’s iconic red can. 

Rarely do we tout the generation’s long relationships between advertiser and agency which have contributed mightily to building so many of today’s top brands.  Chevrolet and Campbell-Ewald, Ford and J. Walter Thompson, Exxon Oil and McCann, Kellogg’s and Leo Burnett, Met Life and Young & Rubicam or Unilever and Lowe + Partners are but some of the examples of long-term collaborations.  And yet, sadly, even some of these unions are no more.

Great advertising is the result of proven methodologies and sound processes, which guide talented professionals steeped in brand knowledge and keenly aware of the needs and desires of the brand’s target audience to produce compelling work.  This doesn’t happen overnight.  Great advertising requires a commitment between an advertiser and their agency partners, a culture which values brand building and the vision to be able to balance that with the need to generate sales and build share today.  Importantly, it requires a resource investment on the part of both client and agency and a deep level of respect between those organizations which allows for a robust, long-term relationship in which both parties can challenge and feed off of one another.

So why then has the length of Client/ Agency relationships shrunk so dramatically over the course of the last thirty-years?  Why does it seem that when an advertiser changes CMO’s that an agency review is but a few short months behind?  Why do so few corporate CEO’s take the time to get to know their organization’s advertising agency partners? 

An advertiser’s agency network, which can number dozens of agencies across disciplines, geographies and brands, is a corporate asset which is at the heart of the organization’s ability to create near-term demand generation and long-term brand value.  Thus, the agencies which comprise this network should be afforded the requisite level of respect and attention which a valued strategic partner would warrant. 

Advertising agencies are not the property of, nor the sole purview of a CMO.  This is not to diminish the importance of a CMO’s agency stewardship responsibilities or their contribution to deftly managing the outputs of an organization’s agency network.  It is the realization that enduring, effective collaborations must be anchored in a culture that values long-term relationships.

At its low in 2006, the average time-in-position of a CMO was 23.2 months according to research conducted by executive recruiting firm Spencer Stuart.  The good news is that CMO tenure has climbed to 43.0 months in 2011.  However, 3 ½ years is but a blink of an eye in the context of some of the Client/ Agency relationships referenced earlier.

It is a truism that “great clients, get great work” when it comes to advertising.  So what makes a “great” client?  It begins with an organization that respects their ad agency and the agency personnel which work on their business and values the work that is done on behalf of their brands.  This is augmented by the willingness to integrate the agency into the broader marketing team and to work seamlessly as one unit, while understanding the division of roles and responsibilities.  Importantly, it involves a commitment to the relationship.  Agency CEO’s are much more willing to invest in adding resources, developing personnel and building infrastructure to elevate the caliber of work on a client business when they can do so with a long-term perspective and the opportunity for a return.

David Ogilvy once shared his perspective on the role of his agency and the investment required to implement his vision in a memo to his board of directors in 1978:

“I have a new metaphor. Great hospitals do two things: they look after patients, and they teach young doctors.  Ogilvy & Mather does two things: we look after clients, and we teach young advertising people.  Ogilvy & Mather is the teaching hospital of the advertising world.  And, as such, to be respected above all other agencies.”

Needless to say there are a myriad of processes, controls and performance monitoring tools which come in to play to maintain focus and to incent all parties to engage in the proper behavior and motivate each member of the team to achieving in-market success.  These include everything from a properly structured letter-of-agreement, a fair remuneration system which rewards superior performance, annual 360° relationship reviews, proper client briefing processes, independent performance assessments and access to key decision makers within both the Client and Agency organizations.

It is safe to say that with the passage of time and repetition, the ability to improve these processes and tools… and their outputs, becomes infinitely more doable than when changing agencies every few years.  Perhaps Leo Burnett had it right when he intoned:

 “I have learned that you can’t have good advertising without a good client, that you can’t keep a good client without good advertising, and no client will ever buy better advertising than he understands or has an appetite for.”

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There Were Two Glaring Omissions from AdAge’s “Top 100” LNA List

7 Aug

the white houseAs you know, Advertising Age publishes a list of leading National advertisers (LNA) based upon their annual U.S. advertising spending levels.  In reviewing the publication’s most recent “Top 100” LNA list, it occurred to me that there were two well known, billion dollar plus advertisers who should be recognized based upon the size of their U.S. advertising investment.  Intrigued?  Perhaps you have already ventured a guess as to the identity of these two “Leading National Advertisers?”  Without any further intrigue, when these two advertisers are incorporated into the LNA list, the rankings would look this:

  1. P&G ($4.18b)
  2. Verizon Communications ($3.02b)
  3. AT&T ($2.79b)
  4. Presidential Candidates ($2.51b)*
  5. GM ($2.20b)
  6. Pfizer ($2.10b)
  7. Johnson & Johnson ($2.06b)
  8. Walt Disney ($2.00b)
  9.  Time Warner  ($1.85b)   
  10. L’Oreal ($1.83b)
  11. Kraft ($1.75b)     

*Sources: Center for Responsive Politics, Smart Media Group, Federal Election Commission 

That is correct, based on current projections, Mitt Romney will spend $1.35 billion and President Obama $1.16 billion on their respective runs for the White House.  Looked at another way, they will each spend more than top brands such as Chevrolet at $923 million, Lipitor at $247 million or Cover Girl at $205 million.  Further, projected total spending for all Federal election campaigns in 2012 is $5.8 billion… a staggering amount of money by any measure. 

What lessons can be gleaned from a political process where a sitting president must spend over $1.0 billion on a re-election campaign rather than running on the merits of their first-term job performance?  What can marketers learn about the viability of negative advertising in trying to build their brand by deriding the competition?  How does the market benefit from the lack of transparency which shrouds a Political Action Committee’s source of funds?  Admittedly, there is probably little in the way of practical insight that one could take away from political campaigns that would be of any value to marketing, financial, procurement or audit professionals. 

Political positions aside, the infusion of federal campaign spending has been a boon for the U.S. advertising market, with expenditures having grown 87.1% since 2000.  Who benefits?  Media property owners, ad agencies, PR firms, digital marketing shops, consumer research organizations and tchotchke manufacturers to name a few segments of the marketing world that participate in this “every-four-year” bonanza. 

In light of the largesse of politics as a force within the marketing world, it caused this marketing professional to ponder on a few topics: 

  • Are President Obama or Mitt Romney members of the ANA?
  • Do the campaigns conduct media post-buy analysis?
  • Do they conduct 3rd party vendor billing reconciliations?
  • What are the campaign’s days-payable-outstanding vendor payment averages?
  • Are agency employees who work on campaigns required to fill out time sheets?
  • Are the campaigns marketing services firms required to complete “non-disclosure/ non-compete” forms? 

Idle musings of a contract compliance auditor to be sure. 

One can certainly debate the need for political spending reform, the resulting impact on the electorate or the need for tighter regulatory oversight on campaign funding sources or message accuracy.  However, there is no debate about the positive impact federal election campaigns have on the U.S. media market.  From a marketing perspective, when it comes to political spending, if a little is good, more is certainly better, or as John Quinton so aptly said: 

“Politicians are people who, when they see light at the end of the tunnel, go out and buy some more tunnel.“

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