A rocky road ahead: the future for advertising

By Michael Karg, PhD

This article was published by WARC in June 2020

Introduction

The emergence and rapid rise to dominance of digital media and technology in the first two decades of the twenty-first century has led to increasing fragmentation in the global marketing ecosystem. This has made it progressively more difficult for brands to reach mass audiences at scale and so for corporations to build brands. Three factors can be identified as underlying drivers: (i) changes in consumer behaviour; (ii) the decreasing relevance and influence of linear live TV; and, (iii) people taking control of the tools of commercial communication in today’s editorial society, where consumers and brands are both senders as well as receivers.

The impact of COVID-19 on consumer behaviour and attitudes is already showing signs of accelerating underlying strains and weaknesses in the marketing ecosystem. Brands that win in the post-pandemic world will need to combine agility and diverse skillsets to deliver and capitalise upon brilliant creative, clean first-party data, and a clearly-articulated sense of their utility. Advertising isn’t dead. But it’s certainly true that marketing has never been more challenging – nor more full of potential.

Three macro trends

1.    Fundamental changes in consumer behaviour

For the second half of the twentieth century, individual success in most of the world’s economies was defined by financial and material success. Owning more stuff – a nicer house, a smarter car, better clothes – became the mantra. And with the acquisition of material objects came the rise of brands.

In recent years, a number of factors have conspired to change human behaviour in relation to what it means to be a consumer. Digital media and technology have made tangible, physical ownership of objects less relevant and aspirational. The spreading ubiquity of superfast broadband means that there’s no need to build a collection of CDs or DVDs, when a subscription to Netflix or Disney+, Spotify or Apple Music can give anyone instant access to the world’s TV, movies, and music – at home and on the move.

The growth of on-demand media consumption – with whole boxed sets of favourite TV series made available for consumers to watch when they choose, not when the schedules dictate – has implications beyond the ownership of physical cassettes, discs, or tapes. Subscription services disintermediate, reducing the role and importance of broadcasters and publishers whose existence has historically been funded by advertising. This makes consumers less tolerant of commercial messages interrupting their enjoyment. And it affects how they access other services, too.

The same mindset has driven the rise of the sharing economy. “Why should I own a car, when I can rent one by the hour?” many ask, and end up behaving very differently from previous generations. The transition from ownership to opting in for when consumers need services has driven the growth of the “app for everything” mindset, from AirBnB to Uber. These changes in behaviour are driven by companies standing on the shoulders of technology giants who make all this possible. Those brands unable to see the future coming have been left behind and are currently residing in the corporate “Where are they now?” file, from Blockbuster to Kodak, from Virgin Megastores to Barnes & Noble.

2.    TV in long-term decline

Ever since the advent of commercial TV in the middle decades of the last century, in every major market around the world TV became the dominant medium delivering by far the best return on investment. For advertisers looking to grow and sustain mass market brands, to reach and influence mass audiences at scale, TV was the go-to medium of choice.

The fragmentation of media following deregulation in TV and the explosion of the internet, the dopamine-hit lure of social media, and the ability for consumers to curate their own media schedules to suit them have changed all that. A 2019 report[1] from leading independent media and marketing consultancy Ebiquity concluded that TV was fast approaching a tipping point after which the medium would likely lose its ROI advantage over other channels. The company’s econometricians projected that the shift in viewing behaviour would continue its rapid spread to older demographics. Driven by the lurch to spending more time watching online video and subscription video on demand, the changing behaviour of younger views is shown in Figure 1.

Figure 1. Change in linear TV viewership in the UK among 16-34 year-olds [1]

When the report was published, the TV industry did its best to pour cold water on its conclusions. The most notable and voluble critic was the British organisation, Thinkbox, which said that “Someone has run amok with a ruler” and claimed Ebiquity’s projections ignored “total TV”, including the emerging platform of broadcaster video on demand.[2] And while this new channel offers the potential to make up some of the ground lost by consumers deserting linear live TV, there is no evidence yet that broadcaster video on demand is yet delivering significant ROI.

Earlier this year, Ebiquity produced a second report on the decline of TV, titled Mind the Gap.[3] The report compared the predictions from the 2019 study with the reality of the TV market throughout last year. What it showed was that TV audiences had shrunk more quickly than predicted and the coverage gap compared to previous years had increased further. This was true across all age groups. The actual 2019 data led the company’s analysts to revise their predictions to 2022, and these are shown in Figure 2.

The data show that the same ad shown in 2018 will impact 60 percent fewer teenagers, 50 percent fewer 18-24 year-olds, and a third fewer 35-44 year-olds by 2022. Added to decreasing reach, advertisers face the additional challenge of media price inflation. As audiences shrink, it becomes more expensive to reach the same audience.

What these reports and other media usage data are clearly showing is that linear TV is in rapid retreat. Although linear TV advertising is likely to retain its ROI advantage over other media and its superior ability to deliver mass audiences at scale for some years to come, there is no obvious way to replace TV. For while consumer attention is rapidly shifting to many different varieties of digital video, the Ebiquity data show that investment in YouTube, Facebook, and broadcaster video on demand is so far failing to make up the ROI shortfall.

3.    Consumers take control of commercial communication

The retreat from linear live TV is symptomatic of the growing trend in today’s editorial society, a society in which consumers are taking control of the media they consume and also the commercial communications they’re exposed to. Across the world, around 30 percent of internet users have installed ad blocking software – a rapidly-growing user-base of 800 million. According to the Global Web Index, the top three reasons for using ad blocking software are: (1) “too many ads” (48 percent), (2) ads are perceived to be “annoying or irrelevant” (47 percent), and  (3) “ads are too intrusive” (44 percent).[4]

Three other developments in online media are empowering consumers to live a more ad-free life, which threatens brands’ long-term ability to build and grow brands. The first is that more and more web browsers block ads by default. Apple’s Safari – present as the browser of choice on so many mobile devices[5] – blocks all third-party cookies. The free, open-source web browser Brave blocks ads and website trackers, boasting “a faster, more private and secure” online experience for users. From 2022, even Google and its Chrome browser will no longer make use of third-party cookies.

The second development is the growth to scale and dominance of subscription video on demand TV platforms, from Netflix to Hulu, Amazon Prime to Disney+, meaning that billions of hours of TV are being watched ad-free. And the third development is legislation. Pioneered by the European Union’s General Data Protection Regulation (GDPR), applicable in the EU 28 countries and followed as best practice in a growing number of Asian markets, California also now has its own, muscular California Consumer Privacy Act (CCPA). It is expected that the principles of GDPR and the CCPA will be extended to federal legislation after the 2020 Presidential election in the USA.

The impact of the coronavirus pandemic

The unprecedented impact of the COVID-19 – and the scale and truly global reach of the most serious pandemic for more than a century – will be felt for many years to come. I believe it will act as an accelerator of the trends identified above. A disruptive and destructive force like no other experienced in advanced capitalist economies, it will have a truly Darwinian impact on media, marketing, and brands – right around the world.

Many brands will cease to exist, particularly in the sectors required by the global lockdown to cease trading, including: airlines, hotel and travel companies, retail deemed by Governments to be “non-essential”, sports teams and franchises and the gambling industry that depends on live sport, restaurant and café chains, cinemas and live entertainment venues.

The media and marketing industry – particularly media and creative agencies, publishers and platforms – face huge disruption in the aftermath of COVID-19. In a survey among members of the World Federation of Advertisers, 81 percent said they had deferred campaigns as a result of the pandemic.[6] Smart marketing leaders will take this moment of crisis as an opportunity to reduce waste, eliminate pet projects, and focus on key channels and creative – and in particular messaging that fits with the time. This is true both during the peak of the crisis – when consumers are not free to move around “as normal”, with most non-essential, knowledge-economy workers working from home – and also in the inevitable recession that follows.

The World Trade Organization is predicting that the global economy will contract by at least 13 percent, and possibly as much as 32 percent[7], making coronavirus the cause of the greatest contraction in global trade and commerce since the Great Depression of 1929-1933. But what successive recessions show – and there have been a dozen since 1945 – is that those brands that are able to keep spending through and after a recession are those that recover quickest and build share of voice and share market for the long-term future.[8]

Retail, and food and pharmacy retail in particular, is experiencing a boom. Supermarkets are typically selling 20-30 percent more than usual, with retailers hiring tens of thousands of new staff around the world, from Tesco in the UK to CVS in the USA. Demand for home delivery is through the roof, and these are trends that will not disappear as soon as lockdown is over. Amid contradictory signals, one thing is clear. The world – including the marketing world – will not go back to how it was. There will be a new normal, and it will likely be significantly different from what we’re used to.

How brands will win in the years ahead

There are seismic forces at work in the marketing industry. Digitisation has made old models and media redundant at the expense of alternatives that are more agile, dynamic, and relevant to consumer needs. A combination of changes in human behaviour and changes in technology have empowered consumers in the editorial society to be their own curators – of the content they consume, but also the advertising messages they are exposed to. Add both the obvious and as-yet unpredictable impacts of the coronavirus pandemic into the mix, and marketers could be excused for thinking that the marketing rulebook has been ripped up and they’re working in a profession they find it hard to recognise and navigate.

It is undoubtedly true that building brands on the back of large advertising budgets will be harder and less effective than historically was the case. Most audiences are harder to reach via linear TV, digital video formats are currently less effective, and increasingly high quality content is available in ad-free environments. And yet, despite all of these changes, I believe that advertising is very far from dead, and that marketing still offers enormous potential for brands. The trick is doing it right in this brave new world. Here’s my three-point prescription for what this means.

1.    Tell great stories using breakthrough creative – real, human stories that consumers relate to and engage with. We make our decisions emotionally and justify them rationally, not the other way round, and the power of creative remains undimmed. These stories will need to be told in paid and owned channels and go well beyond advertising. We will see successful brands adopting an always-on, publisher mindset, aiming to attract and grow audiences through editorial excellence.

2.    Build a war-chest of first-party data – with consumers taking control and all players from Apple to Google sounding the death knell of the cookie, brands need first-party data about the likes and behaviours of their customers like never before. They cannot rely on third-party proxies any longer. This will require access to in-depth data management and analytics skills to stay competitive. Many marketers have ignored for too long that marketing is both an art and a science.

3.    Deliver real value and be useful – to rank highly with consumers, brands need to deliver useful experiences. This can mean developing app-driven services aligned to core product offerings. It can mean being entertaining, giving a key role to brands becoming a driving force in content creation and distribution. And it can mean being socially useful, a brand character trait likely to linger long after coronavirus.

So, the road ahead may be rocky. But I also think it is hugely exciting and energising. Rather than advertising facing the end of an era, it’s more a case of “Advertising is dead! Long live advertising!”

About the author

Michael Karg, PhD has more than 25 years’ marketing consulting experience, of which more than 20 years has been in digital. Most recently, Michael was the Group CEO of Ebiquity plc, the UK-listed, global marketing and data analytics consultancy. Prior to that, Michael held various leadership roles in Publicis Groupe. During his career Michael, has advised Fortune 500 brands including Intel, Microsoft, Vodafone, Volkswagen, UBS and Samsung. A native of Austria, he has been based in Boston, Paris, and London. Michael holds a degree in Finance & Accounting and a doctorate in Management from the University in St. Gallen, and he was a visiting Fellow at Harvard University.

[1] Ebiquity (2019), TV at the Tipping Point, https://www4.ebiquity.com/tv-report

[2] https://bit.ly/2XkTf0Z

[3] Ebiquity (2020), Mind the Gap, https://bit.ly/2JZrdQJ

[4] https://bit.ly/2XtjEK1

[5] In the USA, 45 percent of smartphone users use iPhones (Statista, https://bit.ly/2JVwRmT). Apple iOS’ market share was 50 percent in the UK in December 2019 (Statista, https://bit.ly/34w7ou4), just under 24 percent in Germany (Statista, https://bit.ly/2JWsQyy)

[6] https://bit.ly/2UYZciy

[7] https://bit.ly/3eelF2P

[8] See Mark Ritson (17.03.20), “Marketing in the time of COVID-19”, Marketing Week, https://bit.ly/2vMbhxN and April 2020 Ebiquity viewpoint paper, Advertising through a recession, https://bit.ly/2V32lxK