Retiring the Canary
Are we entering a ‘new norm’ for advertising where growth in ad spend and economic growth enter a new relationship? It seems we might be.
Global advertising spend has generally always acted as the canary in the coalmine for the general state of the global economy. When ad spend goes up so does economic growth, and when spend contracts so generally does the economy. This is the first year in many that global economic forecasts for growth are going up whilst the advertising growth rate is less than the previous year. To be exact, the overall economy is predicated to grow 3.6% in 2017 versus 3.1% actualised in 2016, whilst advertising growth rates are forecasted to be lower with a 3.5% increase in 2017 versus 4.1% actualised in 2016.
This scenario suggests a couple potential scenarios:
1. That economic growth may be about to slow, or that advertising may actually exceed its initial forecast.
2. That we are entering a ‘new norm’ for advertising where growth in ad spend and economic growth enter a new relationship.
Could it be that less advertising spend is required to achieve growth?
It’s the latter that I would like to explore. Perhaps we are starting to see a new norm for advertising. Could it be that less advertising spend is required to achieve growth? This would suggest advertising investment is becoming more effective at achieving like-to-like sales.
One could assume this may be down to the influence of the peer-to-peer economy. In other words, the power of fully-scaled social media whereby ‘earned’ media is becoming increasingly more influential on achieving sales.
It could also be attributed to the increasing shift toward addressable advertising — advertising that serve ads directly based on demographic, psychographic, or behavioral attributes associated with the consumer instead of projecting what content a particular audience will be consuming.
To use this Adweek example: Whether your target audience is watching TBS at 2 p.m. or ESPN at 10 p.m., they’ll be served your ad. And it is served to your target whether they’re a heavy or a light TV viewer because the ad finds the audience versus the old model of having the viewer come across the ad. And advertisers are only charged on impressions that are served to their target audience.
Over the past few years, the impact of new ad technology has increased the prevalence of addressable advertising with better, and more accurate targeting and optimisation that requires less advertising spend to achieve sales, and in turn reduces wastage.
The growth in advertising investment allocated to addressability has increased over 2,000%. Currently only 10% of all advertising is invested in this way — and analysts predict it will be exponential in the coming years (30% by 2018 and almost 50% in the US by 2020). The scalability of addressability is on our doorstep.
It could be attributed to the increasing shift toward addressable advertising with better, and more accurate targeting and optimisation that requires less advertising spend to achieve sales, and in turn reduces wastage.
Does addressability equate to better effectiveness? There is also evidence to suggest yes. In a recent study by the analytics group D2D the effectiveness of addressable advertising was measured versus a control group panel. Those plans that contained elements of addressability outperformed those that did not. The study concluded addressability done in the correct way can influence effectiveness by a factor of 10X. This will most likely increase as it becomes more scaled.
As more platforms and media goes addressable, traditional ‘fixed inventory’ advertising will become less and less. This coupled with the fact that people also consume less advertising and have more ad blocking technology installed might ultimately spell the death of advertising as we know it.
The creation and distribution of brand messages will be addressable and largely embedded in entertainment-based content or embedded in general utilitarian aspects of our daily lives. Reminders will pop up on our digital screens and household items — such as a message from our favourite yogurt brand on our digital fridge door, or a message about allergy relief medication relayed by Alexa in the morning when we ask for the day’s weather forecast.
It feels like the old adage of “half the money I spend on advertising is wasted; the trouble is I don’t know which half” may be coming to an end all together. Coming back full circle: are we entering a ‘new norm’ for advertising where growth in ad spend and economic growth enter a new relationship? It seems we might be.
Article written by Clay Schouest, Chief Strategy Officer of Carat APAC.
Originally published at rocket.carat.com on June 23, 2017.