Recent earnings reports from Amazon, Alphabet and Facebook (now known as Meta) confirm what everyone knows: We, as a society, are increasingly online.
During the third quarter of 2021, Alphabet’s year-over-year revenue increased 41% to $65.1 billion, while Facebook’s climbed 35% to $29 billion. Amazon’s business unit mainly consisting of its advertising services grew 50% to $8.09 billion.
Although brands from Ruffles potato chips to Dawn dish soap have used digital channels to help raise awareness and spread specific messages for years, recent developments are making the internet more attractive for advertisers looking to turn consumers into customers.
And more than other categories, the consumer packaged goods (CPG) industry is pouring money into the medium. Estimates from eMarketer forecast the makers of chocolate bars and paper towels will increase their combined annual U.S. digital ad spend 31.7% to nearly $31 billion in 2021.
Overall, the research firm expects the CPG category to contribute 16% of this year’s total U.S. digital ad spend—second only to retail (24.9%).
New tools
Generally speaking, dynamic online advertising can do things static offline ads can’t.
CPG marketers are drawn to platforms such as YouTube because they can tailor ads for specific consumer groups, explained Adam Stewart, vp of sales for consumer goods and entertainment at Google.
“Simply taking your television spot and throwing it on YouTube, or any other digital platform, is not necessarily the path to the greatest success,” Stewart told Adweek.
Following the Covid-19 outbreak, for instance, Oreo and M&M’s ran campaigns using YouTube’s Director Mix tool, which allows brands to quickly create a variety of videos custom-made for different shopper segments and trending topics.
YouTube ads generated $20.2 billion in revenue for parent company Alphabet during the nine months ending Sept. 30—a 57% increase compared to the same period in 2020.
During Amazon Advertising’s annual UnBoxed event on Oct. 26, the company introduced new features, such as interactive audio and video ads, designed to aid brands in telling their stories and improving customer relationships.
“Advertising only works if we make it useful for customers,” Brian Olsavsky, Amazon’s chief financial officer, said during an earnings call with analysts on Oct. 28.
Broad reach
Unlike designer handbags and pickup trucks, household essentials are, by definition, products everyone uses regardless of age, location, class or other demographic factors. The same goes for snacks and beverages made by the likes of Nestlé and PepsiCo.
This is why CPG manufacturers aim to get their ads in front of as many shoppers as possible. The broader the reach, the better.
“Outperformance or underperformance will primarily depend on whether or not you get that incremental consumer to buy your product who might have otherwise been indifferent about your product,” said Brian Wieser, global president of business intelligence at WPP’s media investment firm GroupM, when discussing strategies deployed by CPG companies.
Wieser noted that if a CPG marketer can reach 70% of people through a campaign on traditional television, the next step is finding a way to reach as many as possible of the remaining 30%. “That’s where digital certainly has helped,” he added.
And online channels have only expanded their presence in shoppers’ lives during many months of quarantine. At present, more than 120 million Americans watch YouTube or YouTube TV on their television sets each month, according to the company.
“Streaming is clearly booming,” said Stewart.
In September, TikTok surpassed 1 billion monthly active users. The video platform, popular among hard-to-reach members of Gen Z, has proven attractive to the likes of Chicago-based snack company Mondelēz International. Its brands Sour Patch Kids and Oreo have accumulated more than 1 million followers on the social media app through both paid and organic content.
Measured results
Another factor driving the CPG industry to spend more on digital advertising is the acceleration of ecommerce and ability to credit certain campaigns with nudging shoppers to make a purchase.
“Everyone wants to measure results,” Stewart said. “Increasingly, you have the opportunity to really understand how your marketing is delivering return on ad spend.”
In October, YouTube unveiled plans to push deeper into live shopping, noting in a statement, “people who shop on YouTube make faster, more confident purchase decisions—a win-win for both shoppers and brands.” Pinterest is also moving into the space with Pinterest TV, a series of shoppable episodes featuring top creators.
More people shopping for groceries online during the pandemic has also boosted prospects for another digital format: retail media. Companies from Kroger to Instacart have increased profits by offering CPG manufacturers the opportunity to place relevant ads on the very page shoppers are selecting items to fill their carts.
A new report from research company Forrester Research states the retail media category is poised to produce $50 billion in global revenue by 2022.
Still on TV
For the past 20 years, most of the CPG industry’s shift to digital advertising has come at the expense of print.
“There’s been a false narrative that it would come out of television,” said Wieser, who added the situation could change depending on a number of factors, including the definition of TV amid the rise of connected TV.
Despite declining ratings and rising prices, CPG companies continue to run commercials on linear television. Throughout the first nine months of 2021, the CPG industry (excluding alcohol brands) spent $5.12 billion on national TV ads in the U.S., according to TV ad measurement and analytics company iSpot.tv. The amount is down from last year’s numbers, yet higher than before the pandemic.
“With everyone stuck at home in 2020, Americans relied upon CPG brands even more than normal, and TV ads reflected that demand,” said Samantha Scharninghausen, an analyst at iSpot.tv. “Plus, with a greater concern around virus and bacteria spread, cleaning products surged to become some of TV’s top brands—a shift we’ve still seen lingering effects of in 2021.”
Top 2021 TV spenders include Procter & Gamble’s Tide, Downy and Febreze, along with General Mills’ Blue Buffalo and Johnson & Johnson’s Neutrogena.
Still, the future looks brightest for online advertising. In April, Publicis Groupe media agency Zenith released data indicating packaged food and beverage brands around the globe are likely to increase ad spend on digital channels by 7% per year until 2023. Marketing investments in TV, radio, magazines and newspapers, however, are set to decline.
