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How we define advertising comes with unintended consequences

How we define advertising comes with unintended consequences

The latest buoyant UK adspend figures show some strange trends that could have a profound influence on how the direction and future of advertising is perceived.

At face value, the UK advertising market is in terrific shape. Advertising Association/Warc figures forecast it to be worth some £37bn in 2023, up 110% compared with 10 years ago. Even if we take RPI inflation into account and make a comparison using today’s valuation of the pound, this is still a remarkable growth of 42% (a £10.9bn increase).

So, good news right? Perhaps, but it’s also strange news. How is the UK ad market so buoyant when the overall economy is so stagnant? It never used to be like this.

I think there is an urgent debate to be had about how we portray modern advertising spend, the signals that portrayal sends about its direction of travel, their unintended consequences — both in advertising and culture more widely — and why it might be worth rethinking our approach before it is too late.

If that sounds serious, it’s because it is. I’d be interested to know what you think.

Editor’s column: Advertising and media are no longer ‘bellwether’ sectors

‘Advertising’ has divorced from GDP

If we plot the long-term relationship between investment in advertising as a proportion of UK GDP, we see that, until recently, it was very consistent. Spend on all forms of advertising as reported by AA/Warc has fluctuated around 1.1% of UK GDP for my entire lifetime.

There’s been variation, of course. The early 1990s recession and the “great recession” of 2008-2009 both hit advertising. Conversely, 2000, often cited as the peak economic year for the rich countries of the world, saw the ad market soar.

But since 2021, something mad has happened. Advertising as a proportion of GDP hit 1.4%, 22% higher than pre-pandemic 2019. You could argue it was a post-Covid-19 bounceback, but the trend has continued into 2023 despite the depressed economic context.

How do we make sense of this? And does it matter?

Advertising’s surge is coming from non-publisher media

This positive uptick in the industry isn’t being equally felt across the advertising ecosystem.

This isn’t a trend that should surprise you; it has been reported on by Warc. But it is one that should worry you.

The gains are being felt by non-publisher media, such as online search, retail media and social media. Good for them, but the decline is being felt by media forms that reinvest the majority of their revenues into creating and curating optimal editorial environments for brand advertising.

To move from over 1% of GDP being invested in quality journalism, TV and audio content to 0.4% of GDP is a dramatic shift — economically certainly, but also socially and culturally.

Point-of-sale is approaching half of all ‘advertising’

Advertising investment in the UK is growing like it is because of search and retail media — up from £3.4bn in 2013 to £14.6bn in 2023. Together, these now account for 40p in every £1 spent in the AA/Warc figures.

These are not high-quality, brand-building environments. This is pointiest-end-of-the-funnel stuff — they’re a cost of doing business online and, as a result, grow more or less in line with ecommerce. The more we buy products and services online, the more the companies — and individuals — selling those products and services need to invest in search and retail media.

If we look at the investment in retail media and search as a percentage of total ecommerce, it shows that this cost-of-sale activity is increasing at an eye-watering rate, meaning it is eating into the bottom line of those having to engage in it.

The modern shelf wobbler

Search and retail media are important, but are they advertising? It’s debatable.

Certainly, in the past world of physical brick-and-mortar sales, these types of activity would not have been classed as advertising. They are the modern version of the cost of buying a high-street location with high footfall or paying for access to promotional in-store gondoliers and shelf wobblers.

In the physical world, that essential investment in public visibility and access would have come out of a different department and would not have been counted as advertising spend. In the virtual world, it has slid into a different column and turbocharged the growth of “advertising”.

SMEs are distorting the picture

When we talk about advertisers, we usually mean the kind of companies that belong to Isba. We don’t usually mean fitness instructors, plumbers, local bar owners or any of the other millions of professionals whose vast collective investment in marketing their products and services is counted in the total “advertising” spend figure.

Let’s compare, by media, the AA/Warc expenditure data, which counts every penny spent by every business of any size, with the IPA Databank, which mostly comprises large brands. There are some stark differences (I’ve excluded search from both datasets as it isn’t well-captured in the IPA Databank).

Online display — especially social media and online video — massively over-index, according to AA/Warc spend patterns. All other channels under-index except print, which is pretty much at parity.

The likely difference? SMEs.

Social media and online video are (rightly) the ideal promotional starting point for the 5.6m SMEs in the UK. You can tightly control budgets, experiment with creative executions, and test and learn as you grow.

SMEs collectively generate 35% of all business turnover in the UK totalling £2.4tn. If they spent an average of just 0.5% of their turnover on search, online display and social media, that’s £12bn.

The tech giants are so giant partly because they have tapped into a huge market that previously couldn’t access advertising opportunities beyond regional press, direct mail and sticking a card in the corner shop.

Back to my earlier question…

A vicious circle

Does it matter? Yes, I think it does.

I obviously have nothing against anyone marketing their business, whatever its size, but I think the way adspend is now characterised could be having an increasingly profound influence on how the direction and future of advertising is perceived.

Continued rampant increases in spend to the tech giants is a powerful herding mechanic. It is sending a dramatic signal that this is where the action is in advertising. Who wouldn’t be influenced — swayed, even — by such obvious momentum?

This herding effect further entrenches the trend, entrenches the herding and sends advertising spiralling in a vicious circle all the way to the bottom of the funnel.

The AA/Warc data is used as a guide for the health of the UK ad market — and to promote it to government and overseas. But SME spend is warping the picture, hence the fracture with the consistent story of the past.

The growth in search, social and retail media paints the picture of a surging ad market, with no sign of budget cuts or caution. But advertising hasn’t burst into a new life of jaw-dropping growth; it has been redefined and expanded.

The long tail is turning the head

Without the context of what spend is coming from individuals and SMEs compared with larger businesses that substantially invest in professional advertising, supporting clever planning and great creativity, it can’t but influence the boardroom and the City.

SMEs are setting the direction of travel, with effectiveness papers less influential than how the herd of “advertisers” appear to be voting with their budgets.

Perception is important — the ad industry should know this better than anyone — and increased competition for budgets from point-of-sale search and retail media could lead to a brand/activation mismatch on steroids. With the pointy end of the funnel seeming more and more important, the funnel itself might get a lot shorter and narrower.

The AA and Warc are entitled to a growing number — and they use it well to promote the industry. But I’m increasingly concerned about unintended consequences. Not just self-interestedly because of the damage it might do to the TV industry, but because of the damage it will do to our culture.

Perhaps, as a more insightful accompaniment, the big agency holding companies could pool their data through Warc and produce a dataset that is more reflective of the trends and spend patterns of the bigger businesses they are employed by. That way, we’d have a consistent dataset to understand the true advertising trends that most agencies and advertisers are focused on.

Matt Hill is director of research and planning at Thinkbox

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Nick Drew, CEO, Fuse Insights, on 08 Feb 2024
“>When we talk about advertisers, we usually mean the kind of companies that belong to Isba. We don’t usually mean fitness instructors, plumbers, local bar owners. Traditionally that made sense, but as you highlight, digital platforms have democratised advertising and opened it up to millions of businesses that previously might not have considered it. 'Advertising' is an activity, not limited by a definition of who does it, so adspend estimates have to include all parties doing it. At the same time, though, the shifting and growing base of advertisers brought about by those more accessible channels probably validates the idea of breaking out subsets of that adspend data - even if it's as blunt as "adspend by companies that would have been captured in 1999 adspend figures", or "adspend on channels covered by 1999 adspend figures".”
Simon Wilden, Exec Director, Media Planning, Goodstuff Communications, on 08 Feb 2024
“Fascinating piece, thanks Matt. These macro numbers certainly have the potential to mislead if not interrogated. I think has always been an element of SME 'sales promo' as part of ad spend figures though, it's just changed channels (and substantially increased). Print was the beneficiary of this spend years ago, especially regional and local titles. Now it's Google and Meta. While this seems a shame personally, at least it's good for our pension funds.”
Nick Ashley, Director, Tesco Media and Insight Platform, on 07 Feb 2024
“Very interesting perspective Matt - wouldn't expect anything less. I absolutely do think that retail media is advertising though - in our instance at Tesco it includes channels such as digital screens, in-store radio, magazine advertising, content, partnerships with ITV/4/Sky/Meta/Trade Desk/Pinterest and is being driven by the big FMCG brands that see the benefit of targeted and measurable communication as part of their media mix.”
Steve Taylor, Executive Planning Director, VCCP, on 07 Feb 2024
“Agreed, Matt. Perhaps the IPA could do a very simple, anonymous, annual survey among media agency members. Another source of data worth looking at is the IPA ARC data. The Advertising Research Community collects data from contributing agencies and econometrics experts. It provides insight into how advertising works looking at data from day-to-day cases rather than the awards entries in Databank. If any agency folks reading this would like to contribute data - all completely anonymised and all managed by the IPA - look up ARC on the IPA website for contacts.”

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