The latest tvSpan research published by ITV claims the incremental sales generated by advertising for packaged goods brands might just, in aggregate, have repaid the cost of their TV media expenditure between 1996 and 1998.
Fundamental to this return on investment (ROI) calculation is the ratio between the value of packaged goods markets and media costs. Given that the ITV cost per thousand (CPT) for housewives has increased by 19 per cent so far this year, while grocery sales increased by less than four per cent in 1999, the effectiveness of advertising would need to have improved by 15 per cent to sustain this delicate balance of cost recovery.
So where does this leave advertising accountability? At an aggregate level, the value of packaged goods advertising must be reducing. While there may still be advertising winners, there must be an increasing proportion of advertising losers, based on incremental sales.
As the indirect benefits from advertising are becoming an increasingly important part of advertising accountability, so the justification for advertising must be evolving. If the reason for advertising is changing, then the way that we advertise should also change. For example, a media plan designed to enhance brand equity in the long term should be different from a plan designed to generate incremental sales in the short or medium term.
So are planners changing the way they plan in response to escalating media costs and the corresponding fall in the ROI from TV advertising?
Some are and some aren’t. The peculiar regional structure of the UK TV advertising market provides an interesting insight into the behaviour of advertisers and their agencies.
The relative value of advertising varies dramatically across the UK – by more than a factor of two between London and the northern regions, for example. If planners change the way they plan in response to changes in the value of advertising, we would see a marked difference in advertising strategy between the regions.
More often than not, however, the same creative and media strategy is implemented across all the regions. Differences between regional plans rarely reflect the scale of ROI differences.
Given that the ROI across the regions varies by a factor of two, does this mean that plans would stay the same if media costs were to double? Unless media plans reflect the variations in the cost of doing business, rewarding good value and penalising poor value, media costs will continue to rise in real terms.
The starting point for planning needs to be return on investment. Planners need to understand the purpose of their clients’ advertising and design media plans to maximise the benefit to advertisers.
Ian Fermor is technical director of The Billett Consultancy