It may have been Lord Leverhulme, the British soap pioneer, Frank Woolworth, America’s first discount-retailer, or John Wanamaker, the father of the department store; all are said to have complained that they knew half of their advertising budget was wasted, but didn’t know which half. As advertising starts to climb out of its recent slump, the answer to their problem is easier to find as the real effects of advertising become more measurable. But that is exposing another, potentially more horrible truth, for the $1 trillion advertising and marketing industry: in some cases, it can be a lot more than half of the client’s budget that is going down the drain.
The advertising industry is passing through one of the most disorienting periods in its history. This is due to a combination of long-term changes, such as the growing diversity of media, and the arrival of new technologies, notably the internet. Consumers have become better informed than ever before, with the result that some of the traditional methods of advertising and marketing simply no longer work.
Ad spending grew rapidly in the late 1990s, but in 2000 — just as the technology bubble was about to burst — it soared by more than 8% in America, which represents about half the world market. The following year it plunged by 8%. Spending is up again, according to ZenithOptimedia, which has long tracked the industry. It forecasts that worldwide expenditure in 2004 on major media (newspapers, magazines, television, radio, cinema, outdoor and the internet) will grow by 4.7% to $343 billion. It will be helped by a collection of big events, including the European football championship, the Olympic Games and an election in America. Historically, when there is an upturn in advertising expenditure, it tends to rise faster than the wider economy. So, provided economic growth can be sustained, ad spending may continue to pick up.
How will the money be spent? There are plenty of alternatives to straightforward advertising, including a myriad of marketing and communications services, some of which are called “below-the-line” advertising. They range from public relations to direct mail, consumer promotions (such as coupons), in-store displays, business-to-business promotions (like paying a retailer for shelf-space), telemarketing, exhibitions, sponsoring events, product placements and more.
These have become such an inseparable part of the industry that big agencies now provide most of them. Although some are less than glamorous, marketing services have grown more quickly than advertising. Add in the cost of market research, and this part of the industry was worth some $750 billion worldwide last year, estimates WPP, one of the world’s biggest advertising and marketing groups.
As ever, the debate in the industry centres on the best way to achieve results. Is it more cost-effective, for instance, to employ a PR agency to invite a journalist out to lunch and persuade him to write about a product than to pay for a display ad in that journalist’s newspaper? Should you launch a new car with glossy magazine ads, or — as some carmakers now do — simply park demonstration models in shopping malls and motorway service stations? And is it better to buy a series of ads on a specialist cable-TV channel or splurge $2.2m on a single 30-second commercial during this year’s Super Bowl?