Planning Your Next Move in Ad Land
The Challenges and Pitfalls Ahead for the Industry in 2010
By Ad Age Staff Published: January 04, 2010 NEW YORK (AdAge.com) -- For many, 2009 will be remembered as a year the marketing world will happily put behind it. The lingering recession has depressed consumer spending and marketers have sharply curtailed their outlays on advertising. Two Detroit automakers filed for bankruptcy. TV and print have been trying to find their way in a digital future and agencies have been put in a vise by clients demanding better return on investment.
Where will you land in 2010?
A new decade might mean a fresh start, but there will be significant challenges ahead in ad land. Ad Age asked its correspondents to look ahead to the coming year and identify the single-most important issue faced by the industries they cover in 2010.
Chat with any agency executive these days and there's a good chance the dreaded "procurement" word makes its way into the conversation. It's a safe bet that pushback from agencies will continue in 2010.
Although clients have long invited procurement departments to weigh in as they choose their ad agency partners and decide how to compensate them, the amount of power procurers wielded grew as the economy worsened and marketing budgets were stretched. In 2009, it wasn't chief marketing officers, but procurement officers who were increasingly leading the discussion in adagency reviews. Decisions in some of the biggest pitches of last year -- from media duties for Danone to creative duties for Volkswagen and UPS -- leaned heavily on what procurement had to say. It's no surprise then that there's been a spike in job listings for marketing procurement executives. While there are experienced procurers out there, to be sure, the bulk of them haven't worked in marketing, and treat the business of creating connections between brands and consumers the same as they might purchasing office supplies like push-pins. The 4A's reported a disturbing trend in 2009 that a growing number of clients have been using the same request-forproposal forms to solicit information from ad agencies as they use for sourcing manufacturing vendors, or research and technology providers. Separately, Ad Age found that 100 leading advertisers' spending remained virtually flat from 2008 to 2009 while agency margins dropped from 12.2% to 10.5%. All that squeezing was enough to get some shops to fight back. Big agencies like JWT pulled out of reviews, citing frustrating financial discussions, and top executives like MediaBrands Chief Financial Officer Tara Comonte publicly decried procurement's stepped-up role in the agency world. "Procurement wants to pay less than enough," she said at the American Advertising Federation's Hall of Achievement awards. "And it will be self-destruction."
Auto marketers face a big task in the coming year: how to stretch their marketing dollars and how to master digital media. Borrell Associates projects that overall new-vehicle ad spending in 2010 will rise to $19.2 billion, but that's coming off a year when it projects spending, when fully tallied for 2009, will be down 17%. "Nobody expects auto advertising spending to come back to where it was before, at least not in 2010," said Mary Collins, president-CEO of Media Financial Management Association, a trade group of financial people in the media industry. A lot of the outlay will go toward unmeasured media. Ms. Collins said that Ford Motor Co.'s Jim Farley, group VP-global marketing, told a conference that the automaker plans to spend half its 2010 ad budget on "experiential" and online marketing, because 75% of new-vehicle buyers now shop online. Jeff Schuster, an exec director at consultant J.D. Power and Associates, also expects a much bigger march into social media by automakers. Still, it's a learning curve for an industry accustomed to big TV blitzes. "I still believe the industry is too addicted to television (advertising)," said Michael Jackson, a partner in SarkissianMason, New York, and former VP-marketing and advertising at GM.
As brewers look ahead to 2010, no challenge looms larger than restoring luster to their flagship premium brands, nearly all of which will end the year with negative sales trends. And that means finding ways to brand successfully in a new-media environment.
Bud Light, Budweiser, Miller Lite, Coors Light, Corona and Heineken represent more than 50% of American beer sales -- and the overwhelming majority of ad spending -- and all five suffered through a miserable 2009. Coors Light will likely be the only brand to end the year in the black, and Bud Light is on track for the first negative year in its 27-year history. While many blame a recession that has driven many consumers to look for cheaper brands, some beer marketers acknowledge that the brands have, for years, been marketed in a commoditized fashion. "People have seen the brands as very much the same," said one veteran beer-marketing executive, "and that makes the cheaper stuff look like a reasonable replacement." Solving that will require brewers to reclaim the sort of cultural relevance that, for example, fueled Bud Light's astronomical rise. And, unfortunately for the big brewers, that relevance is more likely to be found online than on TV, a realm where the category has found few major successes to date, thanks in part to concerns about age-verification that have stymied some efforts and left marketers cautious in others.
The beverage industry is waging a battle on two fronts: against a potential tax targeting sugary beverages and against critics positing that those same beverages are to blame for obesity. It's a battle that will surely grab plenty of headlines in 2010. Gross-out ads from the NYC Department of Health have portrayed soda as liquid fat and it seems health concerns are the No. 1 reason why Americans are drinking less soda. A Consumer Edge Research survey found that 80% of consumers who drink soda on a weekly basis are reducing consumption for health reasons, while only 25% say they are reducing consumption because of the economy. Even more alarming for the industry, among those who consume soda on a monthly basis and report drinking less for health reasons, the largest percentage -- 28% -- are 18to-24-year-olds.
This kind of publicity is making the beverage industry vulnerable to a potential "sugar tax," which has been raised by lawmakers as a potential way to pay for health-care reform. Two states, Arkansas and West Virginia, already have a tax on sodas, while another state, Maine, repealed a tax on beverages last year. So far, though, no lawmaker has formally proposed a tax on beverages to fund health care.
CONSUMER PACKAGE GOODS
Innovation, or lack thereof, will decide which package-goods brands survive the upcoming decade. More brands face extinction at the hands of retailer assortment squeezes, which will intensify this year. Such marketers as Procter & Gamble Co., Unilever, L'Oreal and Johnson & Johnson -- who thrived last decade by extending such brands as Olay, Dove, Garnier, Neutrogena and Aveeno into every imaginable space -- have run out of room. The "easy" alternative -- extending those same brands deeper into developing markets -- isn't really that easy. Everyone is doing it at once, and even the developing markets are projected to slow for the package-goods marketers over the next decade.
The temptation will be to cut marketing and innovation budgets in the U.S. to win the margin room to fund expansion in lower-margin developing markets. But this will just feed the downward swirl of brand equity, ultimately robbing marketers of the funds they need overseas. Meanwhile, U.S. retailers increasingly are flexing their muscle to pull margin from the branded manufacturers to their own bottom lines, either directly through better deals or indirectly by grabbing bigger chunks of consumer marketing budgets. The most vulnerable brands seem to have no choice but to fork over more marketing dollars to the folks who already control distribution. What makes them vulnerable is a lack of innovation. The only way out of this cycle of doom isn't what frequently passes for "innovation" in investor presentations, but the real thing. Last decade, Unilever's Axe and others showed great marketing could substitute for new technology. Innovation can also come by making the experience better. Or even a better deal -- like finally delivering on the internet's promise of bundling brands and deals to build consumer loyalty. But some real, honest-to-goodness technological breakthroughs big enough to warrant new brands wouldn't hurt.
As we move into 2010, much of the disruption promised by the ubiquitous web is finally coming to pass: Print media is in mid-collapse; telcos like AT&T are creaking under the weight of millions of data-hungry iPhones; and the always-on world has both connected communities tighter and fractured their attention into millions of tight niches. But while consumer attention has moved to the web, consumer marketing has not. Instead, the web has, in the words of IAB chief Randall Rothenberg, been colonized "by the evil aliens of the direct-response planet." Those below-the-line marketing budgets are about generating a sale, a clickthrough, a download or a page view. In short, marketing on the web has not been about creating demand so much as reacting to it by delivering the right ad to the right person when they indicate they want it. This has been a boon for Google (and has given birth to 400 ad networks), and represents the best thinking of largely West Coast technologists. But it is increasingly disastrous to content industries that are watching offline revenue erode and finding no equivalent revenue stream online. As a newly independent content company, AOL is reacting to this environment by creating a content factory that will, similarly, react to the declared interests of those searching and surfing the web. But the challenge for AOL -- and every other content business -- is not to react to existing intent, but to rebuild the demand-creation machine that worked for so many years offline and is the foundation of marketing, entertainment and information industries. Publishers have taken steps to build a new machine, and that's behind several efforts at ESPN, Turner, Gawker or CBS, to stop doing business with ad networks and to focus on brand dollars. It's a start, but until a new model is built it will always feel, as Jeff Zucker famously said, that offline dollars are being exchanged for online pennies, or nickels, or lira.
The social-media landscape makes sharper the perennial thorn in the side of the direct-marketing industry: privacy. Before, direct shops monitored and kept data on what consumers bought, how often they bought, from what store they bought it, and what payment method they used to purchase it. Now they are tracking and analyzing what people say about brands and products on message boards, blogs and Twitter, adding another level of concern to the privacy issue for regulators. This new media ecosystem has created an intense love affair between directmarketing agencies and all things digital, but in 2010 these shops may need to start looking at more multi-channel efforts that include catalogs, mail and other offline tools. The industry will also be challenged to look beyond culling data from every available touch point and, as one agency chief put it, "return to focus on the customer."
The biggest issue facing the food industry in 2010 is government regulation. In package foods, the Obama administration has set the stage for more regulation of advertising and labeling for any product sporting "better-for-you" claims. The FDA in May took a swipe at Cheerios's claim that the cereal can help reduce cholesterol and has announced that it would create a standardized, front-of-pack labeling system that makes redundant the Smart Choices logo the industry giants
had created to combat consumer confusion. The mood has also given rise to increased consumer criticism of claims. The restaurant industry, meanwhile, is bracing for mandated calorie counts on menus, laws which are already enforced in New York City and California. The calorie estimates themselves have created an open door to lawsuits, as consumers claim to have been misled by underreported calorie counts. Some chains claim that the laws are stacked against them. Pizza chains, for instance, are required to post calorie counts for an entire pie, rather than an average serving. For all, the requirement creates a menu-board design nightmare. Nationally mandated calorie counts for chain restaurants were a provision in the health-care-reform bill first presented to the House of Representatives last fall.
Planning and buying ad space within an ecosystem that's evolved from one-way communication to one in which consumers take part with blogs, social networks and the like, makes the job of media agencies, as one global CEO described it, "monumentally more complex than ever before." They are now dealing with the challenges of integrating social, mobile and performancebased media like exchanges and search with more traditional media, while implementing the various tracking and tagging elements that go into the execution of integrated campaigns. Add compensation to this pressure. The old pricing model revolving around front-end costs and paid media is still dominant, but Twitter, blogs and other forms of earned media play just as big a role in driving marketer performance, leaving media shops to feel stuck with clients who demand forward-thinking ideas but use an outdated compensation model. And now, marketers are sorting through a host of providers, wondering whether they need different partners for mobile, search, social or banners. Marketers can choose from big digital agencies like Digitas, Razorfish, MRM or Tribal DDB, small independent agencies with a heritage in digital production, or a mainline agency's digital arm. Each classification of digital agency has its strengths -- might it be global scale, raw creative prowess or synchrony with offline messaging -- and no one shop has it all. Not to mention each has its specialists. For social media, the field is especially murky. Every breed of shop from public relations to digital and traditional are hiring social-media experts to bring their clients into that space, but marketers want to know who can do it best.
Print's most fundamental changes and challenges of the past few years haven't really revolved around print itself; digital media has been changing the game from the outside. As the new decade gets started, however, print publishers are going to try changing digital. They want digital to provide two revenue streams, not just from ads but now also from readers.
In short, this will be the year when publishers find out whether readers will pay for digital content. The first front is probably the least promising: wringing circulation from newspaper websites. All through 2009, players and outsiders decried the way newspapers post their content online free for all to read. Steve Brill and others started businesses to help newspapers start charging web surfers. Frank Rich and others pointed out that consumers got used to paying for TV. Unfortunately, there's so much free information around that most publishers are probably going to struggle to make much money this way. "Proving that what comes up must come down," Fitch Ratings wrote in December, "Fitch expects pay walls will be erected and dismantled in 2010 as media companies (with print products) experiment with charging users for online content and are ultimately disappointed by the results." The more intriguing avenue for publishers is selling electronic editions tailored for display on iPhones, electronic readers and those tablet computers everyone is eagerly anticipating. Condé Nast's GQ and Hearst Magazines' Esquire are already selling iPhone apps that deliver an issue's content plus video, interactive ads and other extras. Time Inc., News Corp., Hearst, Meredith and Conde Nast have formed a joint venture to build a digital storefront. They'll still face a sea of free competition, but consumers have already shown they'll pay for apps and content on cellphones.
Earned media and two-way conversations have always been the specialty of PR shops. But many PR professionals will tell you that the industry as a whole has done a poor job of laying claim to being the authoritative voice on all things social and digital. The industry has stood by, similar to the way it did during the dot-com explosion, while media, direct, digital and creative shops have taken business that it should be handling. The evolution of the media ecosystem has brought fewer traditional outlets and contacts to pitch to and a tougher task in identifying the more influential new-media players. Looking ahead, most, if not all, PR shops need to put a more intense focus on navigating and understanding which outlets are having the most impact on consumer decisions and start staffing their agencies with the type of talent that understands these mediums.
In the coming years more and more consumers will graduate to using their mobile phones as their own personal shoppers, much to the chagrin of some retailers who would prefer consumers not be able to comparison shop from the comfort of their aisles. Some are already doing just that. One in five shoppers -- and four in 10 of those ages 18 to 29 -said they planned to use their cellphones to shop over the holidays, according to an annual survey by Deloitte. Of those, 45% said they would be researching prices, 32% said they would be looking for coupons, 31% said they'd be reading reviews, and 25% planned to make purchases. It's clear that retailers who don't embrace mobile phone technology in the coming year will be left behind, much as those retailers who sat on the sidelines during the early days of digital or social media are now playing catchup. Already major players like Ralph Lauren, JCPenney and Sears are experimenting with various facets of mobile technology. Penney's, for example, is testing a coupon-scanning program with Cellfire in 16 Houston-area stores. Others are dabbling with iPhone apps, mobile commerce sites and QR codes.
Coming off a year in which sports sponsorship deals were often scorned as wasteful corporate vanity, sports marketers ought to enter 2010 fixated on how to prove otherwise. To be sure, the bailouts of 2009 underscored this problem: Few sectors have reliably spent more in sports than the auto and financial-services categories, but those marketers were too often unable or unwilling to explain how stadium-naming rights, golf-tournament sponsorships and other deals were worthwhile uses of taxpayer dollars, and in most cases they sat quietly and took the abuse in what seemed to be a tacit acknowledgment that the critics had a point. But there are, of course, worthwhile reasons to make sports a central tenet of brand strategy. As programming, it's less exposed to time-shifted commercial skipping. It typically draws an affluent audience, and it remains the most reliable way to speak to men. It can provide useful venues for client entertainment and business development. So, in 2010, it's time for marketers, leagues and teams to make strides in articulating that value.
TV is the ultimate mass-market reach tool -- and that's its biggest issue. Can TV be used to reach smaller numbers of the eyeballs it regularly attracts -- could it become a precision scalpel rather than a blunt instrument that hits millions of people on the head?
'Gossip Girl' Those questions will be on advertisers' -- and TV networks' -- minds in the coming year, as a broader array of media-consumption techniques gives rise to smaller groups of people watching TV at any one time. Rather than devising mass commercials, advertisers are becoming increasingly interested in commercial propositions designed for a specific moment or for a distinct group of viewers. Maybe there's a contest aimed at viewers of "Gossip Girl"; perhaps there's a weekend-weather-themed promo sponsored by Home Depot aimed at viewers who may be considering weekend plans. It's no longer just enough to come up with a one-size-fits-all ad and blast it again and again. More often than not, ads must be cut and shaped to fit the audience of a particular show, the audience at a certain time of day or week, or the individual new-media behavior of the viewers (who may watch a show using a digital video recorder or online-video player). All of this means media buying and planning techniques are due for an overhaul. "I care more about the program than the network that it's on," said Peggy Green, media-buying executive at Publicis Groupe's Zenith. That interest is likely to become more prevalent in 2010. And there will be fallout.
The cable industry ended 2008 on a sour note when Viacom threatened to pull its popular MTV Networks programming from all Time Warner Cable subscribers if the No. 2 cable company didn't agree to pay more favorable subscriber fees for networks like Nickelodeon, MTV and Comedy Central. The reason behind the maneuver: Viacom, like other TV networks, was offering up many of its most popular shows ("South Park," "The Daily Show," "SpongeBob SquarePants" ) for free online, side-stepping the cable-subscriber model entirely and devaluing the subscriber contracts that supplant more than 60% of the average cable network's revenue. Although the parties ultimately came to a compromise, the debate rages on, and this year the broadcast industry is being roped in. A new initiative kickstarted by Time Warner CEO Jeff Bewkes, called TV Everywhere, has given new attention to the trend of online "authentication,"
or subscriber-based TV streaming. In other words, free sites like Hulu, CBS.com and other network sites would put up a pay wall in exchange for more access to cable shows as part of a cable subscription. Comcast just rolled out the service across its Xfinity service, with plans for other cable and satellite operators to join later. But the woes of financing quality TV are far from over. Time Warner ended 2009 in a similar debate with Fox, this time over "retransmission fees," or fees to be paid by cable subscribers that would help keep shows like "American Idol," "House" and "Glee" on the air. By the end of 2010, viewers could be looking at a very different way in which we pay for and watch our favorite shows.
Having sunk billions to build their 3G networks, and now keying up for 4G, a top mandate for carriers is to grow their data revenue and convert subscribers from voice-calling customers to data consumers. And there are a lot of them to convert: more than 80% of wireless subscribers use voice-centric feature phones rather than data-capable smartphones. Though the opportunity is significant for an industry with 90% penetration, consumers may be scared off by the high costs of owning a smartphone. Upfront, the phones themselves cost upwards of $150; the recurring voice and data charges will set them back at least $50 every month. Consumers are also beset by inertia -- think of the 2.8 million households that hung onto their analog TV sets on the eve of the nation's switch to digital TV. "Migrations take time," noted Bob Rosenberg, president of Insight Research. How carriers hasten that migration depends on how well they can break down adoption barriers. Differentiation and staking out a clear positioning will be key, as Verizon Wireless demonstrated with both its successful, network-focused campaigns that consistently hammered home its vast coverage and quality. Alternatively, carriers may also want to consider introducing affordable, tiered data plans while offering transitional devices that integrate a handful of popular utilities like maps, weather and social networking.
Most multinational marketers have cracked the country's largest and most sophisticated markets, but cities like Beijing and Shanghai are home to a fraction of China's total population. In 2010, companies need to figure out how to reach the one billion consumers that live beyond the tierone cities. These are sizable markets. China has about 150 county capitals with more than one million people and thousands of towns with a population between 500,000 and one million. Still, scale alone doesn't sell burgers and laptops in China's lower-tier markets. Disposable incomes, familiarity with foreign brands and products, and retail and distribution practices change dramatically when marketers move from Shanghai and Beijing to Changchun and Wuxi. Forget Carrefour and Wal-Mart. Consumers in tiers three, four and beyond shop in mom-andpop stores that may not have refrigeration, or even a front door. Delivery trucks are replaced by carts attached to bicycles. Marketers often find out they have to overhaul product formulas,
packaging, pricing strategies, retail promotions and ad campaigns to reach consumers effectively and appropriately in those cities, and are more likely to face counterfeit products. Local competition is fierce too, since sales are based on price and distribution, two areas in which Chinese companies excel. Moreover, multinationals also struggle to find experienced sales and marketing executives willing to work in those towns. Their most talented employees, after all, often climbed out of these less-developed markets through grueling school exams and hard work and now are reluctant to leave an affluent lifestyle in Beijing or Shanghai.