Advertising represents less than 30 percent of the average marketer's total communications budget. The other 70% + is invested in consumer sales promotion, trade promotion and price incentives, event marketing, public relations, cause related marketing, direct marketing, consumer research and other performance-based marketing programs. Unlike advertising, most of these investments have a direct connection to return-on-investment metrics. Media companies and agencies are focusing significant resources on defining the R-O-I valuations of media spending, but traditional advertising models remain entrenched as the core foundation of the business. Several companies are looking toward greener pastures and evolving their businesses away from traditional advertising/media models while embracing alternate forms of marketing communications.
Antony Young, president of the Optimedia U.S. division of Publicis, points out "marketers have many places to put their budgets and there is not enough debate about how those budgets should be allocated." He told Jack Myers Media Business Report, "with what's happening with the economy, we see a lot of 'advertising in a recession' studies that say you need to keep spending. That will not cut the mustard with corporate marketing and brand executives." An ANA study last month reported 53 percent of marketers expected to cut back budgets in the next six months, on top of those who have already done so. "Agencies like Optimedia and media sellers need to be able to better understand what elements of communications are driving brand responsiveness in the short term – with a higher level of focus on outcomes rather than outputs." In the past 18 months, Optimedia has tripled the size of its Strategy Resources Group and more than 70 percent of the company's staff are strategy/planning/research executives
AT IDG, publisher of Macworld, Computerworld and PC World, only 40 percent of total profits are generated by the traditional magazine business, compared to 80 percent just five years ago. Bob Carrigan, IDG president, advises "the tail is now wagging the dog. We used to use databases to drive subscriptions. Now we use magazines to drive databases. We actually make significantly more money per user from event and online related activity against a name than from a magazine subscription." This year, IDG will host more than 750 events globally including 250 in the U.S., including Macworld where Apple chairman Steve Jobs makes his famed annual appearance. IDG generates attendee revenues and sells high value sponsorships, "using databases to put the butts in seats," explains Carrigan. This model has translated into increased profits for IDG as the share of business from digital, database marketing and events has increased.
American Express Publishing's president Ed Kelly reports that 40 percent of revenues are generated by non-magazine businesses, including books, events and membership/affinity clubs. This compares to an estimated magazine industry average of 10 percent of revenues generated from non-magazine business. However, unlike IDG, Kelly tells Jack Myers Media Business Report that the company's online investments are not yet profitable due to expensive infrastructure costs and intensive cost-per-thousand competition. Amex Publishing has, however, used online to support more than 600,000 members of affinity clubs, with members paying up to $80 annual fees. Only half of all club members are subscribers to Amex's publications, which include Travel & Leisure, Food & Wine and Departures.
Optimedia's Young has established a significant competitive advantage through the company's database of 60,000 consumer interviews conducted over the past three years. Young explains the research enables media and communications planners to evaluate consumers' marketing communications touch points in 44 business categories. "This offers a much higher level of confidence about where budgets should be allocated," he says. "Our strategy is about being clearly focused on driving results and not just about executing plans."
Young exclusively shared with Jack Myers Media Business Report that seven of the top 10 most influential touch-points in terms of purchase and brand performance for marketers are promotional or in-store activities such as in-store sampling, coupons on packaging, in-store promotions, free standing coupon inserts and free gifts. "We see shopper marketing increasing in importance and the need to recognize these as media alongside television and print advertising," Young advises. Among paid advertising media, television was the strongest in terms of influence on purchase followed by specialist magazine ads, Internet search, consumer magazine ads, newspapers, TV sponsorship and then radio ads. Internet display ads performed poorly in terms of sales influence. Consumer opinion sites & blogs rated slightly more effective than newspaper advertising
Seven of the top 20 touch-points were independent sources of information, endorsement or recommendation e.g. family/friends recommendation, doctor recommendations, comparison websites, print articles - demonstrating the declining reliance on brands and paid advertising. "As an industry, we are needing to be more clever in recognizing this movement and reflecting this in our strategies."
Young suggests the economy will challenge agencies and marketers in two areas. First, he says, "is a much greater urgency to prove return-on-investment. That will require CMOs to reestablish their own credentials within their own organizations. They will be held more to account to define marketing's outcome." The second area Young outlines is a "focus on the question of efficiencies. Optimedia has focused on putting strategy at the heart of the agency. Of course we execute media buys and plans as the core of our business but more and more there is a call to be more strategic about how we approach communications. Often silos prevent that discussion. When we talk about efficiencies it's about cutting across silos and having more of a strategic discussion. Clients aren't asking Optimedia to buy a media plan more efficiently," he advises. "They are asking about the total marketing mix."
Carrigan uses IDG's massive databases on behalf of its clients for lead generation and aggressive online promotion. "Names are like gold," he exclaims. "We collect names, earn their permission, and introduce them to white papers, web casts, and other content that we blend with our editorial information. It's a gigantic business." He acknowledges "print will be a viable business for many years, but it is not what it used to be. We can continue in our legacy business but we need to innovate and grow new businesses that leverage our past experience." Carrigan compares IDG's evolving business models to Apple's development of the iPod and iPhone and Microsoft's expansion into the gaming space. "We can build different businesses that leverage the best of our company and take us in new directions."
Carrigan and Kelly will join Meredith Publishing president Jack Griffin on the opening panel of next month's American Magazine Conference http://www.magazine.org/EVENTS/conferences/american_magazine_conference/index.aspx, which I will be moderating.
About Jack Myers: For more than two decades, Jack Myers has been the media industry's leading analyst, researcher and advisor on relationships among marketers, agencies and media sellers, providing business development services and custom insights on relationship best practices to more than 200 marketers, agencies, media companies and industry service providers. Jack can be reached at jm@jackmyers.com
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This post originally appeared at JackMyers.com.