Marketer's Toolkit 2023: A new pattern for global advertising investment?

The coming 12 months will potentially usher in a new pattern for global advertising investment as digital investment growth slows, media planning is re-assessed and pressures for industry reform continue to grow, according to the latest instalment of WARC’s Marketer’s Toolkit 2023.

Why it matters

Against a backdrop of economic crises, geopolitical complexity, spiralling inflation, supply chain disruption, and structural technology shifts, marketers are re-evaluating their approach. Ad spend is growing but at a slower pace. 

WARC’s latest forecast anticipates a $90bn reduction in global ad market growth for 2022 and 2023, meaning digital media owners are likely to fight harder for ad revenue growth – and, increasingly, will compete with one another for ad dollars. 

Meta’s first-ever year-on-year quarterly revenue decline – announced last July – may one day be seen as the moment the digital advertising industry tipped into a new, less expansive phase. 

Key trends 

The Future of Media report, part of WARC’s annual Marketer’s Toolkit, highlights key trends in three vital areas: advertising investment, media planning, and industry reform.

• Digital investment reaches the top of the ‘S’ curve

Nearly a third of WARC’s Marketer’s Toolkit respondents expect 2023 marketing budgets to be lower than 2022. WARC has downgraded its global advertising investment forecast to $880.9bn, removing $90bn of growth potential for 2022 and 2023. 

Retail media is increasingly favoured by advertisers, and is now the fourth-largest medium by ad spend, with global investment totalling $110.7bn in 2022 and forecast to reach $121.9bn in 2023.

Marketers are rebalancing their ad budgets, decreasing investment in offline channels and increasing spend in online video, social media and gaming. TikTok ranked top for increased investment in 2023 by 76% of marketers, according to WARC’s Toolkit survey.

• Fragmentation calls for more fluid media planning 

More than a third (34%) of survey respondents identified media and audience fragmentation as one of their biggest causes for concern when drawing up plans for 2023. The situation calls for advertisers to adopt a more fluid approach to media planning and branding, and one that emphasises the importance of communities over basic demographics in segmentation.

While over half (52%) of survey participants expect to increase investment with social media influencers and creators as a whole, two-thirds (65%) are planning to work with content creators to connect with communities “aligned with specific interests authentically tied to the brand”.

• Fixing the media ecosystem

More than half (54%) of US respondents to the Marketer’s Toolkit survey said that media planning recommendations in 2023 will include more diverse publishers, reflecting the importance of minority audiences in that market.

However, with only a third (34%) of advertisers planning to include more low-carbon alternatives in their media plans in 2023, it is clear more work must be done to persuade marketers of their role in combating climate change.

WARC says

“While the breakneck speed of growth in ad investment witnessed in 2021 could never have been maintained, media owners like Meta, alongside brands and agencies, are also challenged by other fundamental issues – from cleansing the ecosystem of misinformation, using ad dollars to promote greater diversity and inclusion, attracting and retaining the right talent, to saving the planet from catastrophic climate change” – Alex Brownsell, Head of Content, WARC Media.

The Future of Media is the third in a series of four reports that make up The Marketer’s Toolkit 2023. Based on exclusive data from WARC Media, findings from a global survey of 1,700+ marketers, and interviews with with senior marketing leaders, the report is a guide to help brands focus, survive and thrive in 2023 and beyond. A complimentary sample of this report is available here. WARC clients can read the full report.

India’s digital spend to overtake TV in 2023

This is the year that digital media spending finally overtakes TV in India, according to a new report from Denstu, which says a “generational leap into the new digital economy is revolutionising the Indian advertising industry”. 

Key stats

The agency’s Digital Advertising Report 2023, in association with e4m, reveals that: 

• Total advertising spend in 2022 stood at $11.09bn, with that figure set to rise 14.6% this year to reach $12.72bn and to continue growing at a similar level (15.5%) into 2024. 
• TV’s current 40% share will decline to 37% in 2023 and to 34% in 2024.
• Digital media’s current 35% will increase to 40% in 2023 and to 45% in 2024.
• Print media’s share will decline from 21% to 19% in 2023 and to 17% in 2024.
• Radio remains steady on 2%, as does OOH; cinema is flat on 0.3%.

Context 

Government policy is playing an important role in developing the country’s digital infrastructure, which in turn is leading to digital transformation across businesses. At the same time, growing data penetration has created a mass market in areas like OTT and e-commerce. 

All that is helping to make India’s advertising industry – and digital advertising in particular – one of the fastest-growing in the world. Remember that, pre-pandemic, digital media spending took just a 20% share of the total so the speed of change has been dramatic. 

Why it matters

Brands and agencies are having to adapt to a rapidly changing environment: for example, retail media is now increasingly significant, video has exploded with the growing penetration of smartphones and cheap data plans, and mobile commerce now allows for new targeting possibilities.

Few winners

“While the outlook for ad growth on digital looks rosy, the unevenness of revenue spread is only likely to grow, with a handful of large players likely to continue to corner a lions’ share of revenue,” notes exchange4media co-founder Nawal Ahuja.

Meta sees weak ad demand but conversions are up

Meta’s latest results announcement point to the areas in which Facebook needs to strengthen and seek growth in its advertising business – now surrounded by investor-pleasing mentions of AI.

The ad demand environment according to Meta

• Q4 was, as expected, a period of weak ad demand, which Meta puts down to an uncertain and volatile macroeconomic environment.
• That uncertainty particularly hit the spending of its vitally important small and medium-sized business user base.
• Ad impressions grew 23% in Q4 year on year.
  
• Advertisers also saw 20%-plus more conversions than in the year before. 
• Combined with the decline in cost per acquisition, this resulted in higher returns on ad spend. 

The ad future 

Meta sees opportunities for continued gains in the near and medium-term. CFO Susan Li explained on an earnings call that AI investments are “powering a lot of this work as we continue to improve ads ranking and enable increased automation for advertisers to make it easier for them to run campaigns and use our systems to optimize their performance”.

A significant aspect of the company’s ad strategy now is to “bring conversions on site”, Li said, adding that work and investment on these kinds of ad formats is ongoing. 

AI to the rescue

“AI, it’s the foundation of our discovery engine and our ads business,” CEO Mark Zuckerberg explained on the same call (in passing it’s telling that the word metaverse arose just seven times versus AI’s 29 mentions during the call). “We also think that it’s going to enable many new products and additional transformations in our apps,” he added – a reflection of the end of tracking across apps and a focus on new measurement techniques.

Also ongoing is work on generative AI, where Zuckerberg acknowledged challenges in achieving scale and efficiency.

What it all means 

What is clear from Meta’s Q4 results is that, following an extended period of being at the mercy of external headwinds, the company has managed to regain control of the narrative, after last quarter’s difficult results.

Its work on AI looks to growth rather than toward Apple’s rule changes; its work on Reels no longer looks like it’s desperately chasing TikTok’s runaway growth; advertiser demand may be diminished, but it has measurement systems in the pipeline to get some of it back; the metaverse remains expensive but is currently – and thankfully for Meta – overshadowed by the other stories.

Long-term brand building is ‘the ultimate strategic BOGOF’

Short-term promotional ads don’t do much for long-term brand building, but long-term brand-building advertising has a significant impact on short-term sales – what Professor Mark Ritson calls ‘the ultimate strategic BOGOF’.

Why it matters

The 60:40 investment rule between brand building and activation first proposed by Les Binet and Peter Field was never meant to be a simplistic either/or, top of the funnel vs bottom of the funnel approach. 

In his regular Marketing Week column, Ritson charts the development of thinking around the pair’s seminal work The Long And The Short Of It and adds his own update, based on data from System1.

He finds an asymmetry between the long and short. The conclusion is that while the short does not deliver the long, the long does deliver the short.

Takeaways 

• Ritson’s Law: Any popular marketing concept will be criticised in direct proportion to the degree to which marketers don’t understand it.

• The better an ad is at building a brand, the more likely it is to also deliver short-term sales (in nine out of 10 cases examined by System1).

• System1 suggests that CMOs reframe campaigns as ‘lasting’ rather than as ‘long’.

Sourced from Marketing Week

McDonald's maximizes marketing to supercharge growth

McDonald’s, the global fast food brand, has boosted its focus on marketing excellence as it seeks to capitalize on an influx of inflation-weary consumers looking to treat themselves. 

“McDonald's is one of the world's greatest brands. In the last year, we've unlocked even more ways to elevate our marketing through creative excellence,” said president and CEO Christopher J. Kempczinski on its Q4 2022 earnings call.

“Our scalable insights are helping us tap into our fans’ love for McDonald's and create culturally relevant campaigns that resonate across markets and drive growth,” he added. 

By the numbers

• Full-year comp sales growth of 10.9%.
• Strong guest count performance with 5% growth globally.
• Almost 50 million active users of the McDonald’s loyalty program across its top six markets.
• Plans to open approximately 1,900 restaurants in the new financial year.

Focusing on core products and pricing 

Amid a fast-food category awash with flash-in-the-pan products or marketing stunts, McDonald’s is doubling down on the success of its popular core products. Ten of its menu items – including French Fries, Big Mac, Chicken McNuggets and McFlurry – are ‘billion dollar’ brands in their own right, Kempczinski revealed. But challenges remain as inflation remains stubborn. 

“In this environment, we must maintain our disciplined approach to pricing. We need to balance passing through our pricing on our menus while maintaining our strong position on value with our customers,” Kempczinski said.

Reaping the benefits of digitalisation

By Q4 2022, digital sales represented over 35% of system-wide sales in the company’s top six markets. In 2022, the McDonald's app was downloaded over 40 million times in the U.S., greater than the total downloads of the second, third and fourth brands combined. 

“Through our focus on digital, we are transforming from a brand that serves billions and billions all the same way to one that serves each of our billions of customers uniquely as individuals with customized products, offers, and experiences,” Kempczinski said.

[Image: McDonald's]

ROI of successful campaigns is on an upward trajectory

The cumulative median revenue ROI of successful campaigns has grown 10% over the past five years, from 3.86:1 to 4.25:1, according to the latest WARC ROI Benchmarks Report. 

What it means 

The average campaign in the WARC database delivers a sales increase four times as high as the advertising investment.

Over the same 2017-2022 period, the median profit ROI has grown 24% from 1.9:1 to 2.36:1 – so every dollar invested brings an additional $2.26 of net profit (having excluded the cost of the campaign in the calculation).

Why it matters

Understanding return on investment is an important way for advertisers to assess the efficiency of their advertising expenditure – and the improvements to ROI (profit or revenue) over the last five years show advertisers are investing in campaigns with greater levels of efficiency. 

While this is encouraging, it is important not to confuse campaign efficiency with campaign effectiveness. As experts such as Tom Roach have argued, an over-reliance on ROI can distract marketers from focusing on what really matters: the absolute amount of profit or revenue generated by an activity. 

Marketers should heed this advice and be mindful when using ROI to assess the impact of their campaigns. 

Takeaways 

• ROI can vary widely between campaigns and categories, with a short-term impact from less than 1:1 to more than 10:1. 
• ROI figures in the WARC database are mostly calculated within a one-year timeframe, but evidence strongly suggests the long-term impact of advertising is approximately twice the short-term impact.

WARC subscribers can read the ROI Benchmark report in full here.

Hindi film audiences slump

Cinema audiences in India have yet to recover to pre-pandemic levels, but while overall figures in 2022 stood around 87% of 2019 levels, the equivalent for Hindi cinema was just 55%.

By the numbers 

• Total cinema audiences reached 892 million (across all languages) in 2022, compared to 1.03 billion in 2019, according to figures from media consulting firm Ormax, reported by Mint. 
• Hindi cinema audiences fell to 189 million in 2022, down from 341 million in 2019.
• Telugu cinema audiences jumped to 233 million in 2022 from 182 million in 2019.

Why it matters

Rising ticket prices and fewer new releases are factors in lower cinema attendance. Alongside those are the changed behaviours, wrought by the pandemic, when people turned to in-home entertainment. And now, when they can expect to see a new film on a streaming platform within a couple of months, there’s less pressure to catch it in the cinema. It’s a shift that has implications for both movie marketers and media planners. 

Key quote

“The footfalls totally depend on the kind of experience they are getting from a film. OTT has never been a competition when it comes to experience-led content, but for smaller films, people are showing the tendency to wait and watch unless they hear terrific word-of-mouth” – Ashish Kanakia, chief executive of MovieMax Cinemas.

Sourced from Mint

Retail Media a “have to buy” media, as brands doubt brand building capability: ANA survey

Retail media is emerging as a critical new medium for certain brands, but a new survey from the ANA indicates that there is a very specific profile of advertiser using these new networks and many are far from convinced, even if there is optimism about their future.

Why it matters

In 2022 it felt like every week a new retail media network (RMN) would appear, as retailers responded to emerging new factors in the space: Amazon’s rise as a retail media giant, the deprecation of the third party cookie and the need for first party data, or the promise of double digit profit margins on advertising revenues all attracted some of the largest retailers to the space.

However, a frothy market with its many vendors has created complexity and confusion among marketers, with the ANA’s Retail Media survey of its members suggesting that a common measurement currency is still lacking, as is a verdict about whether it’s just a sales driver or also a capable brand builder.

What’s clear is that this is an obvious strategic step for retailers, but among advertisers the medium is yet to reach its full potential.

CPG focus

According to the ANA’s report, which you can find here, the vast majority (74%) of respondents who were using retail media came from the Consumer Packaged Goods industry, way more than the next industry of Health and Beauty (8%).

In total, it surveyed its 138 members, 80 of which currently use RMNs. Of those, over half (56%) are spending on five or more retail media platforms. 58% say they will increase their spend in the next two years.

Reluctance

RMNs are something of a “have to buy” rather than a “want to buy” for some marketers. Most brands (61%) are taking their RMN spend from existing budgets, while three quarters of respondents say they have used retail media to drive sales rather than to build brands, leading to concern among some respondents.

“If we just keep reaching the people who browsed our pages before, bought our products before, we’ll never grow our business or bring new people in,” warned one CPG marketer.

Whereas just 12% of respondents say they are spending on RMNs to invest for future brand growth.

Over half (57%) of respondents reported a lack of standardisation across platforms, and others the ability to compare results with other media. “This is limiting growth for both the advertisers and the retail media networks,” writes the ANA.

Pressure

With existing relationships in the space – “buyers have become sellers and sellers have become buyers, resulting in a two-way flow of transactions and revenues,” as the ANA puts it – 85% of brands felt pressured by retailers to support retail media networks.

However, there is also a vote of confidence in there, with some brands considering them foundational media. “They are seen as recession-proof, less prone to budget cuts in more challenging economic times, and a way to counter potential shopper shifts to store brands.”

Sourced from the ANA

DEI initiatives get going in February

During February, brands and agencies on both sides of the Atlantic will be demonstrating their support for Black History Month in the US and LGBT+ History Month in the UK; WARC’s contribution is a new hub of the latest research and thinking on diversity, equity, and inclusion.

What are they doing 

The Drum reports US agencies celebrating Black culture and art, championing Black talent and launching new internal diversity initiatives. R/GA is doing some of these too, but it also notes that BIPOC staff are often faced with additional workloads as a result.

“We see this as an extension of our industry’s habit of promoting busyness, over-working, performative work and grind culture, as a direct output of white supremacy’s influence on modern corporate ways of working,” the agency said. 

“So … we want to reframe Black history through a lens of rest – revolutionary rest … we decided to dedicate our Black History Month programming and space to the prioritization, education and celebration of rest for and by the Black community at R/GA.”

In the UK, Little Black Book reports that Outvertising is running a series of outdoor ads which reimagine some classic ads of recent years in ways that are more inclusive of LGBTQIA+ audiences, ending with the tagline “Together, we can change the script”. Jim de Zoete, executive creative director at Across the Pond, noted that “Just by adapting a few words you can suddenly make the work, and the world, more inclusive.” 

Why it matters

While the various activities that take place this month are to be welcomed, it’s worth noting that Kantar’s 2022 Inclusion Index was unchanged from 2020, suggesting that while we’re talking more about diversity and inclusion at work, that’s not necessarily being translated into action. 

Employees appreciate DEI initiatives but there’s a sense that more than box-ticking is needed: systemic change is what’s required. And businesses that don’t address this could find it expensive if, as they threaten, as many as a quarter of employees leave their organisations due to the lack of inclusion or discrimination they have experienced.

WARC’s DEI hub

WARC has launched a DEI hub to help marketers navigate challenges and implement successful DEI strategies around the representation of diverse audiences and in hiring practices. This features the latest best practice, research, expert guidance and case studies, with help from from partners including the Advertising Association (AA) in the UK, the Advertising Research Foundation (ARF) in the US, creative analytics company CreativeX, market research firm IPSOS, the MMA, Outvertising, System1 and Unstereotype Alliance, convened by UN Women.

Sourced from WARC, The Drum, Little Black Book

Trust and finance: Twitter and Binance seek expansion

Like other companies around the world, Twitter and Binance are both expanding their finance and payment ambitions: while the former will need to build trust, the latter sees an opportunity where trust is lacking.

Why it matters

Twitter is an important and influential platform, but will people trust it to process their payments? Elon Musk’s experience with PayPal, whose x.com was merged with the payment platform in 1999, will inspire confidence in some.

Trust is critical to financial services, which partly explains why the sector is dominated by large established brands capable of inspiring confidence at times of economic instability. Following the last few months of turmoil at Twitter, the company has a lot of work to do in this space.

The need for an established, trusted brand also explains the partnership between Binance and Mastercard. Here, trust is operating not only at the level of the brands involved – useful at a time in which crypto’s name was tarnished by the sector-wide FTX ‘earthquake’ – but at the level of unstable markets and political environments, which have opened up an opportunity for crypto.

Twitter targets payments in everything app move

Under Elon Musk’s eventful stewardship, Twitter is applying for regulatory licenses across the US that would allow it to build payment services on the platform, according to reports. It follows a November regulatory filing with the US Treasury in which Twitter signed up to become a payments processor.

For Twitter, this is an extension of existing payments activity that had mostly surrounded tipping creators, and which now aims much further.

While crypto is likely to be an option, sources who spoke to the FT explain that the system would be primarily built around moving fiat currency. It’s likely that with the crisis of trust in crypto in the last few months following the collapse of FTX, keeping the service to trusted currencies will help establish trust.

The plan is part of a wider project to diversify the company’s revenue stream away from advertising, which has suffered since Musk’s takeover, and plays into a long-stated ambition of an “everything app”. It echoes some of the East Asian super apps like WeChat and Alipay that dispense a large array of services often anchored by a peer-to-peer payment system. 

However, such a plan faces several key barriers: extensive and mature competition in US payments, the far higher regulatory burden that comes with being a payments processor, and questionable consumer trust.

Binance looks to crypto in Brazil

Mastercard and Binance are set to launch a prepaid crypto card in Brazil, according to an announcement on the crypto exchange’s blog.

Users with a valid national ID will be able to pay using 14 different currencies as well as the Brazilian Real. The product follows the successful launch of a similar card in Argentina by the two companies last year.

“Brazilians are eager to embrace crypto beyond an investment asset. Today is an exciting step in our crypto journey, which draws on the strengths of both our trusted global network and Binance’s infrastructure to support consumer choice in payments,” said Marcelo Tangioni, Mastercard’s country manager in Brazil.

It’s interesting at a consumer level that Binance and Mastercard have entered these two markets: Brazil is Latin America’s largest economy but is experiencing a profound political division, while Argentina is the continent’s second largest but has suffered inflation issues for decades which have worsened in the last year.

Bottom line

Critical to trust is consistency: payments need to be fast and predictable but so, too, does the currency in which you are paying. Companies linked so closely to the activities of one individual can suffer when the individual’s reputation suffers, as in the case of another of Musk’s businesses, Tesla. Meanwhile, other firms can move into a deficit of trust, providing stability when it is hard to come by.

Sourced from the FT, WARC, Reuters, CNBC, Binance

India’s advertising industry eyes a gloomy Q1

India’s post-festive season always sees an advertising slowdown, but agencies and media companies are more than usually concerned this year as maco-economic and geopolitical factors start to bite. 

Why it matters

While some of these factors aren’t exactly new – the effects of war in Ukraine and China’s COVID-19 lockdowns have been playing out for many months now – India’s advertising industry had largely managed to avoid feeling their impact. The final quarter of 2022, for example, was boosted by the festive season and the ICC T20 World Cup.

But as economic growth stalls and brands rein in their advertising spending, “things look quite bleak for us in this quarter”, one senior agency executive told e4m. Indeed, things are so gloomy that some in the industry don’t expect even IPL 2023, which starts in April, will turn the situation around.

Factors at work 

• Increased raw material prices have led to a reassessment of business costs and ad budgets have been a casualty.
• Fears of recession have prompted advertisers to rebalance spending away from more expensive traditional media formats and towards lower-cost digital formats.
• Start-up clients are reported to have slashed ad budgets to almost zero, in large part a consequence of venture capital funding being scaled down.

A media expert says 

“Indian media companies may have to adapt to the new economic reality by finding ways to reduce costs, diversifying their revenue streams, and focusing on digital platforms. They may also have to be more creative and innovative in order to attract and retain customers.”

Sourced from e4m

Super Bowl audience likely to grow, 76% excited for ads

A new survey indicates that Super Bowl audiences are set to grow from last year’s half-decade peak of 112m viewers, with over three-quarters excited for the ads.

Why it matters

Marketing Brew’s and Harris Poll’s Super Bowl survey of 1,050 US adults strengthens the narrative that many of the game’s viewers are as excited for the ads as for the game itself, which takes place in just under two weeks’ time. With high prices for spots during the game, brands want to be sure the investment will pay off.

What’s going on

- 79% of the sample say they’re likely to watch (versus 70% in 2022).

- Women are a key growth audience: 75% said they planned to watch, compared to 62% who said they would be watching last year.

- 76% of likely viewers say they are ‘somewhat excited’ for the ads (versus the 82% who are excited about the game and the 71% who are excited about the halftime show).

The survey drilled deeper into the marketing question, with 84% of the sample believing that Super Bowl advertising was a ‘smart investment’ for brands.

Interestingly, many respondents (73%) were not fans of releasing Super Bowl ads ahead of the game, a likely reaction to the recent trend of brands trailing their creative online before the event.

Sourced from Marketing Brew, WARC

Creative Impact: New track to run at Cannes Lions 2023

WARC and LIONS have launched a Creative Impact stream to drive the effectiveness conversation at Cannes Lions 2023, with a program of content to run at the festival.

The significant focus on effectiveness at this year’s Cannes Lions International Festival of Creativity (Monday 19 - Friday 23 June 2023) reflects the extreme pressure on marketing budgets in the current economic climate, and the urgent need to prove the role creativity can play in supercharging sustainable commercial growth. You can find the full release here. 

Creative Impact will uncover what it takes to build, protect and grow a business through creativity in 2023.

- It will ask what creative effectiveness means in the current media and economic environment, and what types of creative thinking will make the biggest impact.

- It will also cover how to make a proven and compelling case for investment in creative marketing to the C-suite of an organisation.

The Creative Impact content stream will be a core part of the delegate experience, alongside other festival programming. It will feature workshops and accelerators, ensuring delegates come back equipped with tools and insights they can plug directly into their own organisations and marketing plans.

Get involved

Anyone who would like to submit content ideas to be considered for the Creative Impact content stream, as well as any other part of the Festival or LIONS content schedule, can do so all year round. Details about how to do this can be found here.

Attendees of Cannes Lions 2023 will be able to attend the Creative Impact content stream as part of their delegate pass. This year also sees the launch of the Creative Brand Marketer pass. Exclusively for advertisers, the pass is designed to help brand marketers learn how to unlock creativity with learning opportunities, insights and exclusive networking invites. Find out more about pass options here.

Spotify shifts strategy as losses widen

Podcast revenue growth of 30% at Spotify has helped to drive 14% growth in ad-supported revenue growth, but, despite its near half billion users, the audio streaming platform has struggled to turn popularity into profit. 

Context 

Music is expensive, and while users can get most of it for free on Spotify (with a few ads), music rights cost the platform around 70% of its total revenues. As a result, podcasts became not only a critical area for revenue growth but also for profitability.

Up until very recently, Spotify’s strategy had been focused on creating hits and buying studios or exclusive contracts with the likes of Joe Rogan, and Harry and Meghan.

Why it matters

Hits are important, but it appears that driving the use of tools might be more important. Now the trick it seems Spotify must pull off is to become more like its bigger, richer, and more versatile competitor YouTube, as Bloomberg’s Luke Shaw observed recently. That means building a platform for all podcasters, and to build an ad capability that can funnel money toward the creators to keep them sweet – but without these same creators working directly with a brand and circumventing Spotify’s plumbing. It’s a big and difficult bet.

The ad story 

While podcasts and their advertising potential do appear to be moving in the right direction, this has come at a cost: operating expenses grew 44% year-over-year, in part as the global ad sales team expanded and higher advertising expenses were incurred in targeting emerging markets and Gen Z. 

While ad-supported gross margin dipped in Q4, the company reported that the year on year trends “reflects improving podcast profitability offset by new podcast content investments and softer Ad-Supported music profitability (as advertising monetization lagged engagement in select markets)”.

The bigger picture 

• Spotify’s Q4 shareholder deck echoes many of the other stories coming out of the tech world: while it remains well-used, its hefty pandemic-era investments are becoming tough to sustain and as a result it’s cutting 6% of its staff.
• Monthly active users grew to reach 489 million versus an expected 478 million.
• Within that, premium subscribers grew to 205 million while ad-supported users grew by 22 million in the quarter to reach 295 million.

Sourced from Spotify, Bloomberg, WARC

Consumer satisfaction scores dipped in 2022

UK customer satisfaction levels have declined marginally over the past year, according to the latest data from the Institute of Customer Service – down 0.7 points to 77.7. 

By the numbers

• The January 2023 UK Customer Satisfaction Index* (UKCSI) shows declines across the five categories that make up the index: Experience: 78.7 (down from 79.3 a year ago); Complaint handling: 63.3 (down from 65.8); Customer ethos: 77.0 (down from 77.8); Emotional connection: 76.8 (down from 77.8); Ethics 75.8 (down from 76.8).

• More organisations have declined (63) than improved (37) by at least two points compared to January 2022 – and half of them are in the transport and utilities sectors.
• The leading causes of problems experienced by customers are quality or reliability (41.7%), suitability (24.1%) and availability (22.2%) of goods and services, followed by late delivery (20.9%), staff competence (20.0%) staff attitude (16.4%), and cost (10.8%). 
• 16.5% of customers experienced a problem with an organisation, around the same level as in January 2021, but 2.9 percentage points more than in January 2020.
• 80% of customers who asked a company for help to manage the cost of living said that their trust in that company had increased as a result of their contact.

Why it matters

The Institute’s chief executive expressed concern that the overall average score could mask deeper issues with the potential to threaten organisations’ performance, long-term profitability and the quality of customer experience, in 2023 and beyond.

For businesses, it’s worth noting that the key differences between the top 50 organisations and the rest include satisfaction with complaint handling, pricing, and measures of emotional connection and customer ethos.

Key quote

“Despite a widespread priority to economise on spending, more than a third of customers would be willing to pay more to guarantee excellent service and this continues to rise” – Joanna Causon, Chief Executive, Institute for Customer Service. 

*The UKCSI is a national benchmark of customer satisfaction covering 281 organisations or organisation types across 13 sectors. The UKCSI score is based on how customers rate organisations across 26 measures covering satisfaction with transactional experiences as well as broader relationship needs. 

Sourced from Institute of Customer Service

Year of the Rabbit gets off to a hopeful start

Domestic travel and retail sales picked up in China during the week of Lunar New Year, the first time in three years that people have been free of Covid-19 lockdown restrictions during this period.

Why it matters

The Lunar New Year holiday is an important indicator of consumer sentiment following the easing of Covid restrictions late last year and the sharp wave of infections that followed. And that’s significant not just for the domestic economy, but for the many businesses around the world which have been looking to China for growth.

“The global consumer goods industry has its eyes on the Chinese Spring Festival 2023 – the acid test for the Chinese consumption engine,” Bobby Verghese, consumer analyst at data analytics firm GlobalData, told Xinhua. Many analysts expect the recovery seen last week to continue during Q1 and accelerate in Q2. 

Key figures 

• Retail sales during the just finished holiday week were up 12% on the same holiday period last year.

• Domestic travel was up 23% compared to last year and back at 88% of pre-pandemic levels.

• Offline transaction volume jumped 23%; hotel and restaurant transaction volumes were up 76% and 40% respectively.

• Major luxury brands reported some “revenge spending”, said WWD, and with a lot of luxury spending likely to remain in the domestic market for some time yet, luxury brands are looking to increase their retail footprint in China.

A cautionary note

After three years of Covid-19 restrictions, it’s easy to assume the only way is up. But Fitch Ratings has noted factors such as the weak employment outlook, a housing market slowdown, a lack of a direct stimulus package, and the prospect of a Covid-19 resurgence, suggesting that China’s retail rebound will be “bumpier” than in other countries. 

Sourced from Xinhua, WWD

Europeans are priced off booze

Sales of beer, wine and spirits through European retailers fell 4% last year and are now lower than before the pandemic as consumers cut discretionary purchases in the face of rising inflation. 

Background

That’s according to new figures from data and analytics firm IRI, which charts a decline in off-trade alcohol sales following a surge in 2020 during the first year of the pandemic. Then, value sales increased 12.6% because people were confined to their homes; but as lockdown restrictions eased during 2021, sales were flat, with only a 0.7% value increase. A €2.7bn slump in 2022 took total category sales for the year down to €66bn.

Why it matters

“Alcohol brands are caught in a perfect storm with no end in sight,” says IRI’s Ananda Roy. 

Normally one would expect off-trade alcohol sales to rise during recession as people eat and drink at home rather than going out. But a combination of high food and energy prices, record interest rate rises and low-wage growth means households are having to prioritise spending and make tradeoffs – and alcohol brands are feeling the pinch. For the category to return to growth may require investment in new products tailored to changing consumer needs and consumption moments.

It’s not all gloomy 

• In the UK, Zero/Low Alcohol sales are growing (+3.7% volume in 2022, +5.3% value) and now account for 1% of the beer, wine, spirits category total.
• IRI predicts consumption of Zero and Low Alcohol beverages to accelerate in 2023 as the price of alcoholic beverages continue to rise.
• Champagne, prosecco and ready-to-drink spirits appear resilient to recessionary decline as people remain willing to spend on celebrations after two years of lockdown restrictions.

Key quote

“When it comes to alcohol, strong brand equity usually keeps shoppers buying their favourite beer, wine and spirit brands. However, as prices rise we could also expect to see more people switching to private-label brands as they do in other categories where they are perceived as good as national brands” – Ananda Roy, Global SVP, Strategic Growth Insights, IRI. 

Sourced from IRI