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.

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.