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It’s a buyer’s market for Amazon as it builds its next billion-dollar business

E-commerce is soaring in the US and, as Amazon’s need for rapid and reliable logistics grows, it is increasingly looking to build its own capacity to deliver.

And, as travel has taken a nose-dive following the pandemic, Amazon has found ready sellers of 11 passenger aircraft at bargain prices. Converted to cargo planes, these will be delivering the goods this year and next. Logistics should be wary of the growth of Amazon Air.

The context

• Amazon now delivers two-thirds of its own packages in the US and has a fleet of 20,000 vans, as existing couriers like FedEx, UPS and USPS have failed to keep up with its demand over the last three years.
• Observers see the planes’ purchase along with new delivery hubs in the US and Europe as part of Amazon’s ambition to build capacity and take on established logistics giants.
• It did the same with Amazon Web Services, built to carry Amazon’s own site traffic until it was big enough to take on external clients. That’s now thought to be worth $400 billion as a standalone business.

Soundbite

“At some point, just as they’ve done with other parts of the organization, they [Amazon] build out capability internally, see their own business as their first customer, and then they look to sell that capability to others. And this, I would suggest, is another perfect example, with the planes being an extrapolation of exactly that” – Thomas O’Connor, senior director and analyst for Gartner’s supply chain strategies team.

Online a bright spot as UK ad market to recover growth in 2021

The Advertising Association/WARC Expenditure Report anticipates 15.2% growth in the UK advertising market in 2021, better than key markets including US and China, due to strong online activity.

What it means

E-commerce has proved fundamental to maintaining platforms’ powerful position in the UK advertising sector, as consumption and commerce headed online. In the year ahead, greater certainty over trade and vaccinations ramping up indicate that the market could bounce back to pre-COVID growth levels.

A strong year ahead

In 2021, the UK ad market is set to accelerate past last year’s decline and back into growth to push past 2019’s high (£25.37 billion) and reach a total of £26.69 billion.

2020: rough but better than expected

The preliminary estimate for growth in 2020 now stands at -7.9% with adspend of £23.17bn, a marked improvement of +6.6 percentage points on the previous outlook, thanks mostly to a boost in online adspend, spurred by increased e-commerce penetration.

Internet spending stands out

• Internet spending grew by 10.1% to reach $4.2 billion during the quarter
• Search spend, key to capturing increased demand for e-commerce, grew 14.5%, closely followed by online display (pure play) at 13.9% growth

Digital dominates low budget campaigns but TV leads for high budgets

The biggest determinant of media allocation is budget. TV dominates in high-budget campaigns and digital is most important in low-budget campaigns, according to the latest data from WARC’s Media Allocation Benchmark.

Why it matters

Majority of campaign media spend goes towards digital and/or TV. Gaining the right balance of TV, which delivers reach, and digital, which supplements reach and facilitates personalised targeting, is a critical component of media allocation.

Takeaways

• Low-budget campaigns allocate 61% of the media budget to digital.
• High-budget campaigns allocate the same proportion to TV (60% when budgets are between $10-20m and 61% when budgets are over $20m+).
• Mid-budget campaigns have a more even balance of the two channels.

Sourced from WARC's Media Allocation Benchmark report

Luxury brands can tap nostalgia in China

Many of the world’s luxury brands still seem unsure how to market in China, but getting the messaging right is more vital than ever as China is set to be the world’s biggest luxury market by 2025.

The context

Ahead of the crucial Chinese New Year holiday period next month, a number of luxury brands are finding nostalgia messaging can create powerful connections ­– when it’s done right.

• Partnering with childhood animated characters, in particular, is popular with brands – Loewe has used characters from a fantasy movie, and Gucci products have featured a Japanese manga character, for example.
• When companies connect with customers emotionally, the pay-off can be huge. But nostalgia marketing needs to be highly sophisticated or it can backfire, especially if consumers see it as shallow – simply cutting and pasting a character onto products – or if brands fail to understand the complicated mores of Chinese culture.
• Overuse is another potential pitfall – no brand wants to be seen as looking backwards too much.

Soundbite

“The Chinese market is extremely complex and local teams can help understand cultural references, and make sure that they’re playing at the right level, without making any missteps that can be harmful to the brand” –  Remi Blanchard, consultant with China market research firm Daxue Consulting.

^{[Image from Gucci.cn]}

CMOs adopt ‘low risk, low return’ strategies for 2021

Almost three-quarters (73%) of chief marketing officers in North America, the UK, France and Germany intend to play it safe by relying on existing customers to fuel growth in 2021, according to a new survey from research firm Gartner.

Its inaugural CMO Strategic Priorities Survey 2021, which is based on responses from 381 CMOs in September and October 2020, suggests they will take a low risk approach this year following a tumultuous 2020 even though many would like to rescale their marketing strategies.

Key findings

• When asked “what is your company’s primary strategy to fuel growth in 2021?”, 39% of CMOs said they plan to increase sales of existing products to existing customers, while 34% intend to introduce new products to existing customers.
• Just 18% said they would enter a new market using existing products, while 7% said they would enter a new market by introducing new products. Zero sales growth was anticipated by 1% of CMOs.

Recommendations for 2021

• Gartner advised CMOs to be more selective in what strategies they choose to reinvent, rescale, reduce or retire, and to focus their efforts on what is most essential in the short-term.
• They should document their decision-making process to reassure fellow managers that marketing’s priorities are focused on the highest possible returns.
• CMOs are also encouraged to draw up formal scenario and contingency plans which can be adjusted as the year progresses.

Key quotes

“Focusing on existing customers has a number of benefits for CMOs, namely being low cost and low risk. But low risk is matched by relatively low return” – Jay Wilson, VP analyst in the Gartner Marketing practice.

“CMOs must try to avoid reinventing the wheel in 2021 and remember: For every strategy you rescale, you must choose another to reduce or retire. For every strategy you try to reinvent, another must return to pre-pandemic levels and approach” – Augie Ray, VP analyst in the Gartner Marketing practice.

Luxury brands tap the influence of Korean TV dramas

Korean TV dramas, popularly known as K-dramas, are becoming an increasingly important channel for luxury brands to connect with consumers, not just in South Korea but across the wider Asia-Pacific region.

Hit shows that feature luxury goods are benefitting brands ranging from French accessories label Roger Vivier to Belgian handbag brand Delvaux and Boon the Shop, the South Korean clothing retailer.

Top tips

• Netflix, which has signed up to releasing more than 40 K-dramas to its users by 2022, is a key choice for marketing budgets, but brands need to be careful to bet on the right show and ensure their strategies for K-drama deliver good return on investment.
• Apart from investment in traditional celebrity endorsement and brand ambassadors, sponsorship of popular shows, which few luxury brands have opted for in the past, is expected to become a major area of growth, with US jeweller Tiffany & Co. leading the way.

Key quote

“If you want to go nationwide and reach out to [viewers in their 30s and 40s] who actually spend a lot of money, dramas play a more powerful role than social media” – Stephanie Kim, Korea country manager at Roger Vivier.

_{[Image: Teemah, Creative Commons]}

News Media Bargaining Code fight escalates with Facebook, Google ultimatums

Social media giant Facebook has added its voice in opposition to the proposed News Media bargaining Code (NMBC), saying it would have to prioritise other markets and stop hosting news in Australia; Google, meanwhile, has said it would need to pull out of the Australian search market.

Why it matters

Termed blackmail by one senator, the escalation of now both companies’ opposition to a law that would vastly strengthen the position of news media companies against platforms, is a significant new step.

The talk from the platforms comes during a week that Google agreed to pay French publishers for news, and struck a global deal with Reuters. While Facebook agreed a deal in December with a handful of UK newspapers.

Bottom line

A compelling read comes from the New York Times, which suggests that the companies' concern is less about payment, and more about having to pay publishers on terms other than their own.

Critics such as Sir Tim Berners-Lee argue  that as it stands the law could set a dangerous precedent over payments for linking, links being the basis of an open internet.

It’s an important argument, given that Google and Facebook (with its coming News product) don’t simply link and provide traffic to news publishers; they slightly repackage or reframe the news in order to add a richer experience. It’s this experience that they advertise against.

GMI indicates collective approach to pandemic paid off in APAC

During 2020, WARC’s Global Marketing Index saw the strongest recovery in the APAC region, reflecting the success of the measures taken to reduce rates of COVID-19. 

The regional headlines 

• While APAC showed the greatest rates of decline early in 2020, the region ended the year with the highest GMI value at 62.4 in December. Since an index value above 50.0 indicates growth – 50.0 indicates no change, below 50.0 indicates decline – APAC is showing a strong rate of growth going into 2021. 
  
• Europe was the only region to start the year in growth, but after the global decline between March and September has shown the slowest recovery, ending the year just in growth at 50.9. 
• The index for the Americas indicated the fastest recovery, returning to growth in October (56.3).

Why it matters

The COVID-19 pandemic has impacted economies globally, but countries across regions reacted differently. Many countries in APAC implemented strict lockdowns early in the pandemic in an attempt to cap the spread of the virus, enabling a return to more ‘normal’ conditions going into 2021. 

Key numbers

• The index for marketing budgets saw both lifetime high (57.8) and low (13.4) values during 2020.
• Digital and mobile budgets managed to bounce back from temporary decline ending the year at 67.4 and 67.0 respectively in contrast to radio, OOH and press.

China tech giants criticised over use of AI

Chinese tech giants are coming under pressure over their use of algorithms and artificial intelligence, which campaigners say are placing consumers at a disadvantage.

As reported by Caixin, the China Consumers Association (CAA) produced a 14-point document earlier this month, outlining how data-driven algorithms allegedly restrict the rights of consumers in their dealings with large tech firms.

This has come amid a broader national conversation about how tech giants use technology to control information and leverage access to personal data for commercial gain.

Highlights of the CAA report

• The CAA claims that too often complex sales promotions obscure the true cost of a product and that negative reviews can get hidden, while targeted search results create an ‘information asymmetry’ that leaves consumers ‘bullied’ by data-based algorithms.
• Also of concern to the CAA is the practice of ‘algorithmic price discrimination’, where the personal data of an online shopper is used to calculate different prices for different individuals based on what they might be willing to pay.

Recommendations

• The CAA wants a special organisation to be established to regulate the ethics of algorithms and to investigate “unfair” practices that involve them.
• It also calls for tech giants to be forced to turn over their proprietary algorithms to regulators in the case of disputes.

Key quote

“At the moment I don’t think there’s a clear threshold on what’s healthy and what’s not – anything goes. What’s needed is to define what’s healthy, what’s acceptable, and then enforcement” – Nicolas Bahmanyar, data privacy consultant at Leaf law firm.

UK sees six-year leap in e-commerce, ahead of China and the US

E-commerce's share of retail sales reached new heights in 2020 as a result of the coronavirus (COVID-19) pandemic and this look sets to continue, according to a WARC Data analysis of data from national statistical organisations.

Why it matters

Shopping online was an area of strong and sustained growth in 2020. As this looks set to continue, brands need to deliver a seamless online customer experience in order to attract and retain consumers.

Takeaways

• As a result of this growth in e-commerce, brands are expected to increase their e-commerce advertising budgets by 24% this year.
• This should be focused on the "movable middle", as consumers with a 20-80% probability of purchasing will be most valuable.

Sourced from WARC Data, ONS, National Bureau of Statistics of China, Eurostat, US Census Bureau, METI, Statistics Canada, IBEF

DMA Grand Prix: BT Sport organic creativity to spur growth

Against a backdrop of steep budget cuts, UK-based pay-TV brand BT Sport was able to create and ride a wave of conversation by writing the script of the 2019/20 football season using AI, growing subscriptions by almost a third.

Why it matters: The channel, a relatively young challenger in the British sport broadcasting game, and its work reflects the value of a conversation-starting creative idea to force-multiply media spend.   

Details:

• The plan, hatched by agency Wunderman Thompson, was to create a 60-page dossier – a script of the season – compiled in association with data titans like Google Cloud, Opta and Squawka.
• Opta sports data, modelled analysis by Squawka and Google Cloud's platform worked with Wunderman Thompson to write and design the script.
• It was released to pundits, players, influencers, journalists – and the nation – before any paid advertising went out.
• The paid media activation was an Unscripted DOOH campaign, sparking huge conversation up and down the land.

Bottom line:

With vast amounts of organic coverage, doubling the paid media budget, and engagement, BT Sport was able to grow its subscriptions 30% year-on-year.

Viewers’ facial expressions can indicate sharing potential for video ads

Understanding facial expressions, such as smiles and nose wrinkles, can help marketers assess the likelihood of a consumer sharing a video ad, according to a study published in the Journal of Advertising Research (JAR).

Daniel McDuff (Microsoft Research) and Jonah Berger (The Wharton School of the University of Pennsylvania) discussed this subject in a paper entitled, Why do some advertisements get shared more than others? Quantifying facial expressions to gain new insights.

Headline findings

• Smiles were found to be most “positively and most strongly associated with sharing”, with a 30% increase in smiling associated with a 10% lift in willingness to share.
• A lip corner depressor, associated with sadness, and a furrowed brow, linked with confusion, were both “negatively associated with sharing”.
• Nose wrinkling, associated with disgust, was “positively associated with sharing”, indicating that specific negative emotions can encourage this activity.
• Smiles recorded at the end of a video had an “even more positive effect” on sharing than the favourable impact delivered by smiles at the start of a piece of content.

The big idea

“Most advertisements already try to make people smile, but the current findings suggest that certain negative emotions, such as disgust, may boost transmission as well” – Daniel McDuff, Microsoft Research, and Jonah Berger, The Wharton School of the University of Pennsylvania.

Audi, BMW car subscriptions hint at stumbling block for new model

News that the German carmakers have each drawn their subscription service trials to a close in the US hints at the complexity of transitioning from ownership to access business models.

Why it matters: In 2019, subscriptions were the future in almost every sector. The retreat of the two companies from their US trials suggests that this isn’t a universal business model to replace ownership just yet.

Reported first by automotive blogs and The Next Web, it would be a mistake to take retreat as a total defeat, especially considering that Audi was working in the large and car-focused state of Texas, while BMW was operating in Nashville, Tennessee.

One conclusion could be that lockdown measures and increased home working has lessened the demand for car use, especially when intended to mix with other transport or mobility options.

In other parts of the world, such as the actively car-hostile Amsterdam, subscription services have worked well. Though it’s interesting that the companies who have made it work have focused on subscriptions rather than a mix alongside traditional ownership.

The other explanation is that, as Oliver Wyman found in 2019, the majority of users (54% in the US) want to pay less than $500, which means that for many people, ownership is still far more viable.

Tubi racked up viewership in 2020

Tubi, the streaming service owned by Fox, reported a sharp rise in viewership during 2020 and a near doubling of streaming hours; it now has 33 million monthly active users. 

The details

• Viewership was up 58%; viewers are, on average, 20 years younger than those of linear television and nearly half of MAUs are under the age of 35.
• Many of those can’t be reached through cable TV; Tubi claims an 80% incremental audience to the top 25 cable networks.
• It also reports a representative Hispanic audience (Index 101) and an even larger African American audience (Index 167).

Takeaway

As the effects of the pandemic bite and many people have less money to spend, they are turning away from cable TV and SVOD and opting instead for ad-funded streaming platforms.