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MEDIA IS MORE THAN A COMMODITY: TRADE MARKETING AND CONSUMER ACTIVATION

As corporate procurement officers gain increasing control over and involvement in the media buying process, the challenges to both agencies and media suppliers confront their traditional relationships and business models.

Typically brands invest a third or more of their total marketing communications budgets in marketing to the retail/dealer/franchise/agent trade. These budgets are designed to support retailers' and dealers' own marketing efforts, drive retail slotting allowances (shelf space), and underwrite the expanding universe of mobile and in-store media, including the advanced investments required to capitalize on beacon technology. Brands invest the largest share of their total marketing communications budgets in consumer sales promotion and direct marketing, also known as consumer activation. Only an average 30% of the total marketing communications budget is invested in traditional media advertising, and this is where procurement officers are taking control.

MyersBizNet has forecast a continuing shift of below-the-line budgets to media-based marketing and several major media suppliers such as Viacom, Scripps, some magazine publishers and a small handful of digital companies like Thrillist are investing in resources, tools and teams who are experienced in retail trade and consumer sales promotion. These teams are focusing efforts directly on vendor programs, and are also targeting agencies that specialize in consumer sales promotion.

Marketers also use high profile advertising investments such as major sports media, primetime network television, major TV events, well-positioned out-of-home advertising and prestigious print media as sales tolls to encourage retailers to purchase more products and to communicate support for affiliates, dealers, franchises and local agents. Media companies that deliver this value must focus efforts on communicating their enhanced value for trade marketing.

Modern procurement officers recognize the enhanced premium value of investments with media suppliers that convert directly into improved relationships with the retail trade and that fulfill commitments made to the trade by sales and brand management. Conversely, the vast majority of media spending is intended only to achieve limited goals of awareness, interest and brand message recognition. These budgets will be subjected to intense downward pricing pressure by procurement officers who capitalize on growing media fragmentation.

Media suppliers who are targeting more of their sales and marketing initiatives directly to clients must understand that data-based and content-quality messages focused on media superiority are mostly irrelevant in a commoditized business model. Instead, they must demonstrate how they can support their clients' efforts to influence retail/dealer trade partners and activate consumers to purchase offline products and services.

Media suppliers who want to generate premium pricing for their inventory must be able to move the budget conversation away from the procurement-led media budgets and toward trade and consumer sales promotion budgets that directly influence and activate their clients' customers.

Savvy media suppliers are developing opportunities that deliver both traditional advertising plus trade marketing benefits. Sports rights holders, teams and leagues are the most advanced in applying these benefits. Walk through any major supermarket during football season and you'll see NFL-related promotions featuring multiple brands. Join Scripps Networks on a tour of Napa and you're likely to be joined by a handful of major distributors and retailers; or take a closer look at the huge Bobby Flay cardboard cut-out in your local supermarket and it's probably funded with trade marketing dollars shifted into The Food Network media budget. Join a client meeting with Viacom's Scratch team and you'll hear more about building consumer activation and retail sales strategies than you will about Viacom's media properties.

In my own days as director of marketing at CBS-TV Stations, I was responsible for developing extensive vendor programs designed to convince the fashion industry to underwrite their retail partners' major TV campaigns in return for promises of increased product purchases. These initiatives led to the growth of the designer jeans category and to major TV campaigns from Bloomingdales, Saks Fifth Avenue, The May Company, Robinson's, Venture Stores, and many more. Once the decision-making process flowed away from the merchandisers at the retailers and to the ad agencies, and away from trade/vendor support investments and to advertising negotiations focused on media cost efficiencies, the budgets almost completely dried up.

Almost all supermarket advertising budgets that promote specials and discounts are pulled from vendor support budgets – also known as co-op and trade marketing budgets. Once the chief marketing officers of these retailers shift their focus from vendor support budgets and sales promotion to brand equity building and advertising, their media ad budgets begin an inevitable decline toward zero. Advertising media budgets that are focused on reach, frequency and awareness will increasingly come under the aegis of procurement officers who will rightfully subject them to intense cost-efficiency scrutiny. By shifting the value proposition of media value to below-the-line trade promotion in support of distribution, dealers, retailers, franchises and agents, media sellers and procurement officers can become partners mutually dedicated to delivering value-based results rather than cost-efficiency.

PART 1: PROCUREMENT – MEDIA IS MORE THAN A COMMODITY

JOHN WANAMAKER GOT IT WRONG

The actual quote, I've always believed, is "I know only half my advertising works, and the reality is I don't care which half." Advertising works, and it's cheap. The goal of brand advertising, unlike direct marketing and sales promotion, has never been to drive sales. The goal has been to drive brand awareness, message retention, and product interest by reaching the largest possible percentage of the target audience with an average 3x frequency within designated periods of time. That reality dates back to the reach/frequency curves and advertising models defined by GE's Herb Krugman in the early 1960s, and they have remained the same ever since. The lack of real interest in how agencies' media departments achieved those goals are beautifully reflected in recent seasons of AMC's Mad Men. In this context, media is truly a commodity, and as long as agencies delivered on their pre-post awareness objectives, and held cost inflation within reasonable parameters, brand managers and CMOs could focus on the creative message and their trade and consumer promotion efforts. It's this same reality that drives marketers' lack of focus on digital click fraud. The unspoken reality is that "I know half my clicks are fraudulent, but I don't care. We're achieving our reach and frequency objectives even with only 50% of the clicks and it keeps getting cheaper." The core question confronting all those involved in the marketing decision-making process is:

  • WHAT SHARE OF THE ADVERTISING/MEDIA BUDGET IS INTENDED TO DRIVE AWARENESS AND REACH, AND WHAT SHARE IS FOCUSED ON OTHER GOALS?

Real time bidding and programmatic buying are expanding beyond digital media into all media, and will soon include even the most premium media categories, including primetime network TV and sports. Enhanced data resources assure that procurement teams will have access to a wealth of metrics. Chief marketing offers and chief financial officers, who traditionally kept their distance from each other except for quarterly budget reviews, are now joined at the hip – that hip being the procurement officers who are charged with the responsibility for delivering overall consolidated corporate purchasing efficiencies. Media and advertising are perceived in the same context as other commodities in which companies must invest. Marketing and procurement teams must now engage regularly and collaborate to achieve their mutual goals. The danger is when the only common ground they can find focuses on achieving cost reductions – resulting in a drift of ad budgets toward cheaper media impressions.

The good news for agencies and media suppliers is that the relationships between procurement officers and marketing/brand executives related to advertising is still evolving, and a new culture of mutual respect is being born. Procurement officers are more engaged and interested in the multi-faceted dynamics of advertising beyond the drivers that enable greater cost efficiencies. The modern procurement officers are eager to demonstrate their value to marketing teams, and to accomplish that they need a better understanding of the realities of the advertising and business. The difficulty for media agencies is that new business pitches often concentrate at the end of the process on cost-based decisions, and the media industry becomes its own worst enemy.

Compounding this are;

  • the growing fragmentation of audiences,
  • the dramatic increases in media supply,
  • the number of emerging companies across the media ecosystem that drive down media costs and agency compensation,
  • and the ease with which media cost efficiencies can be achieved.