Commentary

Top 4 Drivers Of Advertising Industry Over Next 5 Years

  • by , Featured Contributor, April 12, 2018

I spent an amazing morning today at Media Kitchen’s annual Venture Capital Conference in New York City listening to leaders in media, investing and banking talk about “new TV”:  the merging of broadcast TV, social video and everything in between.

This is the 11th year that Media Kitchen CEO Barry Lowenthal has put on the event to help drive critical thinking, inspiration and innovation for our industry.

In my remarks, I focused on what I thought would the key drivers of the advertising industry over the next five years. Here they are — and AI is not one of them:

Direct to consumer. All marketers and media companies that want to be relevant into the next decade are working hard to build direct consumer relationships.

Most incumbents here are in a bad spot. If you are Proctor & Gamble or CBS, you are basically in a B2B business. You make your sales in multiyear agreements with Walmart or Comcast, not to the Sally Browns or Joe Smiths of the world.

Not so a Warby Parker or Amazon Video. They create products and sell them directly to consumers. They know their customers’ names. They can and do talk to them directly.

This is the fast-emerging direct-brand economy  — and nobody has done a better job laying out its potential than the Interactive Advertising Bureau’s Randy Rothenberg, in a must-read for all who care about the future.

ROI. For decades, legacy brand companies have been managing their advertising as a cost center. That’s why they focus so much on outdated media measurements like gross rating points, and are maniacal about per-ad unit pricing and cost-per-thousands.

Not so if you sell direct to consumer. In the world of the Dollar Shave Clubs or Casper mattresses, advertising is a profit center. For them, sales has an ROI for each and every ad. As more companies go direct to consumer, more and more advertising will be managed as profit centers and measured by ROI.

Identity. Cookies, device IDs and IP addresses aren’t identity, even if they help ads follow you across the web. In the world of direct selling, people buy things — and it’s very important for marketers to know who those buyers are. That’s why we are seeing the rise of customer data platforms (CDPs), where companies aggregate customer data sets to make them more accessible and actionable to drive their advertising and marketing.

Critically, these systems contain ways to make data available to drive action-based systems -- ad servers, email servers, TV planning systems -- without leaking private data, keeping personal data within the walls of the marketers. This area is growing fast, with this week's Facebook hearings only adding urgency.

TV advertising. What’s old is new again. Nothing sells like sight, sound and motion, and television is unrivaled in reaching more people faster, with more impact, cost-effectively. That’s why so many of the new direct brands like Dollar Shave Club, Warby Parker, Peloton, Wayfair and Ring are building their businesses with TV ads.

As we learn from research by the Video Advertising Bureau, not only does 80% of all video viewing today still occur on linear TV, but digital brands that use it see spikes in their website traffic of hundreds of percentages.

 As these drivers take hold, they will have significant implications for our industry. Here are a few:

      -- Data management platforms and customer relationship management systems will subsumed by CDPs.

       -- Privacy-safe, software-based identity matching will overtake traditional “safe havens.”

       -- Analog media wlll become data-optimized, performance-focused and coordinated with digital.

       -- Platforms will take over TV media analytics/planning/activation/optimization.

       -- We will see true leverage created relative to the digital walled garden duopoly.


What do you think? Is it too crazy to think that anything will emerge in the next five years to challenge the duopoly?

14 comments about "Top 4 Drivers Of Advertising Industry Over Next 5 Years".
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  1. Ed Papazian from Media Dynamics Inc, April 13, 2018 at 7:43 a.m.

    Dave, as we have discussed before, it's all up to the advertisers, not the agencies. Will enough advertisers decide to modify their corporate buying systems so their brands have at least a choice of buying some of their TV time on their own---like the two-upfront plan I have been advocating----or will most of the larger advertisers continue to regard TV as nothing more than a mass audience tonnage generator and press their agency time buyers to get the lowest CPMs for their corporations as a whole. Also, we have to remember that many TV buys---especially sports, news, specials, --are not driven by CPMs/targeting, demos, etc. but by "other" considerations. As a guess this category represents about 25% of national ad dollars. Finally, we must take into account the reduction in person power efficiency that occurs when buyer and seller must deal with 7,000-8,000 separate brand negotions ---both upfront and in scatter---instead of 300 corporate buys. Were all of these brands to go it alone, buying and selling costs would rise significantly and such added costs would be passed on to advertisers in higher CPMs.

    I see a gradual progression to individual brand buying over the next five years, but not the huge groundswell that some keep predicting---mainly because many  P&G-style advertisers will not see the value of such a move and the sellers might find it very difficult to deal with a massive change on a short term---yes, five years is a short term-----basis.

  2. Dave Morgan from Simulmedia replied, April 13, 2018 at 7:56 a.m.

    Ed, you've hit all of the key issues here, as always. It will be driven by advertisers, not the large legacy media agen cies. Ihere iis a big question mark as to whether sellers are ready - and technically enabled - to have so many direct conversations with so many brands for so many campaigns. Software platforms will be key. Plus, as you've been suggesting, it will probably take a two-step upfront to have a chance to make this happen. Let's see what network steps up first to do it. I bet we will see it in 2019 :-)

  3. John Grono from GAP Research, April 13, 2018 at 9:07 p.m.

    Just to jump in on the tail of this good discussion, the other issue is fulfillment.

    When you have a product that costs, say, $100 and $5 freight, that modeal makes sense.

    I simply can't see it making sense for the P&Gs of the world selling laundry detergent direct as the fulfillment model doesn't stack up versus delivering truck loads at a cheap price to the local Walmart.

  4. Ed Papazian from Media Dynamics Inc, April 14, 2018 at 6:01 p.m.

    John, I believe that even mass marketers of detergents, toth paste, etc. are exploring the trade- offs of cutting out the middlemen---wholesalers and stores which garner about half of the money paid for their products by consumers---with the supposed cost efficiencies of direct response sales via the Internet. Of course this approach has its cost structure to, but they are investigating whether they can sell enough incrementally on a "direct" basis to net a greater total ROI that going the traditional-only route. Only time will tell.

  5. Dave Morgan from Simulmedia replied, April 14, 2018 at 6:18 p.m.

    John, I suspect that we will see this handled with new, subsciptoin-based retail models like Amazon's Prime and Dollar Shave Club. The new logistics back-end in fulfillment is one of the topics called out in the IAB's presentation of the 21st Century Brand economyhttps://www.iab.com/wp-content/uploads/2018/04/The-Direct-Brand-Economy-Master-Deck-v17.pdf

  6. John Grono from GAP Research, April 14, 2018 at 7:13 p.m.

    Thanks Dave and Ed.

    Yes our mass-market products are doing the same here in Oz.   The depth of retail price discounting here along with line fees, stocking fees etc charged by the big supermarkets is making the search for other channels more attractive.

    Costco (subscription based) is making some impression here but when I went with a friend to their Coscto, their overall ticket price was lower - but not as low as the major retailers with price cuts (largely paid by the manufacturer I must add).   Aldi, Lidl etc are making a retail impression - but by stocking alternate products, which at the moment doesn't appear to be impacting brand leaders that much (albeit with their deeper co-op price cuts in the leading supermarkets).   Amazon is about to open its first store in Melbourne - that will be worth watching.

    The thing is I struggle to see how (say) a $10 item with a short repeat purchase cycle would be at sufficient a price advantage to go direct.   Manufacturers would have to have an online POS presence, a 'picking' system, and a delivery system - which would probably all be out-sourced at a cost.   Each out-sourced function would include another entity who was alos making a profit ... profit that the P&Gs, Unilevers. Krafts etc of the world would want to retain.   I could see this having a better chance of working with bulk sales as economies of scale would assist.   The thing is household disposbale income is not high enough to go back to bulk-buying (which was popular in the '70s here) in order to hold lots of dollars in your own pantry stock.

    If you swap the discussion and look at it from the grocery buyer's POV, then ask yourself, would you be willing to sit down and do the weekly shop online - direct?   You have to go to the Kellogg's site, the P&G site, the Unilver site ... the list is extensive.   You then have to pay for delivery multiple times.   It's not that appealing.   And that model wouldn't work that well for fresh goods such as milk, fruit, vegetables, meat etc.   You still have a split-buy which could end up taking more time (and probably cost) than going to your supermarket of choice.

    Our two major supermarkets here have pretty good websites - you order, pay, jump in the car and pick up in two hours.   No delivery fees.  As they are tracking your purchases you get 'personalised' specials pop up when you log in, to drive the total basket value.

    Pardon the pun, but all food for thought.

  7. Ed Papazian from Media Dynamics Inc, April 14, 2018 at 7:50 p.m.

    John and Dave, we have to distinguish between the large package goods types with many brands---all normally advertised on TV and smaller, niche brands. The former are not dropping their normal distribution chains---that would be far too risky. Rather, they are trying to see if a two-revenue approach will yield sufficient incremental incomes via "direct" at a somewhat lower cost per sale. These companies have no intention of abandoning their TV branding efforts.  On the other hand, the smaller, more sharply focused brands ----many of them new ones---see direct sales as their primary vehicle, with branding advertising, if any, used in support of the "direct" effort.

  8. John Grono from GAP Research replied, April 14, 2018 at 8:03 p.m.

    Totally agree.

    Ed (and Dave) have you read Prof. Byron Sharp's book "How Brands Grow"?   If not well worth a read because he points out that pinpoint sales targeting produces very efficient sales but it is not effective in growing brands as the online sales targeting can only convert those 'knowingly in the market' but that market share depends on marketing to non-users.

  9. Dave Morgan from Simulmedia replied, April 15, 2018 at 6:46 a.m.

    John, yes. I'm an enormous fan of Byron Sharp and believe that he is dead on. His book is a must-read in Simulmedia for everyone. However, with the commoditization of manufacturing, logistics and delivery, large CPG's are now incredibly vulnarable to attacks from niche competitors, many times selling the virtually same physical product -  Dollar Shave Club - at a better price or package. So, under Sharp, they are able to achieve "physical availability" at a fraction of the cost it took the incumbents to get there. With TV advertising, they are now able to "mental availablity," and thus sales. Isn't it incredible how fast brands like Priceline and Zillow a decade ago and Peloton and Wayfair today have created known consumer brands?

  10. John Grono from GAP Research, April 15, 2018 at 7:22 a.m.

    Dave, I'm afraid thet Zillow, Peloton and Wayfair elude me here Downunder.   But I am sure I could think of local equivalents.   The areas where digital 'shopfronts' are doing the best here are real estate and jobs - basically taking all the old 'classifieds' ads and making them universally available.   Sadly, the press publishers were't aware enough to take that space first and are now struggling to hang on financially.

    I also suspect that the small population, the vastness of our continent and the distance between our major cities coupled with less infrastructure makes it harder here.

    But I also find it ironic that you refer to TV advertising for building 'mental availability'.   The irony being that the mantra is that "TV is dying" but by golly it works for these new digital disruptors.

    Cheers.

  11. Paula Lynn from Who Else Unlimited replied, April 16, 2018 at 8:42 p.m.

    Who do you trust to squeeze your tomatoes ?

  12. Jonathan Hutter from EMHS (Eastern Maine Healthcare Systems), April 17, 2018 at 2:17 p.m.

    On the small items, wouldn't a subscription-based model help open the doors? Think Dollar Shave.

    For P&G, if you don't want to think about your laundry detergent or toothpaste every time it runs out, a consumer could subscribe to refills of regularly used staples on a subscription; a new bottle of Tide every 2-3 months, or any combinations thereof (Tide+ Aqua Fresh), delivered so you don't have to make those runs. Cut the warehouse clubs out of the equation. A new, direct-to-consumer model that still allows for upselll, line extensions, etc. 

  13. Dave Morgan from Simulmedia replied, April 17, 2018 at 4:08 p.m.

    I agress Jonathan. I think that the bundled product subscriptions for consumers is a great idea ... probably biggest challengs for folks like P&G is the resistance they will have from their existing retail partners. However, focusing on line extension launches may be a way to ameliorate that somewhat.

  14. John Grono from GAP Research replied, April 17, 2018 at 5:46 p.m.

    But wouldn't you end up subscribing to Dollar Shave type clubs for small items, P&G for laundry/cleaning, someone else for fruit & vegetables, someone else for paper-based products, someone else for meat, someone else for pet supplies ... the subscription list would be endless.

    Then you would be paying for delivery multple times, and in some cases multiple membership fees.   The logistics of receiving deliveries would be a nightmare (especially for fresh/frozen).

    I see this as a massive opporunity for the retailers.   They become a local depot for deliveries from manufacturers (as they are now) and would use 'pickers' rather than 'shelf-fillers' and need a much smaller 'shop-front' (warehouse costs are way less than retail space).   Where they currently charge for line fees and in-store promotions to the manufacturers (a big profit centre for 'selling' their instore real-estate) they would be selling pinpoint targeted ads on the retailers shopping website.   This would mean adding an ad (price-promotion supported) being loaded once and targeted to users without the need to pay for the in-store stocking labour.   They could then charge a single delivery fee, or have a 24/7 drive-through customer pick-up facility.

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