Will Digital Eat All Advertising?
In 2017, TV ad spending will total $72.01 billion, or 35.8% of total media ad spending in the US. Meanwhile, total digital ad spending in 2017 will equal $77.37 billion, or 38.4% of total ad spending.
This milestone shift is backed up with prognostications that digital will continue to outpace television spending with the potential to become twice as much TV in 10 years. Facebook announced this week that sales were up 51% for the quarter. They are now getting nearly $20 of ad revenue for each user of the site. They forecast continuing high double-digit growth. These facts and forecasts led me to ask the question:
“Will Digital Eat All Advertising?”
While the larger trend is likely to hold in some way, the answer for any particular company depends on how they think about these 5 ideas.
1. The Herd Mentality
One influence for the increase in online spending is the fact that it is perceived as measurable. Ads are run. Click through rates are calculated. Sales are connected to clicks. ROI is easily determined. The excitement about this insight has been so great, many companies have pushed digital internally. One global CPG firm even had an edict that 80% of all spend should be online within 3 years.
This has been a “gold rush” of sorts and has proliferated many different tools such as targeting, re-targeting, automated bots, content publishing, etc. Each tactic comes along and claims ROI success. This “success” draws down funds from investments like radio, print, and local television. A stampede of funds has moved into online but this herd mentality may be missing the point.
Online spending is part of a customer journey. People move from problem recognition through evaluating alternatives all the way to a post-purchase evaluation. Digital spending may play a role in each of the phases but it cannot deliver all the things that an impactful brand needs. Content creation must be curated to help consumers understand the function of a brand. National advertising is needed to build awareness that gets the brand into the choice set. Local television is needed to deliver a call to action and drive sales. The product has to perform as promised. Direct mail and e-mail communication are needed to reinforce the brand connection after the purchase.
Without a check and balance of the information related to the entire ecosystem, spend allocations are misguided and suboptimal. Integrated insights are needed to make sure the herd does not drive itself over the cliff.
2. Changing Consumers
One of the fundamental leverage points of digital spend is that targeted consumers are relatively stable in their propensity to buy. Someone with similar online behavior to someone who just purchased a PC is deemed likely to buy a PC. A tablet buyer is a separate profile with different media habits and reasons for buying. What someone else did in the past is what someone like them will do in the future. Allocated media on this basis should get the same ROI it got last time.
This backward-looking ROI concept fails.It assumes a stasis in consumer behavior that suggests reliability. However, consumers evolve.
A friend tells you about a new iPhone app you should try. You try it. You like it. And now you’re on the app for 40 minutes a day instead of watching your usual media assortment. A person you respect tells you about Game of Thrones. You watch a few episodes and now for 6 weeks, you lose 10 hours a week binging your way through the series. Meanwhile, the digital ads you used to watch are made less effective. The ROI efficiencies decline. PC sales miss their target.
3. Changing Markets
Let’s take the PC again. For years PC’s were largely based on desktop machines. Along came the laptop and the market boundaries blurred. Then along came the tablet. The lines became murky. Along came bigger phones and the market boundaries became elusive. New entrants and technology changes shift markets constantly. Buying media based on static markets is just as likely to underperform as basing it on static consumer ideas.
Fluidity and adaptation are the hallmarks of good media planning – not rote percentages and allocations.
4. External Shocks
In Feb 2016 Volkswagen was found to have misled the U.S. government about diesel emissions. It was deemed doomed as a brand. At the end of the year, it outsold Toyota and became the largest car company in the world.
In May 2016, the ANA published a report that indicated that virtually all of the largest media buying companies had suspect business practices relating to media recommendations. There was quite a bit of media noise and recriminations between media buyers and brand management. $30b of media budgets went up for review.
It stayed in the hands of the same companies who were part of the ANA reports. In November 2016, the broad consensus was that Hillary Clinton would be president. She is not. Industries, brands, and people are seeing unprecedented shocks to their systems. A problem was found. A changed was anticipated. The expected change was elusive. The results were counterintuitive. Digital preeminence is the next big thing or is it?
5. Endogenous stability
Despite the shocks that come along, people’s behavior does not always change to align to the shock.
The existing incentives, rules, mores, and customs often thwart the anticipated change. For digital media to continue to rise to the forecasted levels, assumptions like the ones below will all need to be true 10 years from now.
- Young consumers, who watch little television, will never watch television. The evolution of their media habits will remain constant. Once they have cut the cord they will never go back. Oh for a by-the-way example of reversing media trends, print books sales in 2017 will be greater than e-books.
- Digital content will always be viewed on digital devices. I was clinging to this one until Xfinity1 linked my Netflix account to my cable subscription. Now I can watch The Crown on my nice 51” plasma TV instead of my iPhone.
- Linear and cable television will not have the must have creative content that digital services deliver. Ummm – Breaking Bad, Super Bowl, Jeopardy, Wheel of Fortune, Live News. Is this why Facebook Live was created?
Ιt is a continuing folly of prognostication to believe that trend lines are predictable. Digital eating everything relies on today’s performance to be tomorrow. I am embarrassingly old enough to remember when catalogs were going to wipe out retail.
When a brand fails, it almost never fails in a moment.
Sears and Kmart have been struggling for decades but they are still here. It is a series of small failures that often lead to an ultimate end. Over reliance on one tool is often the first step down a path of destruction. Digital as a savior to the CMO credibility is a possible first step for many but is unlikely to be the downfall of all.
Many CMOs and their teams are wising up. They see that focusing just on ROI and media spending is not delivering what their companies need. More and more they see that shocks, shifts, and stability are forces that they must react to. If they cling to any particular notion, they are likely to fail. Failure is not that the truth of the notion is wrong (digital works!). It’s that that truth is no longer relevant to the environment they face. Looking back on performance only defines their status quo. They have to learn how to scan their present circumstances and identify the changes they must plan against. Is there a PR event that changes their landscape? Is social media influencing their customer? Is a competitor shifting their market? Is the government changing the rules?
With this broader view of marketing, they are able to adapt. Their always on market mentality allows them to imagine complex and dynamic solutions that move past historical measures. They take each component of the marketing plan and reevaluate how it works in context. They are using tools that help them contextualize their approach. They see the interconnectedness of things and adjust to those scenarios that have the highest likelihood of success. They are not forecasting – they are scenario planning.
In this new planning mode, nothing can be assumed. There are too many levers in the market to stop it. The question of what will change its trajectory – new media alternatives, old media alternatives, or changing markets – is wrong.
The real question should be: How will I change my decision making to account for the changes in trajectory? If not, digital spending will probably not eat everything but it will eat many things.