For years, CPG advertisers have been changing their advertising spending patterns. The original impetus was their adoption of Marketing Mix Modeling (MMM), which showed that TV apparently was not providing the high ROI it had always been known for. At that point CPG advertisers stopped keeping up with CPM increases year-to-year and increased ad spending very little year-to-year. This continued a historic shift to promotion, which went from around 25% of marketing to 75% over a period of decades starting in the 1980s with the appearance of scanners in supermarkets.
When digital came along, given the disillusionment with TV ROI as seen through the perhaps imperfect lens of MMM, managers were afraid to fight their boss’s kneejerk reaction of taking dollars out of TV to learn how to use digital then also social and mobile. So much happens due to limited understanding.
Of course, had CPG advertisers known it at the time, they could have instead continued to gradually increase adspend to keep up with CPM increases while buying smarter by targeting purchaser types instead of sex/age types, and optimizing against ROI using direct match Big Data. This strategy would have shown TV producing a fine ROI and the latter would have been solved that way. Alas, that did not happen back then. Perhaps we are coming into that time.
In the first quarter of 2015, CPG total adspend decreased -7.17% year over year. By the second quarter this changed to a +2.79% increase YOY. And the third quarter showed a +11.06% increase YOY (Source: SMI). Perhaps this hopeful pattern is a sign of growing wisdom about how to use the latest tools, and a sinking-in of the lesson that advertising increases brand equity over time whereas promotion reduces it.
However, the picture changes quite a bit when one looks at television specifically. In first quarter 2015, CPG TV adspend declined -14.61% YOY. By second quarter, TV spend by CPG was still down but this time by not as much, only -3.57% YOY, and in third quarter it actually grew slightly +0.13% YOY.
Possibly the over-reactive moves to cut TV adspend are gradually being realized as not the right corrective.
The picture for magazines is not so positive. First quarter 2015 CPG Magazine adspend was down -15.22% YOY, improving very slightly to a -13.97% downtrend in second quarter YOY, and a somewhat less alarming -6.84% in third quarter YOY. Generally, this shows the same pattern of a return to belief in advertising, but for this medium adspend is not going to cross the line back into positive growth unless magazines come up with a far more compelling ROI story.
Within TV, the sharpest CPG cuts over time have been in broadcast prime. For example, in the first quarter of 2015, CPG advertisers put 18.52% of their TV adspend into broadcast prime. By stark contrast, the definitive ARF Adworks study showed that the highest CPG ROI comes when about half of TV dollars are in broadcast prime. This is because the media type that builds reach the fastest has the most CPG sales effect, since CPG advertising does most of its sales production within 48 hours of exposure. Media types that build reach slowly have very low reach in any given two-day period; media types that build reach quickly have much higher reach in the average two-day period. Seeing as you don’t know when people are going to go shopping, you have to make sure the reach of your brand’s current ROI-driving purchaser segment is high enough on any given two-day period of the year. See for example this two-part series: Fast Reach – 1, Fast Reach – 2.
Nevertheless, CPG advertisers have been taking dollars out of broadcast prime for years, simply to stretch the same dollars to achieve the same GRP in the face of rising CPMs. This has backfired but it has taken a long time for CPG advertisers to realize and confirm this for themselves empirically. The realization may at last be dawning; the patterns may indeed be shifting back in the right direction.
Consider these numbers:
In first quarter 2015, CPG adspend in broadcast prime declined -30.41% YOY. But in second quarter they grew +5.21% YOY, and by third quarter the increase was +16.93% YOY.
In the second part of this two-part series: What is happening with the other CPG media?
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