Game-changing forces and the global advertising industry Peter Cardwell This case is centred on the global advertising i

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Game-changing forces and the global advertising industry Peter Cardwell This case is centred on the global advertising industry which faces significant strategic game-changing forces driven by technological innovation, the rise of consumer spending in developing economies changes in consumer media consumption and pressures from major advertisers for results-based compensation in the second decade of the new millennium, advertising agendes faced a number of unanticipated challenges Traditional markets and Industry operating methods, developed largely in North America and Western Europe following the rise of consumer spending power in the twentieth century, were being radically reappraised. Google Ads Overview Click Through Rate & Impressions by Clicks, CTR and impressions 0.0 0.0% 0.0 Source: PateMerShuttenp The Industry was subject to game-changing forces from the so-called "digital revolution' with the entry of search companies like Google, Facebook and Amazon as rivals for advertising budgets on mobile devices. Changing patterns in global consumer markets impacted on both industry dynamics and structure. Budgets being spent through traditional advertising agencies were being squeezed as industry rivalry intensified with the entry of specialist consultancies Overview Traditionally, the business objective of advertising agen cles is to target a specific audience on behalf of clients with a message that encourages them to try a product or service and ultimately purchase it. This is done largely through the concept of a brand being communicated via media channels. Brands allow consumers to differen tiate between products and services and it is the job of the advertising agency to position the brand so that it is associated with functions and attributes which are valued by target consumers. These brands may be consumer brands (eg. Procter & Gamble, Samsung, Nestle) or business-to-business (828) brands (eg M, Airbus indus tre and UPS). Some brands target both consumers and businesses (eg. Microsoft and Apple) As well as private-sector brand companies, govern- ments spend heavily to advertise public-sector services such as healthcare and education or to influence Indi vidual behaviour (such as "Don't drink and drive). For example, the UK government had an advertising budget of E300m (€335m) in the late-2010s Chanties, political groups, religious groups and other not-for-profit organ- isations also use the advertising industry to attract funds Into their organisation or to raise awareness of issues. Together these account for approximately 3 per cent of advertising spend Advertisements are usually placed in selected media (TV, press, radio, mobile and desktop internet, etc.) by an advertising agency acting on behalf of the client brand company, thus they are acting as agents. The client company employs the advertising agency to use its know- ledge, skills, creativity and experience to create advert. ising and marketing to drive consumption of the client's brands Clients traditionally have been charged according to the time spent on creating the advertisements plus a commission based on the media and services bought on behalf of clients. However, in recent years, larger advert isers such as Coca-Cola, Procter & Gamble and Unilever have been moving away from this compensation model to a 'value' or results-based model based on a number of metrics, including growth in sales and market share. Ad industry growth Money spent on advertising has increased dramatic- ally over the past two decades and in 2018 was over $205billion (176bn, £158bn) in the USA and $583 billion worldwide. While there might be a decline in recessionary years, it is predicted that spending on advertising will exceed $787 billion globally by 2022 The Industry is shifting its focus as emerging markets drive revenues from geographic sectors that would not
Table 1 Global advertising expenditure by region (USS million, at 2017 average rates) 2014 2015 2016 2017 2018 (estimatel 169,277 N America 175,024 183,075 196,099 191,130 119,531 114,712 WEurope 111,300 128,035 124,790 Asia Pacific 122,000 130711 137,639 145,695 149,483 C&E Europe 32,284 35514 36,691 37,305 38,275 Latin America 34,082 36,836 38,530 39,226 42,315 Africa/ME/ROW 25,941 28,044 28,608 29,352 World 404.884 520,841 544,800 566,754 583,500 Source ZenithModa, statista December for nearly 50 per cent of the measured global advertising economy. have been significant 5 to 10 years ago, such as the BRICS countries and the Middle East and North Africa. This shift has seen the emergence of agencies spectalising in blamic marketing, characterised by a strong ethical responsibility to consumers. Future trends indicate the strong emer- gence of consumer brands in areas of the world where sophisticated consumers with brand awareness are currently in the minority (see Table 1). Despite the increase in worldwide advertising revenues, the holding companies that own the world's largest adver tising groups: WPP, Publich, Omnicom and interpublic Group (see Table 2) are under intense pressure in a changing business environment to deliver shareholder value Intensifying competition In terms of Industry sectors, three of the top 10 global advertisers are car manufacturers. However, the two major fmcg (fast-moving consumer goods) producers Procter & Gamble and Nestle are in the three top spots for global advertising spend. Healthcare and beauty (L'Oréal) consumer electronics (Samsung), fast food, beverage and confectionery manufacturers are all featured in the top 20 global advertisers. The top 100 advertisers account Advertising agencies come in all sizes and include every- thing from one or two-person boutique operations (which rely mostly on freelance outsourced talent to perform most functions), small- to medium-sized agen- des, large independents to multinational, multi-agency conglomerates employing over 200,000 people. The Table 2 Top five multi-agency conglomerates: 2017, by revenue, profit before interest and tax, number of employees and agency brands Group name Revenue PRIT Employees Advertising agency brands 1. WPP (UK) (15.2bn £2.16bn 200,000 GroupM, WT, Grey, Ogilvy, Y&R 2.Omnicom (US) $15.4bn $2.059b 76,000 8800,008, TBWA €10.8bn €1.51bm 79,000 3. Publicis Groupe (France) Leo Burnett, Saatchi & Saatchi, Publicis, BBH 4. IPG (US) 57.88bn $973 49,700 McCann Erickson, FCR, MullenLowe Group 5. Dentsu (Japan) $7.2bn $938m 47,324 Aegis, Carat, Dentu Media, Prospect, Isobar Sauce Www.Omnicom Public Groupe IPG. Dents
Industry has gone through a period of increasing concen tration through acquisitions, thereby creating multi- agency conglomerates such as those listed in Table 2. While these conglomerates are headquartered in London, New York, Parts and Tokyo, they operate globally. differentiate themselves by offering a mix of web design/ development, search engine marketing, Internet advert hang/marketing, or e-business/e-commerce consulting, They are classified as "agencies' because they create digital media campaigns and implement media purchases of ads on behalf of clients on social networking and community sites such as YouTube, Facebook, Instagram, Flickr and other digital media. Large multi-agency conglomerates compete on the basis of the quality of their creative output (as indicated by Industry awards), the ability to buy media more cost- effectively, market knowledge, global reach and increas ingly range of digital services some agency groups have Integrated vertically into higher-margin marketing services. Omnicom, through its Diversified Agency Services, has acquired printing services and telemar- keting/customer care companies. Other agency groups have vertically integrated to lesser or greater degrees The rise of mobile and the digital duopoly Mid-sized and smaller boutique advertising agen des compete by delivering value-added services through In-depth knowledge of specific market sectors, special- ised services such as digital and by building a reputation for Innovative and ground-breaking creative advertising/ marketing campaigns. However, they might be more reliant on outsourced creative suppliers than larger agencies Search companies, such as Google, Bing and Yahoo and social network Facebook, exploit their ability to interact with and gain Information about millions of potential consumers of branded products Facebook and Google have effectively become a 'digital duopoly to the extent that they represent almost 60 per cent of the global digital mobile ad market, according to eMarketer, the research group Many small spedalst agencies are founded by former employees of large agencies in turn, smaller specialist agencies are often acquired by the large multi-agency conglomerates in order to acquire specific capabilities to target new sectors or markets or provide additional services to existing clients. Digital search and mobile advertising budgets are increasing faster than other traditional advertising media as search companies like Google and Facebook generate revenues from paid search as advertisers discover that targeted ads on mobile and desktop are highly effective (see Table 3). By 2017, Google had a 66 per cent market share of the $81.6bn spent on online search advertising globally, with Facebook also increasing its share With the development of the Internet and online search advertising, a new breed of interactive digital media agencies established themselves. These agencies Sir Martin Sorrell, the former CEO of WPP the world's largest multi-service agency group, pointed out that Google is a rival for the service relationships with WPP's clients. WPP group spent more than 56bn of its clients Table 3 Global advertising expenditure by medium (USS million, at 2016 average rates) 2013 2014 2015 2016 2017 Newspapers 93,019 92,300 91,908 90,070 88,268 Magazines 42,644 42,372 42,300 40,185 39,391 Television 191,198 202,380 213,878 210,670 210,459 Radio 32,580 33,815 35,054 34,457 34,130 Cinema 2,393 2,538 2,681 2,767 2,850 Outdoor 30,945 32,821 34,554 36,143 36,324 Internet-Mobile and 70,518 80,672 91,516 130,019 156,543 Desktop Total 463.387 486,908 511,891 544,401 567,965 Now The totals in Table 3 are lower than in Table 1, unce that table Indudes adverthing expenditure for a few countries where I not tamed by adverting medium Sources Media Marketer, Santa February 2018
Table 4 US mobile ad spending 2015-2019 2017 2018 (mamarel Mobile ad spending (US$hn) 28.72 40.50 57.78 65.87 50.00% 41.00% 23.00% 16.00% 14.00% % change 49.00% 66.60% 60.40% % of digital ad spending 67.70% 72.20% 15.30% 20.40% 23.90% 26.30% 28.60% % of total media ad spending SureMarket.com ad budgets with Google in 2017 and $2.1bn with Face book Sorrell called Google a frenemy-the combin ation of friend' and 'enemy. Google is a friend where it allows WPP to place targeted advertising based on Google analytics and an enemy' where It does not share these analytics with the agency and becomes a potential competitor for the customer insight and advertising trad itionally created by WPP analytics and artificial intelligence are seen to be becoming more important than creativity which trad- itional advertising agencies have relied upon as a diffor. entrator. This is enabling them to offer a range of services to the major marketing companies that compete directly with traditional advertising agencies. The disruptive change in the advertising industry at the beginning of the twenty-first century started with the internet. The convergence of internet, TV, smartphones, tablets and laptop computers has had a major impact on the advertising Industry. Mobile ad spending on sites such as YouTube, Pinterest and Twitter continues to Increase at the expense of desktop, taking a bigger share of marketers budgets. The shift to mobile ad spending is being driven mainly by consumer demand and is predicted to be over 28 per cent of total media ad spending in the US which is why Google has made acquisitions in this sector (see Table 4). Factors that have driven competitive advantage to date may not be relevant in the future. Traditionally the advert- tsing Industry has embodied the idea of creativity as the vital differentiator between the best and the mediocre- and individuals have often been at the heart of this creativity. The emergence of data analytics, programmatic advertising and the use of artificial intelligence algorithms are disruptive to business as usual' in the industry. A key question is whether creativity will be important in the future, in relation to breadth of services, global reach and data analys Entry of 'big data' technology consultancies Source ZenithMedia, Advertising Age, Stamta, estariatet February 2018. The analysis of big data' is playing an increasingly Important role in helping to create targeted and person- alised advertising campaigns for the world's major marketers. Consultancies, such as Accenture interactive and IBMIX, as well as the large accountancy firms PwC Digital Services and Deloitte Digital, all with global reach, are now competing for a share of the advertising market by acquiring creative agencies to add to their big data" digital services and have now entered the top 10 agendes ranked on the basis of turnover Questions 1 Carry out a five forces analysis of the advertising Industry. What are the strengths of the five forces and what underlying factors drive them? What is the industry attractiveness? Their services include programmatic advertising and the use of artificial intelligence algorithms that analyse consumer behaviour allowing for real-time campaign 2 What strategic group dimensions and strategic optimisations towards an audience more likely to convert to the advertiser's product or service, which is a major innovation, the impact of which is still being assessed. groups can you identify? What are the differences between them? 3 which PESTEL factors are driving changes in the Industry? Which factors are becoming more negative or positive for the major advertising agencies? This has led some industry experts to observe that "Madmen' now need to become 'Mathsmen', as data 2015 2016 2019