Transcript No Slide Title

The State of Advertising
Based on information sessions presented by Grey Global
during the AEF Visiting Professor Program Summer 2004
The Advertising Agency Business
In the past fifteen years, changes in the overall business
environment have drastically impacted the agency business.
1. Wall Street pressure for quarterly earnings.
2. Decline of marketers and emergence of CFO’s and lawyers as CEO’s.
3. Globalization of business.
4. Consolidation of businesses through mergers and acquisitions.
5. Decline in large new advertised categories entering the market.
Against this background, the last five years have seen an
extraordinary upheaval.
The Evolution of Advertising
Fragmentation
•Average HH has 150+ channels; 17,000 magazines (5,000
consumer); 400,000 highway billboards; 30,000 plastered buses
Clutter
•330 ads per day (21 per hour)
Alienation
•65% believe they are constantly bombarded with too much
advertising
•69% are interested in products that would help them skip or
block marketing
The Evolution of Advertising
The death of network TV?
•Where did males 18-34 go? They are not coming
back…
Online block out and media zone out
Where is the Mass Market?
All brands are targeted – even the big brands (P&G,
Coke, Crest)
Decrease in traditional media (TV, magazines,
newspapers) and increases in new media (cable TV,
specialized magazines, online, video games, PDAs
and cell phones)
Spending is expected to increase for all new media –
by 2010 will represent more than traditional media.
The Disintegration of Traditional
Mass Marketing Communication
It’s Getting Harder and Harder
to Reach Consumers
The number of commercials needed to reach
80% of U.S. women, ages 18-49
?
3
97
1965
Today
2035
Consumers Are Less Attentive
to the Messages Sent to Them
Forty-year shifts in media attentiveness / exposure:
1960- 2001
1960
2001
Prime time audience paying full attention
to commercials
72%
41%
Unaided recall of one or more commercials
34%
9%
Minutes of ads per primetime hour
7
12
Number of commercials per in program break
1
4-5
Daily commercial exposures
52
97
Source: Media Dynamics
Of Equal Importance,
Consumers Are Gaining More Control
Over the Messages They Choose to Receive
 In 2002, over 1 million US subscribers had Personal Video
Recorders (PVR)
 Percent of PVR users who skipped:
—
—
—
—
—
Ads during network primetime: 71%
Ads during cable primetime: 65.3%
Beer commercials: 33%
DTC ads and movie trailers: 47%
Fast Food, Credit Cards, and Network Promotional ads:
93%
Source: CNW Research, July 2002; BusinessWeek July 12, 2004
Do You TiVo?
Millions more are poised to subscribe to Digital Video
Recorders or DVR’s. It is estimated the number of
DVR’s in operation could double to 5.8 million by
end of 04:
 Satellite provider Echostar offers DVR free to monthly DVR
subscribers,
 Comcast will offer DVR to 21 million subscribers before the
end of 04, and,
 Time Warner is now rolling out DVR service to 30 of 31 Cable
markets (including NY and LA).
Do you TiVo?
 By 2007 (within current 5 year plans) almost 30 Million HH’s
(about 20% of all US Households!) will have PVRs and DVRs
(10 MM Satellite, 10MM Cable and 10MM PVR’s)… which will
allow them to zap through 60% of the commercials, ignoring
an estimated $6.6 Billion worth of advertising:
 “The DVR has the potential to blow apart the entire network
(and cable) business model”
Source: Yankee Group and SG Cowen Securities
And The Consumer Magazine Business
Doesn’t Look Very Robust Either…
Years
Total # of Mags.
Single Copy
Sales
Subscriptions
Advtsg
Spending
1997
7712
66.1 MM
301.2 MM
$9,821
2000
8138
60.2
318.7
$12,370
2004
5340
50.8
302.0
$11,342
2007
Proj.
47.0
Compound Annual
Change 1997-2003
-4.4%
0.1%
The Internet Is Consuming an Ever Greater
Portion of Available Media Time
Usage Measured between 6:00AM and Midnight
Radio 28%
Internet 12%
Newspapers 4%
TV 53%
Source: SRI, Media Scan – Fall 2002, Age 12-64 - Weekly
Magazines 3%
The Internet’s Importance
in Consumers’ Lives Continues to Grow
“Internet is
more important
than TV”
 Adults: 33%
 Among teens: 56%
 Among young adults: 54%
Source: Mediacom Canada
Broadband and Wireless Growth
Means Even Greater Internet Usage In The Future.
Broadband households worldwide by region (000)
2000
2001
2002
2003
2004
North America
7,600
13,500`
20,385
28,585
38,002
Asia/Pacific
5,825
12,565
20,125
30,931
49,607
Europe
1,505
5,964
11,341
18,690
26,810
139
562
1,174
2,018
3,208
15,069
32,591
53,025
80,224
117,627
Latin America
TOTAL
Source: eMarketer
One-Way Versus Two-Way Communication
 McKinsey has estimated that in 2001, 90% of marketing
dollars were allocated to essentially “one-way” forms
of communication, while the remaining 10% went to
“two-way”, more direct / interactive forms of communications
 But by 2005, McKinsey estimates that only 51% of marketing
dollars will go to “one-way” communication, while the percent
of marketing dollars going to 'two-way' communication
will have shot up from 10% to 49%
And then there is measurement….
 Marketers are often still using the same old tools – tools
like demographics and CPM.
 What they should be doing is using measurable consumer-
behavior and the profitability of high-value consumersegments to determine marketing programs.
But There Are a Few Smart Marketers…
Smart marketers increasingly have multiple
Marcom objectives
From
Awareness/Differentiation
To
Awareness/Differentiation
Plus
Loyalty/Retention
Retail Support
Frequency of Purchase
CRM
Advocacy/Viral
Dialog
Transaction
Marketers Are Becoming More Concerned
With Loyalty and Profitability
How Many
Buyers
Awareness/
Differentiation
How Often
Do They Buy
Loyalty
What Do
They Pay
Profitability
New Marketing Models are Emerging
From
 Selling a single product to as many
customers as possible
 Treating all customers in the
same way
 Over-reliance on TV and duplicated
spending on awareness building
 Using the Internet for TV or print-like
advertising
 Sporadic and anecdotal customer
insight or feedback
 Oversimplified marketing objectives
(circa 1950)
 Allocation models using CPM
measures
Source: McKinsey Presentation to Mars
To
 Selling a single customer as many
products as possible
 Differentiating based on customer value
(high vs. low) and relationship type
(known vs. unknown)
 Specific roles for each marketing
communication channel – no more
duplication
 Using the Internet as a relationship
marketing channel
 Structured information capture and use
of learning
 ±10 granular marketing objectives
across multiple marketing discipline
 Allocation models built on holistic
marketing facts and messy reality
Where Is It Going???
 ROI
 ROI
 ROI
Because of These Changes, the Agency Business
Itself Has Changed Drastically…
Was network TV-centric…
 Now splintered with hundreds of advertiser options/consumer choices
Was agency-centric…
 Now most income from direct, healthcare, interactive, promotion
Was a business valued for its contribution to client business…
 Now a “commodity” low on list vs. distribution/promotion/pricing
Was a business in which the CEO was deeply involved…
 Now CMO and Procurement rule relationship
Was a business that used consumer research to quantify differences…
 Now one Brit planner tells a story
Was a business where you had months to create an idea…
 Now you get days
Was 15% commission…
 Now all cost-plus fee, negotiated with procurement
Was a business filled with talent…
 Now starved for talent