By Kayley Freshman-Caffrey
Marketing professionals are expected to widen their budgets 8.7% in the next 12 months, according to the 2015 “CMO Survey.” Rising consumer spending has prompted companies to expand their marketing budgets to capture the greatest possible portion of an expanding customer base. Furthermore, thanks to the escalating popularity of the internet, the use of digital advertising is skyrocketing. To make the most out of this increased investment and demand, marketing buyers should evaluate their media mixes (the allocation of spending to each type of advertising) to ensure they are purchasing advertising space strategically. Analyzing the markets for different types of advertising can help buyers decide how their media mixes should be composed.
Digital Advertising
Online advertising refers to paid advertising spots provided on websites. For example, advertisers can purchase space to display promotional videos or clickable banners. In 2014, The Chief Marketing Officer Council reported that 63.0% of marketers planned to increase their spending on online advertising during that year. Despite the spike in demand resulting from this trend, buyer power in the market for online advertising has remained strong. In fact, online advertising prices are in a state of steady decline due to influxes of supply caused by the introduction of new websites. Online advertising prices have fallen at an estimated 3.4% per year on average since 2012, and prices are forecast to continue falling through 2018, albeit at a slower annualized rate of 2.2%. So for buyers with tight budgets, online advertising could comprise a significant portion of the media mix.
Another component of digital advertising is search engine marketing services, which helps buyers improve their visibility in search engines, such as Google and Bing. The CMO Council reports that as many as 64.0% of businesses indicated that they plan to increase their investment in these types of services. Because search engine marketing services are more specialized than online advertising, the number of suppliers has not grown as rapidly. Combined with rising demand, vendors have been able to increase prices during the past three years. Fortunately for buyers, the market is characterized by low concentration, meaning that no vendor has a dominant position in the market place and facilitating price competition.
Lastly, social media management has increasingly become a key element of digital advertising. According to the CMO Council, 70.0% of businesses expect to increase their social media management investment. These services involve the oversight of a buyer’s accounts on social media websites, such as Facebook, Twitter and Instagram, enabling companies to interact directly with customers and reinforce brand recognition. These services can be purchased on their own or included as part of a larger package of a digital advertising agency’s services. Bundling digital advertising services from one agency enables buyers to secure discounts and ensures consistency of their image and advertising campaigns across multiple digital advertising channels.
Traditional Advertising
Although expenditure on traditional advertising mediums is shrinking, many traditional advertising mediums are still popular enough to provide value to marketers. For example, media measurement firm Nielsen estimates television reaches 107 million to 125 million people per day. Hence, television advertising is still a reasonable medium for reaching a large audience of viewers, and indicates that buyers should consider including some form of traditional advertising in their media mixes.
The current buying market for TV advertising is neutral. Moderate market concentration and high specialization give suppliers the power to control prices, but a declining number of cable TV subscriptions have tempered price growth. Price growth will continue falling as the popularity of digital videos over TV shows rises, benefiting buyers. In contrast, prices for radio advertising will accelerate because it can utilize digital mediums to remain relevant. High market concentration will underscore price growth by giving radio advertising suppliers more power. Buyers should take the projected pricing disparity between TV advertising and radio advertising into account when purchasing broadcast advertising.
Outdoor advertising is another significant form of traditional advertising: the CMO Council reports that 64.0% of marketers said they would not change their spending on outdoor advertising. According to the Outdoor Advertising Association of America, billboard advertising and transit advertising services are the two most commonly used forms of outdoor advertising. These markets are susceptible to high market concentration because the advertising vehicles (i.e. billboards and transit buses) must be regulated. Therefore, a limited number of companies can provide outdoor advertising, hurting buyers by restricting the pool of suppliers.
Print advertising is the format most in danger of becoming obsolete. According to IBISWorld’s data, print advertising expenditure has declined an estimated annualized 1.3% in the three years to 2015 and is projected to decrease at a similar annualized rate of 1.2% in the three years to 2018. eMarketer asserts that newspaper advertising is the most popular form of print advertising, comprising 8.6% of total ad spend in 2015. Magazine advertising follows closely behind at 7.5%. Both advertising mediums have faced declines in the light of rising digital media, but magazine advertising has better weathered this decrease due to its significant presence online. Newspapers can also publish their content online, but because their information is often spread quickly via social media, the desire of people to pay money for online newspaper content is lower than for online magazine content, where articles are typically specific to the magazine.
Because newspaper advertising has been greatly weakened by the rise of digital media, buyer power in the market for newspaper advertising is strong. Prices for newspaper advertising have been rising minimally due to decelerating demand. Magazine advertising prices, however, have maintained steady growth. Still, even in the market for magazine advertising, buyer power is aided by the availability of substitutes such as TV advertising and online advertising. Furthermore, low market concentration in newspaper and magazine advertising markets boosts buyer power.
The Big Picture
While it’s essential to combine the efforts of various advertising services, it might be too much for a company to handle internally so that’s where integrated advertising services can help. Agencies’ experience in the field helps them secure volume discounts and evaluate the best advertising investments for their clients. Consequently, integrated advertising agencies can be a favorable choice for companies lacking internal marketing departments. Furthermore, it can help buyers improve the synergy of their media mix regardless of their marketing capacity.
When evaluating the entire marketing plan, buyers should include the majority of these advertising types in their media mix, if possible, to leverage the varied benefits and reach the different audiences of each. But when marketing scopes or budgets are more limited, knowing the advantages and disadvantages of each can help buyers make strategic marketing purchases to optimize spend and reach.
For a printable pdf of Making the Most of Your Advertising Budget, click here.
