More signs that the bottom hasn’t yet been reached for the advertising industry, as we’ve mentioned previously…
The consumer products giant says that its push for more transparency over the past year revealed such spending had been largely wasteful and that eliminating it helped the company reach more consumers in more effective ways.
P&G , PG +0.18% whose brands include Crest, Tide and Pampers, says it cut its digital ad budget by more than $100 million from July through December. Those reductions were on top of the more than $100 million in digital marketing spending the company had already cut in the June quarter, which P&G said had little impact on the business.
The ad dollars were pulled back from a long list of digital channels but also included reducing spending with “several big digital players” by 20% to 50% last year, according to Marc Pritchard, P&G’s chief brand officer. He has been leading the charge among marketers as a vocal critic of digital advertising clutter, ad fraud and brand safety issues on platforms like YouTube.
Once armed with more measurement data, P&G discovered that the average view time for a mobile ad appearing in a news feed, on platforms such as Facebook , was only 1.7 seconds. The Cincinnati-based company also realized some people were seeing P&G ads far too many times.
“Once we got transparency, it illuminated what reality was,” said Mr. Pritchard. P&G then took matters into its owns hands and voted with its dollars, he said.
Long the biggest advertiser in the world, P&G carries significant weight among marketers and its efforts are closely tracked.
(click here to continue reading P&G Slashed Digital Ad Spending by $200 Million Last Year – WSJ.)
Translated, Facebook and YouTube ads were fairly useless for P&G, so they cut back on spending on them, without noticing much of a difference on sales. If P&G, with its sophisticated marketing analysis teams thinks digital/mobile ads are missing the mark, what about other businesses? I’d assume many will follow in P&Gs footsteps, and the digital ad world is about to have revenues sliced drastically.
Large advertising holding corporation WPP is already feeling the pinch:
Advertising’s digital upheaval took a heavy toll on WPP LLC as the world’s largest ad company Thursday logged its worst performance since the financial crisis, triggering jitters among investors across the sector.
On Thursday, WPP said net sales fell 0.9% on a like-for-like basis last year, spooking investors who were expecting signs of recovery after the company cut its forecast three times, predicting a “broadly flat” 2017. The firm also said it is setting budgets for 2018 on the assumption of no growth in revenue and net sales.
WPP shares tumbled 9%, and the fallout quickly spread to rival ad giants like Publicis Groupe SA, which fell 4%.
Digital disruption is leading Unilever PLC, Procter & Gamble Co. and other consumer-goods giants that once splurged on ad agency-led campaigns to redirect their spending. That is saddling ad firms with their slowest revenue growth in a decade and pressuring agency holding companies to revamp organizational structures that are out of step with the digital age. Advertisers are demanding agencies provide services that target consumers relentlessly over the internet as well as coming up with traditional campaigns for print and TV.
The question is whether the big ad companies can evolve fast enough. P&G, long the biggest advertiser in the world, has said that it is looking to cut an additional $400 million in agency and production costs by 2021, having already saved around a combined $750 million in recent year. Unilever, meanwhile, has also been slashing agency fees and production costs, in part by reducing the number of traditional ads it makes and bringing more of its marketing work in-house.
(click here to continue reading Ad Industry’s Digital Upheaval Rocks WPP; Shares Fall 14% – WSJ.)
The packaged-goods sector, which accounts for close to a third of WPP’s sales, is the key problem. Big advertisers like Procter & Gamble have been driving hard bargains with their suppliers as they trim and reallocate ad budgets in response to new consumption patterns and new media.
This malaise could spread to other industries challenged by new tastes and technology. Car makers, for example, are trying to work out how their approach to advertising needs to adapt if, as many expect, individual car ownership gives way to “mobility as a service”—renting cars by the hour through tech platforms. They accounted for 12% of WPP’s revenue last year.
Then there is the question of whether the ad industry itself is challenged by new technology. This is far from clear in the data: WPP’s 19% margins in media buying—the ad business most vulnerable to a more digital approach—haven’t slipped. Such high margins could also be a reason to worry at a time when clients are seeking big savings.
(click here to continue reading Is WPP Cheap Enough to Own? – WSJ.)
Interesting times. And like the Chinese proverb says,1 to live in interesting times is not actually fun.Footnotes:
- or doesn’t actually say [↩]