The emergence of digital-first, direct-to-consumer brands as a significant, growing pool of new TV advertisers was a big theme this past spring during the upfront. I believe that D2C brands will become such an important part of the TV ad industry over the next few years that they will end up reshaping in their own image much of how TV advertising operates.
Why do I believe this? One, because television generally, and TV advertising specifically, are in critical phases of transformation. Two, because digital technology and approaches are transforming every part of the industry. Three, because generational change in key leadership roles on both the buy and sell side are accelerating that change. Four, because TV companies themselves are all transforming to become direct to consumer.
advertisement
advertisement
And five, most importantly, because nothing reduces resistance to change like money. D2C brands represent not only a significant pool of new ad dollars for television -- but these brands and ecommerce are quite likely to represent the dominant spend on TV within five years.
What might the D2C-reshaped world of TV advertising look like? Here are some of my thoughts:
More focus on audience. Most D2C brands launched in a digital ad world that focused on audiences first and content second. While they certainly also value the importance of context and positioning, it is critical for them to find their audiences wherever and whenever they are on TV.
As former P&G executive and fellow columnist Ted McConnell famously says, ”brands don’t have remnant customers -- so why should they view any audiences at any time as ‘remnant?’”
More focus on automation. D2C brands are expert in customer analytics, and they want to leverage data from their analytic systems across all of their media buys. That means buying units and time more precisely. That means buying across many properties. That means making and changing buys at the last moment. Faxes, phone calls and handshakes won’t be enough for them. Real automation in the TV ad “demand fulfillment” will become table stakes for TV companies.
More focus on scatter. D2C companies operate much more dynamically than legacy brands with their long, slow supply chains and complicated networks of distributors and retailers. D2C companies need more nimbleness, and most will be happy to embrace the flexibility of scatter over discounts in the upfront.
Less pomp and more performance. Folks who allocate D2C advertising budgets are under much more scrutiny for ROI on a daily basis than most of their legacy brand counterparts, so I suspect that we’re going to see less focus on the “pomp” that the TV industry showers on legacy marketers and media folks, and more focus on performance. In other words, there will be less focus on hosting celebrations of splendor honoring TV ad buyers on a weekly basis and more focus on discussing and improving the CAC (customer acquisition cost) of TV ad campaign spots relative to search, social and cost-per-click ads.
What do you think? Will D2C brands reshape the TV ad world in their own image?
Dave, the way TV advertising is trending is that advertising dollars will become an increasingly small share of the incomes of TV networks, those cable channels that survive---many of the smaller ones won't--- and the stations. Already, so called "re-transmission fees", profit-sharing deals with producers, etc. account for all of "TV's" profits and, as major TV/movie entities enter the increasingly crowded SVOD arena, where their primary incomes are drawn from subscriptions, not ads, the latter will become even less important. In this evolving context, it is difficult for me to see how a relatively small---but growing---D2C advertising segment will revolutionize all of "TV " advertising.
It's certainly possible that your average D2C advertiser will try to approach time buying differently than your typical branding advertiser who participates in the upfront on a corporate, low CPM, GRP tonnage basis. Of course, "better" targeting---mainly via selective cable buys---is probably the path forward in this regard as what's being offered by the broadcasters continues to be mainly old-appeal content with very little targeting selectivity being possible. But is it reasonable to expect that all of TV---the broadcast TV networks, major cable channels and the stations---- will drasticlly revise the way they sell ad time to everybody---just because 5% and eventually 10% of their ad dollars---but little or nothing of their profits ---come from D2C time buyers? I think not---but I may be wrong. Perhaps the D2C folks will be so successful that they constitute 30%, 50% or 75% of all TV ad dollars. In that event I would have to agree with you---but I don't see that happening.
Where I really agree, Dave, is the need to change the way TV advertising is both bought and sold. As you know, I favor a two-upfront approach with one for brand by brand buys that allow each brand to serve its own targeting and other needs. I am also a huge fan of the NBC idea of selling a fair portion of its GPRs in low clutter "premium" breaks or pods. In both cases, everybody wins. Consumers are hit with more relevant--to them---ads and less of them per break, advertisers get better results per "exposure" and the sellers garner larger ad dollar yields via higher CPMs. Sadly, I don't see the inbred sales and buying systems making much progress in effecting these basic reforms.
I think that on D2C brands we in Europe are (for once) somewhat in advance on the US, thanks to some big local players.
We have seen D2C boom already some 4 years ago. And we have seen that it is also somewhat of a bubble. The extra spending of D2C and new in TV retailers (like Aldi and Lidl) made up for less spending at the fast movers during some years, but not anymore.
So, the evolution is towards:
-less campaigns but still with bigger budgets by campaign than in average. When those new brands launch they saturate channel after channel, every slot and with a near continuous presence. Then buys become more specific, keeping the partners with the best results with less campaigns a year, less often top of funnel strategies.
-often no specific age target group but targeting through channel and slot selection
(indeed more focus on audience)
-smaller channels and off peak are more included as they have relatively better returns
-low pricing but fair, can increase function of results
-more sharing of info between client and sales house, also because some campaigns are paid on outcome (indeed a prelude to more automation)
-buys of specific sales houses rather than all market at special sales house conditions
-continued presence in TV if savings need to be made. Search is more often cut: because it is the other big budget at D2C, often 30 to 40% of the total and because some brands have been able to cut search to 10% without too much of a negative impact
-at independent D2C companies: desperation when the vc money supply dries up: proposals of equity in return for space.
Yes, I agree to most of what you have written. But perhaps I can flesh it out a bit.
The D2C marketer operates (or should operate) from a paradigm of what is called in the trade, the Allowable Cost Per Order (ACPO). This is the amount the marketer can afford to spend to achieve a sale, recruit a customer, or whatever and make at least a pre-agreed profit in the original transaction or discounted lifetime value of the customer.
(Want an easy to use ACPO Excel model? email pjrosenwald@gmail.com with the words 'model please'.)
When Young & Rubicam originally purchased Wunderman, Y&R management assured us that due to their immense media spend, they could buy TV much cheaper than we could. We gave them the draft program for media buys in the next quarter and hoped (rather than expected) for the best. Of course, they failed. And the main reason was that the networks weren't about to give a buyer who was going to spend millions for P&G, the same rates as an aggressive D2C buyer who could tell the media salesperson exactly what he could afford per order and how many he was likely to get. Essentially, it was, take it or leave it for the media and 'take it' was what most did. That was a win-win.
Historically, agencies for big brands have dined sumptuously on the concept that more was always better. It is rubbish of course. 'Better' for B2C and brands is more responses per CPM with a CPO for each at less than the ACPO. It's not the CPM which dominates the equation. It is the CPO.
As media owners, many of whom have developed their own sophisticated B2C operations are learning, the revenue stream and profit from delivering CPOs at the right price is endless. No B2C company worth its salt has a fixed media 'budget'. We'll spend and spend as long as our CPOs are OK and we'll stop the second they are not. You don't fire your salesforce when it is selling profitably.