What s the payoff? For companies that take the opportunity to transform media spending management, the impacts can be compelling:

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1 November 2010 r&c worlds express It s a new world for global advertisers Why leading advertisers are realigning business models governing media spending Highlights The media landscape is undergoing a sea change, as a new digital consumer emerges, media expenditures gradually shift from developed to developing countries, and new platforms change the way advertising is purchased and consumed. At the same time, the drive for advertisers to improve bottom-line performance and harness the power of their advertising dollars has never been more critical as during these hard economic times. Yet media planning is often executed locally across many markets, and few companies have the systems and procedures in place to effectively track global media spending and measure results let alone be able to quickly react to marketplace changes as they occur. For global advertisers, the time is now to realign business models governing media spending or risk letting external forces shape them. Seismic shifts occurring Traditionally, media planning and buying have been handled in a fragmented manner at the local level, making for widely varying media processes, large numbers of agencies and suppliers, varied reporting systems, and lack of integration with other business processes. Varied metrics and practices used by a cast of third parties complicate the situation. While over the past few decades companies have gradually reengineered many business processes finance, IT, supply chain, and so on marketing has tended to be viewed as a sacred cow. Standardized media planning processes and roles are frequently absent from the marketing organization in global companies and their supporting agencies. But change is coming. What s the payoff? For companies that take the opportunity to transform media spending management, the impacts can be compelling: Media buying management becomes a source of competitive advantage. Every placement is used for delivering the highest return across brands, markets, and media platforms. The cost of media drops. Global consumers are reached in the most efficient and effective way possible. Connectivity with brands and consumers increases. Internet, wired and mobile advertising is growing fast at the expense of traditional broadcast and local television advertising. The economic downturn has forced media planning organizations to do more with less. Traditional media planning is often ineffective in keeping up with new technologies, new advertising vehicles, and fast-changing media consumption habits. Agency integration with advertisers and among agencies is becoming a must have.

2 In brief Trends in global media spending 1 Internet and television will be the fastest-growing segments over the next five years, except for the small video game advertising market, which will grow by almost 13%. The Internet will overtake newspapers in 2012 to become the second-largest advertising category. For the next five years, overall global advertising expenditures will register compound annual growth of 4.2%, taking them to $498 billion in While North America will remain the largest regional advertising market, the other regions will all grow faster than North America. In the US, Hispanic-targeted advertising will grow faster than any other demographic. The relatively small Latin American market will be the fastest-growing region; Brazil will remain the leading advertising market within it. 1 PwC s Global Entertainment and Media Outlook, (10th edition). 2

3 New business models governing media spending When the economic downturn hit, many advertisers found themselves having to make the most dramatic media cuts in decades, and they were left trying to hit tougher metrics with fewer dollars. But isolating the least effective 25% across a host of brands, territories, and suppliers proved very difficult. At the same time, the changing behavior patterns of new, digital consumers started having a profound effect on advertisers. Advertising growth is now shifting away from traditional media outlets such as television and radio and toward Internet advertising, cellular phone ads, digital billboards, social media networking sites, action advertising, and the like. The chart below shows PwC s forecast for significant growth in digital advertising spending from 2008 to For advertisers, digital options can offer significant benefits because they reach the younger demographics that advertisers value. In addition, impacts are more easily and precisely measured than they are with more traditional media. Along with all of these forces, corporate procurement functions are now getting involved in media purchasing which, after all, is a big ticket item, equivalent to 4-5% of revenue. As procurement staff have gotten involved, they ve begun asking questions like, How do we know we re getting value? and looking for ways to more effectively gauge results. This is helping spur a push for more analytics and better ways to measure the complex media buying process. Digital versus nondigital spend, 2008 Digital versus nondigital spend, % 31% 79% 69% Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates Digital Nondigital 3

4 Buying media inventory or negotiating media rates globally whenever possible can potentially offer huge savings.

5 What are leading companies doing? Global advertisers have an extraordinary opportunity now to take a critical look at business models governing media planning and spending and realign them either step by step or by focusing the entire enterprise on transformational change. In our view, few global advertisers are very far down this path, but most are recognizing the need for fundamental shifts in thinking, and those that adapt now will have a great opportunity to improve competitive advantage. Leading companies are beginning to act. Here are some of the types of changes they re undertaking: Redesigning and simplifying their end-toend processes both internally and at their agencies to incorporate best practices and embrace the shift to digital/mobile platforms. Investing in new, standardized global media planning systems. One unified planning system can track spending by market and brand and thereby allow agile shifts to those markets and brands providing the highest returns. Taking advantage of the benefits of new methods of measuring media effectiveness. The cost and resource requirements for conducting media analysis have come down, so the benefits of conducting media effectiveness analysis have improved. Consolidating media buys in a big way. Buying media inventory or negotiating media rates globally whenever possible can potentially offer huge savings. Some of the companies that have the sophisticated planning systems to forecast their needs are aggregating a year s worth of buys into one or a few buys. Since the top media conglomerates account for a large percentage of total media sold, aggregating media buys across types of media with conglomerates just makes sense as a way to leverage lower costs. Carrying this a step further, two major consumer packaged goods companies not long ago created an alliance to act as one company for media (and other) purchases thereby hoping to leverage their joint buying power to get better rates. Coordinating media spending and trade promotion spending. These are often separate departments in large global businesses. If a company can compare ROI between media spending and end-aisle promotions, it can choose a better mix of marketing vehicles. 5

6 Future shock: The advertising landscape in 2013 The message is the message In his 1964 landmark work Understanding Media, cultural critic Marshall McLuhan famously wrote, The medium is the message. But in 2010 the medium has become secondary to the message. Consumers want more control over where, when, and how they view their content, whether it s delivered by a television, laptop, phone, e-reader, ipad, Blackberry playbook, or netbook. These technologies bring the message and the desired action closer and closer together in terms of time and location. Companies that want to better manage their global media spend need to think now about how the increasing irrelevance of the medium can affect their advertising planning and budgeting. Three years from now, digital innovation and consumer demand for choice will be only more widespread. New ad-funded revenue models will inevitably emerge as companies vie to tell their brand stories in ways that can capitalize on evolving consumption habits. Every brand has a story and more options to tell it A look at PwC s projections for Internet and television advertising growth from 2008 to 2013 shows how the fragmentation of consumer media habits will affect advertising spend. Our research projects that total global Internet advertising will grow at a 6.4% compound annual rate during this period, from $3.9 billion in 2008 to $26.3 billion in Mobile advertising will grow even faster, at 15.3% over the same period. 2 Internet advertising market growth (%) North America CAGR Wired Internet advertising Mobile advertising Total Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates 6 2 PwC s Global Entertainment and Media Outlook, (10th edition).

7 By contrast, broadcast and local television advertising market growth in the United States the world s biggest television ad market will decline by 2.3% from 2008 to Does this dynamic portend the death of the 30-second advertising spot? Not likely, but it does mean that organizations in the future must be more agile and flexible in their ability to shift dollars from one advertising platform to another. Ten years ago, no one could have predicted the dramatic decline in newspaper classified ad sales, and it will likely be just as difficult to forecast the next disruptive technology that affects how consumers view advertising. It s time to take action Fortunately, corporate executives involved in allocating advertising dollars don t have to divine that next consumer-oriented, game-changing technology: They just have to recognize that it s coming and act now to redesign their media buying operating model to be as agile as it can be. Fortunately, corporate executives involved in allocating advertising dollars don t have to divine that next consumer-oriented, game-changing technology: They just have to recognize that it s coming. 7

8 Resources Editorial team John Maxwell Global Retail & Consumer Leader Denis Smith Senior Manager, Retail & Consumer Global Accounts For more information on managing media spend, please contact: Russell Sapienza Advisory Partner David Moss Advisory Director Mike Brewster Director, Retail & Consumer Global Accounts PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 161,000 people in 154 countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice. See for more information. PwC is the brand under which member firms of PricewaterhouseCoopers International Limited (PwCIL) operate and provide services. Together, these firms form the PwC network PwC. All rights reserved. This document is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. Not for further distribution without the permission of PwC. PwC refers to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm s professional judgment or bind another member firm or PwCIL in any way. NY