Ad load will move up the agenda: my effectiveness trends for 2023
Opinion: Strategy Leaders
Ad load, new planning methods, and addressable media will be ones to watch next year, writes the7stars’ head of analytics.
After a year like 2022, what sane individual would still make predictions for the year ahead?
There is no doubt that we are heading into another year of uncertainty and surprise. The aftershocks of two years in lockdown will continue to ripple through the economy in unexpected ways; compounded now by war and geopolitical tension. The power plays of the big tech companies, privacy legislation, and a new interest rate environment will continue to disrupt the media ecosystem too.
Amid that disruption — three trends are likely to achieve prominence in the year ahead.
Ad load will move up the agenda throughout 2023
2022 saw significant growth in the ad products available to brands and their agencies. The rise of retail media was the trend of 2022, with Amazon (revenue) and TikTok (reach) the media winners, and Netflix & Disney the ones to watch.
Each business will face challenges of ad load in 2023.
Google and Facebook are case studies in how to successfully grow ad load over time. Through the 2010s they cautiously increased ad load on their platforms — gradually adjusting customers’ expectations of their product experience over many years.
However, the pace of retail media penetration (the number of platforms with propositions) and ad load (volume of search real estate that’s biddable) this year has been stunning. As retailers understandably race to buffer their margin on ecommerce sales post lockdowns, they must be mindful of balancing revenue growth with customer’s expectations of the product experience.
A recent Vox article explored the scale of the ad load on Amazon in depth. It’s clear that meritocratic results ranking based on reviews and returns are a thing of the past and that merchants are now dependent on paid ads for sales. Although at odds with its heritage of customer centricity, this is not a difficult strategy to rationalise. Amazon now lags only Alphabet and Meta for share of digital ad spend and its Advertising unit represents its second biggest growth engine after AWS.
It’s possible that search ads on Amazon could be hitting saturation already, and in 2023 I expect ad load will begin to conflict with customer trust and cause Amazon to focus growth efforts on data licensing and video ads.
TikTok and Netflix face the same challenge from the opposite end of the spectrum. Their share of the attention economy is the envy of the media world but it’s likely both will face pressure to increase their ad load meaningfully in 2023. Both businesses have been unusually cautious to date. TikTok have persevered with skippable formats and low ad load even as time spent on platform begins to challenge Meta and YouTube. And ad load on Netflix’s new ad tier remains small, with penetration of the product tier itself even smaller.
The pressure on advertisers to re-base strategy in a radically different economic climate will advance investment planning approaches
In the decade before March 2020 it felt like marketers’ investment decisions were made mainly on autopilot. In the stable trading environment pre-pandemic, it was comfortable to rollover last year’s plan with some minor tweaks and optimisations.
The disruption of the last 33 months has flipped this entirely.
As different parts of the economy zigged and zagged, this created pressure for marketers to think about key decisions like advertising investment level and channel mix with new depth and rigour. The lockdowns created new learnings too. Airbnb and Asos publicly stated that natural experiments created by the pandemic taught them new and unexpected things about their channel effectiveness.
Behind closed doors, there have no doubt been many more mea culpas. Rising interest rates have also disrupted the Net Present Value of customers acquired by many businesses too, with a knock on effect to Advertising ROI and commercial valuations.
These factors combine to make today’s investment planning exercises (“budget setting”is a term I try to avoid) a much more difficult and higher stakes set of decisions than in the decade prior. Especially when incumbent investment planning methods tend to under-serve the industry.
Each of the methods most commonly used have shortcomings. Re-investing a % of revenues into advertising puts the cart before the horse, and is especially dangerous in recessions where it can create downward spirals that are difficult to arrest. Excess Share of Voice theory has served the industry to a degree, but lacks the specificity and rigour required of modern Finance functions and can lead systematic under- and over-investment at a category level. Econometric modelling brings rigour and credibility but can trap advertisers in the past and limit their planning to one-year return horizons. This is particularly dangerous against a backdrop of channel migration and economic disruption.
New methods are required for uncertain times. Lookalike models and top-down approaches all have a role to play and we must bring a broader range of effects into the ROI equation to level up the business case for advertising investment. 2022 saw the case for advertising as intangible capital expenditure gather new momentum, but investment planning rigour is key to making that a reality in the years to come. 2023 may create the stimulus to do so.
2023 could be the year where the economics of addressable media finally change for the better
The promise of one-to-one targeting in traditionally mass media channels has seduced marketers and their agencies for decades. But the economics haven’t worked.
A combination of low integrity source data, high media owner margins, complex ad tech fraught with privacy risks, a murky supply chain of data leaks and fees, and a loss of planning control all challenge the ROI equation for addressable campaigns. When compared on a true CPM basis — addressable campaigns have often been more than 50x that of traditional campaigns — usually an impossible targeting premium to recover via increased efficiency.
But bridging technology and data clean rooms are starting to disrupt those economics. The simplicity and security of bridging technology reduces cost and risk barriers to entry on the demand side, while bringing higher quality data providers to the table on the supply side.
If 2023 does mark the last full year of third party cookies — a critical mass of advertisers could begin to form around these technologies. This will require ground to be ceded on all sides however. Advertisers need to show greater risk appetite to future proof their revenues and media owners need to make targeting premium ad inventory more attractive and build a broader pool of advertisers on the demand side.
Billy Ryan is head of analytics at independent media agency the7stars
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