Long Read: Where’s the money?

Chris Pash
By Chris Pash | 10 December 2019

This first appeared in the AdNews 2019 Annual edition. Subscribe here for your copy.

Raja Rajamannar, global CMO of Mastercard and the current president of the World Federation of Advertisers, tells his team that advertising is dead. The comment is designed to get the crew thinking. He’s only half joking.

Six years ago, Mastercard decided to not rely on advertising as its main pathway to consumers. Now it’s about experiences. Experiential.

“Storytelling is dead, advertising is dead. It’s all about story making,” says Rajamannar. “If I have to fast forward 10 years, the marketing and advertising mix is going to be completely different. Experiences will be predominant.”

He’s shifted a lot of budget from traditional advertising to experiences. An example is the Priceless Cities campaign which has run a series of experiences, including recreating famous restaurants, for cardholders.

Many speak of a reduced flow of dollars to traditional advertising. And the latest analysis from Gartner shows that marketing budgets overall are shrinking, just a bit, at least in North America and the UK.

In Australia, the flow of dollars to media agencies has been weaker over the last year, with a sharp fall in advertising spend by banks and car companies.

The money is still out there and marketers are still spending, albeit at a reduced rate, but their focus has shifted. They are going where the consumers are – digital and social media.

On the world stage, reports keep coming of the bigger advertisers spending less on agencies. And many see a changing of the guard ahead when the big advertisers are replaced by technology companies.

P&G, one of the world’s biggest advertisers, has cut its advertising spend by $US1 billion over the last four years. And it wants that number to be $US2 billion by 2021.

Analysts at research house Forrester describe what’s happening with marketing: “Digital is ubiquitous, the advertising and marketing services landscape is in flux, and the lines between marketing and customer experience are forever blurred — all while customer expectations continue to rise. CMOs who continue to live by the campaign will die by the campaign.”

The pressure on CMOs and their budgets keeps increasing. Gone are the big blast campaigns, shooting off in all directions. Speed, driven by the promise of technology, is the keyword.

Increasingly everything happens in real-time or near-time, chasing data, making best-bet decisions on where and how to place ads, and then moving on.

The role of the marketer is also changing, with more direct responsibility for growing the customer base. But this is forcing more short term thinking.

Most marketers are focused on the short term, a result of being drawn into the digital vortex – get customers in, and get them now.

CMOs are simply not incentivised to deliver long-term change, according to the 2019 Dentsu Aegis Network CMO survey.
They are primarily accountable for growing the customer base, while medium/long-term brand health and digital transformation are way down the pecking order.

And CMOs don’t feel safe in their roles. They have the shortest average tenure of anyone in the C-suite. In the US, it’s three and a half years. If you know you probably won’t be around that long, why do any long-range planning or do deeper work to identify trends shaping consumer behaviour?

Nearly half of the 1000 CMOs surveyed have strategic plans that look ahead for just two years or less.

Analysis shows the value of a longer-term view: those companies with a longer strategy horizon have higher revenue growth.
Brent Smart, CMO of Australia’s IAG, says every marketer faces the challenge of balancing long-term brand building against the commercial drive for short-term sales.

“Getting that balance right is a real talent,” he told AdNews. “It’s tempting to to dial up the short-term activations because they show an immediate bang for buck.”

And that’s become a problem, particularly in Australia, he says.

“I think every CMO has that same pressure to deliver results and that’s part of the job,” he says.

“As a CMO you’ve got to be aligned with the vision and objectives of the senior leadership team and make sure you have got a really clear mandate on what’s important to the business.”

Smart says he hears from other marketers that they all face the same challenge of budget pressure.

“I think it’s about doing fewer things really well with bigger impact as opposed to try and do more with budget constraints,” he says. ING, according to Roy Morgan, has at 90.9% the highest banking customer satisfaction ratings among both home loan and non-home loan customers.

Opening wallets
Will we see the advertising market return to growth in 2020?

John Broome, CEO of the Australian Association of National Advertisers, sees another tough year and suspects any recovery won’t be across the board.

“With consumer confidence at a four-year low, marketers will need to work differently and harder if they want to deliver growth,” he says.

“I cannot see businesses opening their wallets anytime soon. But these are the ideal circumstances for the brave to step up and show how marketing can deliver.”

CMOs spoken to by AdNews tell different stories about budgets. The bigger players appear to have growing budgets, the smaller businesses, and challengers, are under pressure.

Analysts at Gartner have been calling out marketing budgetary challenges for some time. This goes deeper than the broad economic outlook, such as trade disputes, tariffs and Brexit.

It touches on the level of confidence that CEOs have in marketing. Gartner’s CMO Spend Survey 2019-2020 shows that overall marketing budgets have shifted downwards, dropping to 10.5% as a proportion of overall company revenue in 2019 from 11.2% in 2018.

The survey shows more than half (56%) of CEOs report that they expect to increase investment in marketing in 2019. This is significantly behind the proportion of CEOs that expect to increase spending in other capabilities such as technology (74%), people and culture (64%), and R&D and innovation (60%).

But the CMOs themselves are confident. Almost two-thirds (61%) expect their budgets to rebound in 2020.

A telling statistic from the Dentsu Aegis Network CMO survey for 2019 is that 81% of Australian CMOs expect that they will have to work harder to engage customers consistently across the whole value chain.

“When we think about the proliferation of avenues to reach the customer that CMOs encompass, we know what that means for budgets that are stagnant/low growth; they become even more fractured and pressured,” says Angela Tangas, chief commercial officer, Dentsu Aegis Network ANZ.

“As such, ‘traditional’ advertising’s position in the marketing mix is at risk of becoming even more vulnerable.

“This is emphasised by Australian CMOs being revealed as the biggest believers globally that customers’ intolerance of advertising is a significant barrier to forming relationships (55%).”

And just staying current is a big task for CMOs as technologies and tools continue to advance and digital channels fragment.
Just a few years ago, marketing was about digital, mobile, and social, according to the Boston Consulting Group.

Now social media alone has broken into multiple platforms – Facebook, Instagram, Snapchat, Pinterest, and YouTube. In China, they also have WeChat, Douyin and Youku. Then there are the influencers, the gaming platforms and messaging platforms such as WhatsApp.

“New channels and types of channels, including vision ambience, voice ambience, and ever more precise and interactive geolocation, are entering the mainstream,” says the Boston Consulting Group.

“Artificial intelligence (AI) is automating internal processes and enabling new forms of consumer engagement. Measurement and ROI tools are better than ever—for those that can harness them and the relevant data.”

And consumer expectations keep rising. And so do the internal pressures on CMOs.

Keith Johnston, a vice president and research director at Forrester, points to an emerging trend of CMOs being replaced with chief growth/revenue officers (CGOs).

“Companies are learning that many CGOs are living up to their titles, and some have even been able to thrive without a CMO,” he says.

“While marketing’s job security may not be in dire straits yet, there is cause for alarm, with over 60% of marketing leaders sharing that their primary C-suite communication challenge is demonstrating marketing’s impact on financial outcomes.

“That’s just it: The expectations of the role of the CMO have changed, yet we keep justifying marketing as if the “M” alone is the answer to creating, sustaining, or even branding a successful business in this age of the customer.”

To stay relevant CMOs have to talk the talk with CFOs and CIOs as well as CEOs.

Jane Danziger, who leads the local Marketing, Sales & Pricing Practice for Boston Consulting Group, regularly talks to CMOs in Australia. They tell her they are under pressure to demonstrate their budgets are supporting the goals of the business. Each dollar they spend must get a result.

Their work is faster, takes place in the digital space, and increasingly includes tracking the entire journey of a customer with a brand.

“Marketing has changed more in the last two years than it has in the last 50,” says Danziger.

“What I’m seeing is a shift, partly driven by the realisation that the customer, obviously, is so critical, but that the role of marketing is no longer just a push function.

“It’s a recognition that the entire customer journey needs to be acknowledged and every interaction needs to be managed in a way that the customer feels listened to.

“Brands have so much data on their customers and customers are more and more willing to share their data but they do expect something in return, and they do expect the data that brands have on them to be used in a way that ensures every interaction is a useful interaction.”

Staying relevant
The role of marketing has broadened. CMOs have expanded their remit to thinking about how the customer interaction impacts all parts of the organisation.

“They are being forced to evolve and grow the set of capabilities within their teams and that requires some new skills … being able to measure performance and measure the impact each different interaction has with a customer,” says Danziger.

Danziger is seeing a shift to in-house creations, partly driven by the rising importance of speed, control and data ownership.
This gives marketers the ability to make changes on the fly.

“It’s partly a cost thing but actually it’s much more about speed and the ownership of data that’s driving the in-house shift,” she says.

“It actually doesn’t mean that in-house will be the only answer, but I think that we have seen, and will continue to see, some shift towards in-house creation.”

We live in the customer’s world, according to Henry Tajer, CEO, Dentsu Aegis Network ANZ.

“They are more knowledgeable and demanding, making faster decisions than ever before,” he told AdNews.

“Engagement must be relevant, simple and add value to the customer at each and every interaction. That’s both the business challenge of today and opportunity for tomorrow. It’s not just about marketing but creating meaningful, connected experiences.

“The convergence of data and technology requires businesses to go beyond marketing to unlock sustainable brand growth and profitability. Doing this requires intimate understanding of customers’ behaviours, motivations and emotions, and responding in real time. Integration is critical. When executed well, it creates brand experiences that matter and helps businesses achieve accelerated customer growth. Customisation at its core.”

Mark Read, CEO at WPP, is recasting the world’s biggest advertising group following the departure of founder Sir Martin Sorrell.

He sees FMCG, consumer health and some pharma companies shifting their spend into digital channels aggressively.

“What we have to do is move our business to serve them in those new channels, and we have had, I’d say, some success in that,” he told analysts. “And we expect to have more success in the future.”

Read sees a shift in economic power and spending.

“We want to be on the right side of that trend,” he says.

“When I think three, four, five of the world’s largest companies are technology companies, it wouldn’t surprise you that they may also be the world’s largest advertisers. Google is WPP’s third largest client today, so we already have surpassed a number of the FMCG clients.”

The agency industry still has a lot of potential to produce substantial ongoing value to marketers, according to GroupM’s Brian Wieser, global president of business intelligence.

“The more complex marketing becomes, the greater the value that can emerge from agencies, which concentrate relevant expertise to a degree that no marketer can,” he says.

“However, value is not always connected with spending or pricing. While that doesn’t mean the industry’s turnover or profits will grow as fast as we want it to in any given year, it does mean that it will be durable.

“As to what agencies will look like as time progresses, I think there will be almost as many varieties of agency business models as there are marketers with different organisational structures of their own.

“For that reason, agency parent companies need to find ways to maximise flexibility of structure while concurrently providing scale wherever they can.”

While there is a softening market in many areas, Wieser believes that media agencies are generally doing reasonably well around the world. He acknowledges that this will not be true for some countries.

Within agency holding companies, it has usually been the traditional “creative” agencies which have struggled.
“This trend goes back to the differences between value provided and client willingness or ability to pay for those services, relative to the alternatives available to them,” he says.

“Right now, creative agencies have found they need to reinvent their offerings to better match what clients are willing to pay for, such as digital experiences and high-volume, low-cost creative assets.”

The brands to watch are those owned by digital companies – such as Google, Uber, Netflix, Expedia, Ebay. They account for a disproportionate share of the industry’s spending growth.

“They have very different needs than the brands they replaced, or the industries they are displacing,” says Wieser. “This is causing advertising growth that is faster than might otherwise have been expected in at least some countries – such as the United States.”

Packaged goods, or FMCG, is a category that is cutting spending in general, partly in response to significant revenue growth challenges the sector was facing in recent years, but which appear to be easing now.

Gartner’s 2019 Marketing Organisational Survey reported that 63% of marketers have moved part of their delivery from third-party agencies to in-house teams.

However, this has not eroded the significant value CMOs still place in external service providers. Spending on marketing agencies still accounts for nearly a quarter (22%) of total marketing budgets.

“While in-housing may be à la mode, agencies still offer an unparalleled breadth of scope, economies of scale and an ability to offer much-needed, external strategic input,” says Ewan McIntyre, vice president analyst in Gartner’s marketing practice.

Rustom Dastoor, senior vice president, marketing and communications, Asia Pacific, Mastercard, says CMO budgets are growing and agencies are still relevant.

“Agencies continue to be centres of creative excellence, and a source of consumer and cultural knowledge,” says Dastoor.

“Today, our agency partners are evolving to find innovative ways for us to bring the Mastercard brand to life by connecting consumers to their passions, and stakeholders to the issues that matter for them. Agencies should embrace creativity as an attitude, not as a form factor or channel.”

As consumers do more things digitally, advertising dollars have followed them online. “Being able to closely connect marketing spend with revenue recognition on one platform is a powerful capability that marketers will increasingly put to good use,” says Dastoor.

Worldwide digital ad spend is expected to hit $US333.25 billion this year. By 2021, that number is projected to increase 12.8% to US$376 billion.

Kate Keenan, co-founder and CMO at Judo Bank, a challenger bank in Australia, thinks everyone has to be more nimble today.

“It’s fairly tough economic conditions out there,” she says.

“All are being asked to do more with less and digital is helping that cause. We are having to think more outside the box, which I love. It’s exciting for me and that’s why we haven’t focused on traditional media such as TV, but if we did, we’d do it in a more nimble way. There are other ways to reach your target market now.”

Much of the work is being done in-house. She works directly with a creative director, Jim Ritchie, formerly of DDB Melbourne, with his own shop, Us&Us.

“He takes the same approach as me,” says Keenan. “He loves dealing directly and hates having to get briefed from three different suits to then get something that’s not quite right. Then he spends time creating it which goes back to the client and it’s not right and you’ve paid for everything in between.

“I don’t want to deal with anyone else in between. I want to deal directly with the creative director, to tell him or her exactly what I’m looking for, for them to then come up with the fantastic idea or creative and to get my feedback directly.

“It works so well for me because I don’t have to deal with some service manager on the phone saying that they don’t really understand what I’m saying. It’s a much more enjoyable process.”

Mark Cripps, CMO at The Economist, says advertising spend is growing year-on-year. “It’s all about where it’s going,” he told AdNews. “I think it’s going into the platforms more than it is to the agencies or the traditional media outlets. I don’t think that the agencies stats reflect that. That’s the issue.”

The big platforms, such as Google and Facebook, offer scale, reach and technology. It’s also easy to target and track performance.

“A few of them are also bundling in other services, such as creative as part of the overall offering,” says Cripps.
“Some of those costs can be hidden, so you don’t see what you’re buying. It’s bundled into the media cost, so it looks like it’s a good cost effective buy.”

Half life
Cripps believes short-termism is a big challenge in the industry. “Budgets are going into what we call performance marketing or activation marketing exactly because of that,” he says.

“You can see an immediate return or near immediate return. That’s causing some challenges structurally in the industry that’s affecting where the money goes, of course, and the window that you look at to get the returns.”

The UK’s Institute of Practitioners in Advertising research, The Long and the Short of It, shows that revenue, profit and market share are greater with a long-term view. The researchers, Les Binet and Peter Field, looked at the balance of short and long term planning, the relationship between short-term sales and brand building leading to long-term growth.

Their work suggests that the budget should be split 60% in terms of emotional, or above the line, and 40% in terms of activation performance.

“It’s not easy being a CMO. Quote me on that,” Cripps says.

“The internal pressure is to do everything to the organisation and affect growth. Sometimes growth is more than marketing. It can be product development, it can be distribution strategies, things like that. So the marketer has to get involved in all of that to make a difference.”

“The rest of the C-suite don’t really understand what contribution marketing makes to sales and the growth side of things. CEOs, for example, sometimes don’t understand what CMOs are talking about. There’s a big job to do for marketers. Marketers need to market themselves a bit more.

“They have to align with goals. And our goals are growth, revenue growth. The days of presenting flowery brand ads with no demonstrable return or no demonstrable business outcome as a result are gone or going. Agencies really do need to align to what’s keeping us up at night.

“Marketing is becoming less of a popular career, and certainly advertising is globally. I think we lost 5,000 jobs in the US last year in the media industry alone. We’ve got to make it an attractive career again and nurture those young people coming on board.

“All the signs are there that the industry needs to have a deep think about where it’s going, and what it wants to do. We need to reinvent ourselves, and become relevant and trusted again.”

Ben Carter, the managing director in Australia of online food delivery platform Menulog, says agencies remain an important part of the group’s marketing brains trust in providing key strategic input and effective execution of activity.

Carter, who joined Menulog’s parent, Just Eat Group, in January 2016 as UK marketing director, appointed UM as agency. UM Australia was earlier this year appointed to the $10 million media account.

“I can only speak for the Menulog business but we are in a highly competitive, ever-expanding market and have aggressive growth plans,” says Carter. “Our budgets reflect the market and our strategy for success accordingly.”

Menulog invests in a range of mass media and targeted channels including TV, out of home, radio, online video, digital, social, CRM, PR and events.

“The channel mix is continually optimised to ensure we can continue to drive ongoing growth,” he says.

“We want to ensure Menulog is part of the social conversation so we will continue to invest in brand building channels whilst driving performance through highly targeted channels and frameworks.

“One of the unique dynamics in our industry is the opportunity to grow and scale the business at a national mass market level, whilst maintaining a hyper local approach in everything we do.

“Marketplace businesses are always striving for scale but at the same time our customers only care about the restaurants in their area that are available and relevant to them at any given time. This interesting dynamic presents a lot of opportunities for a more personalised approach for our customers, as well as opportunities with our restaurant partners to grow their businesses at a local community level.”

Sascha Hunt, head of marketing at Aussie Home Loans, thinks most marketing budgets are flat at the moment.

“If you have the right media strategy and you have the relevant messaging, how you use that is moreimportant than the dollars associated with it,” she says.

“It’s becoming a smarter market. It used to be about spending big and who’s screaming the loudest. I think we’re shifting from this to more sophisticated ways of attracting and engaging with consumers and there’s a whole raft of media that is available.

“I think the key thing that matters at the moment is relevance. The days of blasting marketing campaigns to all medium channels everywhere are slowly drifting away.

“There’s a lot of messages out there for consumers, whether it be from a marketing standpoint or just a general interest. So, you’ve got to be really relevant and pick the right media and messaging mix.”

Carmen Bekker, partner, KPMG Customer Brand and Marketing Advisory, says it’s about strategic value to the business rather than the size of budget.

“The role of the CMO is more important than ever and therefore budgets are being extended far beyond where they were, moving into technology, regulation, data science,” she says.

“Some are in-sourcing more, some are outsourcing more and some are leaning on shared functions to provide a holistic customer focused experience. They key is the value a CMO derives relative to the budget rather than the budget itself.”

Advertising agencies have and will continue to play an important role in the marketing and customer ecosystem, she says.

“They are especially important to the role of the CMO in delivering the customer and business needs. Agencies that provide a great product, talented people, differentiated service and behave with transparency are very attractive to clients,” she says.

“We are seeing great opportunities for agencies that offer talented, flexible, blended client and agency teams and are willing to provide seamless integration into client systems.

“Agencies have the perfect opportunity to partner with clients to fulfil that need,” says Bekker. “However, the focus needs to be on improving the link between outcomes, message and channels to sure up future investment.”

John Gutteridge, CEO Australia/NZ at Wunderman Thompson, says marketing budgets have undoubtedly been under pressure but there’s good reason for that and it’s not all doom and gloom.

"We need to consider influencing factors at a more holistic level," he says. "For example, some businesses have experienced a sharp rise in the cost of raw materials. Others have experienced a downgrade in growth from overseas markets such as China.

"At a domestic level, we need to be aware that consumer confidence has just hit a four-year low, with nervous consumers looking for the reason behind for the Reserve Bank Australia’s recent rate cuts (Westpac-Melbourne, Consumer Sentiment 2019)." 

Then consider the necessary investments businesses are making as they look to transform at an enterprise level.

Many have made significant investments in the smarter use of technology and data services.

"Hardly surprising when you consider that data-driven organisations are 23 times more likely to acquire customers, six times more likely to retain customers and 19 times more likely to be profitable (McKinsey, 2018)," says Gutteridge.

"Net-net, we’ve seen a rise in expenditure across the entire business, from uncontrollable external forces to internal necessary actions to ensure a ‘future-ready’ state. Naturally, this puts pressure on marketing budgets."

He says It should come as no surprise that marketers are increasingly investing their budgets online. Australians spend 18% of the year online.

Have something to say on this? Share your views in the comments section below. Or if you have a news story or tip-off, drop us a line at adnews@yaffa.com.au

Sign up to the AdNews newsletter, like us on Facebook or follow us on Twitter for breaking stories and campaigns throughout the day.

Read more about these related brands, agencies and people

comments powered by Disqus