(Scroll down for Parts 1 and 2)
Media executives have fallen prey to the easy route of blaming procurement for all the industry's current woes. Some of their complaints are well-founded. The reality is, however, that procurement is here to stay and these efficiency experts will gain increasing responsibility for and authority over media and marketing purchases. The current intensity of media fragmentation will not soon be offset by countervailing forces of consolidation and increases in demand, but these forces are inevitable and ultimately will prove to be a positive for the media industry, marketers and, yes, even for procurement officers who benefit by fragmentation and disintermediation. While advertising demand is projected to grow at an average annual rate of three to four percent for the next decade, advertising inventory supply will increase at a 15% annual rate.
Procurement officers need to be aware that while the expansion of media supply will continue unbridled, there is significant value to continuing their companies' relationships with the small cadre of their large legacy media partners. While the greatest cost efficiencies may be gained by spreading budgets among an expanding universe of small, highly fragmented linear and digital suppliers across multiple media, there are compelling reasons to concentrate a large share of budgets among a few key media suppliers. There are important reasons for this, and one is that these large players will continue to consolidate, Just as it's unwise for manufacturers to forego relationships with Wal-Mart, Target, Macy's, Best Buy or Home Depot, it will prove to be unwise to give up valuable shelf-space with those companies that dominate the media landscape.
Beyond this reason, there are also good business reasons embedded in the realities of media buying execution. Those seeking a quick and easy tutorial on the basics of media planning and buying, can read these commentaries (and one short tutorial book) and receive most of the education they require. Before reading them, however, continue reading this three-part guide to media procurement below, which provides updated and relevant context for operating in a digital and increasingly fragmented media ecosystem.
A must-read for all those interested in comprehending the intricacies of media planning and buying is the late and great Erwin Ephron's Media Planning; From Recency to Engagement.
Media is More than a Commodity
First and foremost for understanding media is getting a handle on the traditional media buying priority of achieving reach and managing message frequency. While spreading media buys across an expansive ecosystem is often a tool for building cheap reach, when executed exclusively as a means for achieving cost efficiencies, it will invariably reach higher concentrations of heavy media consumers within key target audience groups and increase frequency while depressing reach.
Leading media suppliers who deliver content across an array of audience demographics and psychographics can manage inventory distribution to maximize reach and limit frequency. Procurement officers who are relatively new to the media business will quickly learn that some research models currently in use to identify reach/frequency are grossly outdated – overstating reach and understating frequency. As the business becomes more competitive, media suppliers will build-pre-defined reach/frequency parameters and guarantees into their deliverables using more advanced and modern tools. (In the linear TV medium, Simulmedia has access to set-top box viewing data from millions of homes, and offers a unique reach/frequency analysis at their website that demonstrates the huge variables in actual vs. reported campaign reach/frequency data.*)
· Procurement officers who are focused on generating improved cost efficiencies from advertising investments must first gain an understanding of the dynamics of reach and frequency, matching their brands' campaign goals and target consumers with appropriate and necessary levels of targeted reach and frequency.
Another reason for building relationships with a select cadre of targeted premium media suppliers goes beyond the obvious opportunity of gaining negotiating clout. Just as the retail business has consolidated among fewer dominant players, media companies are undergoing a similar (albeit slow) process. Procurement officers are well-schooled in these dynamics and their negotiations rarely focus exclusively on price. Depending on the category, procurement officers use consolidation to their advantage (although intuitively it should work to their disadvantage). Consolidation is the single greatest tool for cost-savings within almost every category of products and services. These cost savings are passed along to clients and ultimately to end-consumers, while at the same time enabling vendors to avoid radical commoditization. In the media industry, fragmentation is rampant and downward media cost pressure will accelerate. This will inevitably force greater consolidation as well as industry constriction.
· While there is dramatic diversity among media suppliers, a growing priority among the largest media vendors is to offer their best clients advanced marketing resources, promotional support and informed-value propositions. Smaller media suppliers are far less able to compete in this marketplace. While media vendors are adapting to the demands of programmatic buying, real-time bidding and automated transactions; many are also developing assets to minimize the share of their inventory that is subject to commoditized pricing.
The magazine industry has long been at the forefront of providing integrating marketing and promotional support along with their media inventory. The TV industry has been stepping up its investments. Jeff Lucas, head of sales for Viacom Media Networks, recently commented to MyersBizNet: "We need to rise above the [media] clutter and differentiate ourselves – and do it quickly. The business is at a tipping point – so much is happening at once. We have to stand out and deliver the most value for the dollar, so we're taking integrated marketing to a new level in a comprehensive industry initiative." Several other TV companies have invested heavily to differentiate themselves and take advantage of their scale, as outlined in this MyersBizNet report .
Procurement Part 2: TRADE MARKETING AND CONSUMER ACTIVATION
(Scroll down for Part 1)
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.
PROCUREMENT: PART 1 – 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.
*MyersBizNet chairman Jack Myers is a shareholder in Simulmedia.