For the past 25 years, advertising's share of total marketing spending has trended slowly downward. Until recently, that is. Two recent analyses of the marketing of large American advertisers showed that ad spending as a percentage of total marketing outlay increased between 2012 and 2015. The changes so far are small—a percentage point or two—but that's not the news here. The news is the direction of the trend: up, not down.
Why is this happening? In a word, precision. Supported by more and better data, and evolving technology and tools, marketers are able to be more precise with their advertising today than ever before. More precision means less waste—less advertising directed at people who won't respond. Less waste means a better return on investment. As the ROI of advertising improves, brands allocate a greater portion of their total marketing spend, and a greater portion of their brand's revenues, to advertising.
This is partly a result of the growth in digital, which lends itself to greater precision. Digital advertising in the U.S. has been growing at a rate above 15 percent since 2012 and is expected to continue at that pace. (This isn't just a U.S. story because the global growth figure for digital over the last few years has been above 20 percent.)
But it's also happening with TV advertising, which is similarly being informed by better analytics than ever before. And because we are still relatively early in the development of analytics and tools to drive more precise advertising capabilities, the trend is likely to continue.
Better data, more sophisticated data integration and the growing role of ad tech and marketing clouds will continue to fuel the increase in advertising's share of total marketing spend and total brand revenue.
Today, for instance, it is easier than ever to create a privacy-protected, single-source database that allows advertisers to compare the purchase activity of individuals who have seen the ad with the purchase activity of individuals with a very similar profile but who have not seen the ad. This not only helps advertisers understand the ROI of their advertising; it also helps them improve the productivity of their future advertising spending. In fact, our own work for our clients suggests that advertisers can typically increase advertising ROI by 15 percent or more by applying what they learn from these types of data analyses.
And new marketing cloud capabilities enable advertisers to run complex, powerful analyses on a wide range of information, including their own data, independent measurement and a dizzying array of other third-party sources. Typically, these aren't static data sets; they are data streams that flow and update continuously. The outputs are used to improve the precision and ROI of advertising. And over time, feedback loops help the system learn and improve.
Our own marketing effectiveness practice, which provides services of the kind described here, grew nearly 30 percent in the first quarter of 2016. And we're not alone. Other firms that provide similar capabilities are also seeing good growth in this area—clear testimony to how advertisers are investing to increase precision. It's a key reason why advertising's share of total marketing spending has reversed trend and started to grow again.
For some, this reversal in trend might be unexpected. With the growth of time-shifted viewing, subscription video on demand and ad blockers, it's easier than ever for consumers to avoid advertising. But consumers also realize that advertising helps pay for the content they love, even if they don't always love the ads. Indeed, according to eMarketer analyst David Hallerman, about 75 percent of viewers would rather see ads and get content for "free" than pay a subscription fee to avoid ads. For TV content alone, ads underwrite about $70 billion of the cost of producing and delivering the content to consumers.
Further, ads do more than just help pay for content. By informing consumers of their changing choices, ads also support innovation that is crucial to the growth of brands, the process of competition and the efficient functioning of markets.
A market without ads would require higher subscriber fees and would make innovation less efficient and competition less rigorous. That's no good for consumers. A market with ads that deliver a good return for brands yields benefits not only for those brands, but also for media owners, content producers and—yes—consumers, even if their viewing experience requires an occasional break for advertising.
And if the value of the ads in that occasional break grows, then it's an even greater benefit. Thanks to more and better data driving greater ad precision, that's exactly what has been happening in recent years, and it's likely to continue.
Mitch Barns (@MitchBarns) is the CEO of Nielsen. When not measuring global media and retail activity, he can usually be found cycling.
This story first appeared in the May 16, 2016 issue of Adweek magazine.
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