How mood merchants are bending the ad market

Southern Cross Austereo chief sales officer Brian Gallagher
By Southern Cross Austereo chief sales officer Brian Gallagher | 23 April 2019
 
Brian Gallagher

Since October 2018 media spend, as tracked by SMI, has been softening and there’s a new boogeyman in town as a lead indicator for the advertising market, argues Brian Gallagher. 

What’s influencing the current cooling advertising market? It’s not GDP, nor consumer confidence – those measures are broadly tracking just fine, thank you. It’s business confidence and the vicious cycle of sentiment.

Media executives used to have a rule of thumb for advertising market growth estimates, based on a combination of CPI, GDP and retail growth. Indeed, for many years, TV ad spend tracked closely with the health of the retail market but that index became unreliable as media platforms proliferated and audiences shifted.

But before we get to the new and irrational effect of business confidence on the media sector, let’s set some context.
It’s revenue budgeting time for FY20 and as anyone in the media sector will know, it’s a time of high tension and dark arts as we try to divine what advertisers and their media agencies are planning for the year ahead.

Our finance teams argue market conditions are ripe for advertising growth because the market is cycling over weaker comparatives. The sales team says growth will occur but not to levels that will satisfy finance.

Where’s the disconnect? Is it a case of prudence on behalf of sales (the CFO says sand-bagging) or is there something that finance just isn’t seeing?

Well, it seems like pure sentiment. Let’s call it fear.

Business confidence used to be viewed as the proxy for whether businesses would make the big investment decisions – capex to launch new products or enter new markets, taking on new employees to support the business expansion or M&A activity to grow scale in markets. But business confidence was never about making marketing decisions to support current sales.

It seems today that negative business sentiment is driving strategic business decisions despite a consumer market showing willingness to spend.

Would a business slow down its customer acquisition activities, especially if competitor activity could steal valuable market share, just because of perceived concern about the impact of a future government, which is one of the key reasons being touted for the current slide in confidence in the business community? None of that makes sense while consumers continue to spend. What about protecting market share and growing revenue now?

I went looking for data that could explain what was behind the ‘lemming like’ behavior in the ad market right now.

On a macro level, our experience and evidence demonstrates that advertising will drive sales. We see in retail markets that there is a clear correlation.

Retail trade

Retail sales are resilient and holding up better than anticipated - certainly delivering a market worthy of investment to gain market share.

But consumer confidence doesn’t seem to be a proxy for advertising performance. While consumer confidence has been broadly in the positive, ad revenues declined during the period. The old ready reckoner of retail sales performance hasn’t been a yardstick for ad performance of late either.

The only metrics that stack up, as we can see from the chart above, is that ad spend equals improved sales growth.

But as the chart below shows, there is a direct link between business confidence and advertising.

Adspend business confidence

It’s not a growth-orientated business strategy in the slightest but it looks pretty real.

Sadly, media has a bit to answer for here. Negativity seems to be an editorial prerequisite in news coverage. Negativity drives clicks which supposedly drives ad revenue. If the negativity seems to be putting advertisers off it really doesn’t matter how many clicks you’re getting.

So we have a big conversation to have as an industry and with brand owners. Ironically, it’s not a new one. When competitors are silent, it’s the right time to drive market share for a brand. When you aggressively grow share of voice in media, you invite share of market to follow.

Buying market share has never looked like a better proposition than it is right now.

Ad markets today are dominated by marketers taking share off their competition. Even if business sentiment screams the opposite, it’s time to challenge current convention. There is business growth still in the wings, whatever the mood merchants might believe.

comments powered by Disqus