 |
 |
|
|
|
 Archives |
NewsletterTell Me Now Review, Issue 5, June 2003Welcome to the fifth issue of the Tell Me Now Review. In this issue, we take a look at trends in marketing and advertising. This includes the effect of greater corporate accountability and return on investment on marketing budgets and the increasing involvement of the CEO in decision making and the use of external consultants in marketing. The following questions were asked;
We have undertaken both primary and secondary research to answer the questions and hope that our findings will be of interest and value to you and your organisation. At the end of the Review you will a rich digest of links to recent articles and other resources for further reading. Remember, Tell Me Now is the leading online research and business information firm specialising in answering research questions you can’t – or simply don’t have time to – find for yourself. We look forward to working with you again soon. Happy reading! Changes in corporate marketing and advertising: the flow-on effect of greater corporate accountability Contents
Introduction Marketing departments are now under even greater pressure to reduce their spending and to be accountable to their boards. In the past two years many segments of the marketing industry have been affected by big declines in advertising budgets. At the same time, new media and the use of emerging technologies are having an impact on traditional forms of advertising and marketing. The development of innovative and creative marketing strategies is making this industry more responsive to client and consumer demands. As cost efficiencies and return on investment (ROI) are a primary focus for organisations these days, measurement of results and achieving value for the organisation are critical. Striking a balance between increasing sales and brand building is a challenge, since each are equally important. 1. Trends in Marketing Businesses There is a continuing trend among multinationals to centralise marketing which has reduced the control and authority of marketers locally, with head offices dictating spending cuts in line with worldwide objectives. This applies in particular to the IT companies in Australia. US companies thought that brand identities were being compromised, so decisions on sales and marketing were taken back by the company's head office and contracts were signed with worldwide agencies. Accountability is key at companies like Dell which runs a marketing campaign based almost entirely on direct-response techniques, rather than on brand development. However, Dell's marketing manager, Rob Small, says the visible advertising undertaken by Dell represents only 12% of the company's business. The rest is based on either catalogue marketing or one-to-one direct marketing. There is also a growth in companies which offer independent brand consulting, especially since branding is now recognised as being critical to the continued success of many organizations. Well managed brands create significant value, generating on average a total return of 2% above the average for shareholders. Brand companies such as Enterprise IG Australia, Differ, Landor or Interbrand compete with management consultants such as The Boston Consulting Group and McKinsey & Co and with advertising agencies. Advertising agencies have lost some of the power to manage brands and are finding new ways to compete. Growth Solutions Group (GSG), a marketing and strategy consulting firm is positioning itself between the management consulting firms and traditional advertising agencies. They aim to combine the application of market and business analysis with the brand positioning and creative communications expertise which advertising and market research firms have had a monopoly on. Specialist media companies such as Bellamy Hayden and Fusion Media are offering a service around strategy and planning, rather than buying media services. The focus is on how clients can connect with customers and media planning has emerged as a creative activity in its own right, reflecting the trend to a diverse range of media channels. A UK company, Red Spider recently opened for business in Sydney. It specialises in brand strategy, positioning and communication. They see themselves as the bridge between those that offer advertising and marketing strategies and the creative advertising plans. They advise companies on what to do with their secondary brands – in a local market, they can be turned into niche brands, requiring little advertising support. Diversified marketing groups such as Photon which aim to acquire stakes in niche marketing companies want to invest in marketing services companies including research, direct marketing and profitable new media companies in areas such as SMS marketing and email marketing. The media planning and buying industry is overcrowded, thanks to the arrival in Australia of foreign companies such as Zenith Media, Optimedia, MediaCom and Universal in the late 1990s. Intense competition for clients and staff, plus a depressed advertising market over the past two years, have created a buyer's market and put intense pressure on media planning and buying companies' already thin profit margins. These companies will only survive if they offer value-added services. Starcom Australia has found that it is more and more involved in strategic advice, research and consulting. In 2002 the company conducted a substantial number of research focus groups for a client, work that in the past would have been handled by a research company. Buying, that is, securing the best possible price for their clients is still as important as strategy and planning. 2. Marketing relationships and decision-making at the organisational level There is a change happening in the decision making process of corporates with regards to their marketing budgets. This is seen by the fact that advertising groups such as Saatchi Australia aim to work more closely with the chief executives of its clients – clients include Toyota, David Jones, Procter & Gamble, Lion Nathan, Fox Sports and PricewaterhouseCoopers. This is based on the view that agencies have to better engage their clients and understand all aspects of their business, not just advertising. Securer relationships with clients should follow. In large organizations, the marketing director or department head will usually sign off on marketing expenditure, which will be part of an overall budget agreed to by the CEO. Eg Telstra launched a brand campaign in October 2002 – its first in more than two years. It splits its marketing campaigns into three levels – level one is for primary branding, level two is for products and services, level three is for technical issues. Ted Pretty, the Retail Group’s MD had the last say on the look of the campaign, after it had been signed off by the Chief of Marketing, Holly Kramer. Christy Boyce, a principal of McKinsey & Company says that in the current climate, companies are not so willing to take risks with creative marketing strategies, and are more inward looking. Many companies see marketing as an expense, not an investment. There is a greater focus on where dollars are spent, what brands should receive marketing support, and what brands and marketing activities are delivering profitability. The focus on measurement means that the strategies which have been employed by marketers will have to change and become more innovative if they don’t deliver sales or market share growth for companies. The boundaries between marketing and finance departments are becoming less distinct as marketing departments work to demonstrate the effectiveness of their branding and marketing strategies and their contribution to long term return on investment (ROI). Some companies now have brand finance specialists who are attached to traditional marketing groups. The involvement of management consulting firms in marketing strategy work might entail developing positioning strategies for new brands, evaluating opportunities in new markets, setting prices for products or helping clients get the greatest return on their marketing spending as they find new and innovative ways to communicate with their customers. 3. Procurement and Marketing - the handling of advertising and marketing contracts A flurry of big advertising account moves this year has highlighted the tough state of the marketing industry and the relentless search by companies for ways to cut their marketing expenditure. Marketers in organizations are under pressure to differentiate their products and services in increasingly cluttered industries, and to find ways to reduce their marketing costs. The growing use of procurement executives in recent advertising account reviews by Westpac and SingTel Optus has generated controversy in the advertising industry, with some agencies claiming it proves clients are more interested in cutting costs than producing effective advertising. In the recent review of the Singtel Optus account, the advertising agencies pitched to a panel of executives including marketing and procurement staff. Day-to-day contact between the agencies and the company had to be done through the procurement division. Some advertising agencies say they will find other ways to win back some of the margin they are forced to give up when contracts are arranged with those responsible for procurement in the organization. At Telstra the procurement department handles all new business contracts and coordinates advertising pitches. An opposing view comes from M&C Saatchi which has won the advertising accounts for Westpac and Optus and sees it as natural for procurement departments to get involved in account reviews. Their involvement leads to more robust contracts and should be embraced by the industry. Having the organisation’s procurement group involved in commercial negotiations for advertising services ensures a competitive bid. Price is not the only driver – it is important, but more important is the value to the client. The director of corporate marketing at Optus says that procurement's role was to facilitate the review process and that the decision was made by senior management and was signed off by the chief executive, Chris Anderson. 4. Developments in Marketing Marketing efforts tend to be divided into "above the line" spending on mainstream media advertising and "below the line" strategies involving direct contact with potential customers. As consumers have changed radically over the past decade one of the side effects of the increasing use of very sophisticated ‘below-the line’ direct marketing is to encourage consumers to change their buying behaviour. One of the consequences of this change is that corporate clients are reducing their ad spend while reaching out to their markets through varied marketing strategies eg Kimberley-Clark, using a London-based group Relationship Marketing International developed a loyalty marketing program aimed at first-time mothers. The company still spends millions on traditional advertising in mainstream media advertising (newspapers and magazines, radio, TV and billboards) but this direct part of its marketing strategy is not so much about promoting its nappy brand, as offering a little practical -- but branded -- help. With the increased emphasis on research and direct mail rather than on traditional advertising, there is a demand for measuring the success and effectiveness of marketing. The channels of direct marketing and the internet make measurement easier. Also companies and governments are spending much more on lower-profile marketing activities. These lower profile marketing and communications area includes investment in public relations, sponsorship, event marketing, packaging, point-of-sale materials, street marketing, staff communications, brand strategy development, catalogues, direct mail, call centres and database marketing (known as customer relationship management, or CRM). Direct mail is considered the most effective medium, followed by research, PR, events, point-of-sale, telemarketing and relationship marketing. Print advertising is the most effective mainstream medium and is responsible for 25% of expenditure on marketing, though this share is declining and is expected to be 20% in 2005. The internet is the fastest growing area of marketing spending. Corporate websites will grow from 4.6% to 7% of budgets from 2002 to 2005. That direct mail is considered the most effective medium and that the internet is the fastest growing area of marketing reflects the fact that quantitative measures are the key to achieving accountability and responsibility in the management of marketing budgets. Direct marketing and the internet are more measurable than traditional forms of advertising. Advertising conglomerate WPP is placing more emphasis on research and direct mail than on mainstream advertising and Telstra now spends an equal amount on above and below-the-line marketing. It has been giving greater priority to direct marketing, dedicating a larger proportion of its marketing budget to mail outs and telemarketing. Online advertising is a strongly performing media sector. An audited report for the industry has estimated that $167m was spent in 2002. Email marketing is becoming a well used communication channel with mobile messaging and interactive TV developing as the technologies become more sophisticated. As the use of these technologies develops, so do the means by which marketers can target their customers. They are able to be more precise and develop one-to-one marketing efforts which can be better measured for effectiveness. Steve Allen, Fusion Media has expressed a view that the growth and effect of direct marketing may be overstated. Mainstream media can be as cost-efficient and effective as direct marketing in generating measurable responses. 5. Ad Spend in Australia There was a downturn in advertising expenditure in 2002, falling by 2 per cent, with it forecast to rise by a modest 4 per cent. Media agency Starcom Australia predicted the advertising market would grow 4.9 per cent in 2003 in its annual Media Futures report. The Iraq war and continuing economic uncertainties probably mean that it will be 2004 before there is a real global recovery. In 2002 major media expenditure totalled $8.6 billion in Australia, up 2.8 per cent from the previous year. For mass media advertising some of the downturn is thought to be structural. Figures compiled by the marketing and media industry research group, Commercial Economic Advisory Service of Australia, show mainstream media advertising budgets increased from $6.7 billion in 1995 to $8.4 billion in 2001, while specialist non-media communications rocketed from $5.5 billion to $16.5 billion over the same period. The differences in expenditure may not be so wide when it is realised that CEASA’s figures include $9 billion allocated to call-centre management. The average marketing budget for 2003 for a large organization is $6.71 million, for medium companies $2.67 million and for small companies $945,000. Like other sectors, the big banks have cut their spending on advertising while concentrating on direct marketing. Five years ago, the Commonwealth Bank spent about 80 per cent of its marketing budget on advertising. Now it spends half that. The downturn in advertising expenditure means companies will need to explore options for alternative revenue streams. Some like Starcom are expanding their research capability. At Carat Australia, chief executive Richard Halmarick is planning to expand the company's specialist divisions such as consumer research and interactive marketing to generate growth. 6. Some facts from the Advertising Federation of Australia The advertising industry is highly fragmented – there are 943 advertising agencies operating in Australia, employing a total of 10,283 people. Just on 839 of these agencies are classified as small businesses (employing less than 20 people) and those agencies employ 3,907 people which is 38 per cent of the total industry workforce. ArticlesAd agency creates new group with PR Sydney Morning Herald
April 17 2003
|
|
Privacy Statement ©2002 Tell Me Now Site Map |
 |
 |
 |
