Inflation and the Advertising Industry

August 3, 2022

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How is inflation affecting the ad industry and media spend?

Inflation is a significant concern right now. For marketers, this worry isn't just about revenue, but also attached to media spend. What should marketers plan to spend when so much feels uncertain? The answer, of course, isn't so clear and changes depending upon the industry.

According to Marketing Dive, buyers that are decreasing spend cited the following reasons: economic issues, supply chain issues, and consumer inflation. Kantar recently advised that marketers should be "bold" and instead of focusing on many ideas, focus on a few: "Kantar media effectiveness and touchpoint planning studies consistently show that a minority of touchpoints deliver most of the impact for brands. Across a wide range of markets and categories we typically see that 20 percent of touchpoints deliver 80 percent of the brand impact."

An interesting point Kantar also found: "Paid media typically only delivers 25 percent of all touchpoint impact, while other touchpoints like product experiences and word of mouth can contribute up to 75 percent." Further, Ron Ruffinott, head of research at Toluna, Americas, wrote in an ANA article that to combat the "consequences of inflation," brands need to think about the consumer to help make choices regarding spend:

"Start by considering aspects such as price tiering, packaging, and offerings. Brands must consider the economic factors that influence spending and adjusting price tiers to appeal to different consumer groups is one way to account for this.

As for packaging, it is important for brands to alter sizing of goods to adapt to preferences. For example, many consumers prefer to buy in bulk or larger sizes for cost effectiveness, but not all people are able to afford bulk pricing. To account for this, consider providing smaller, more budget-conscious products."

Adjusting spending behavior based on consumer mindset matters more than ever, considering Toluna reported recently, as according to Ruffinott, that "59 percent of respondents said that they will trade down to less expensive brands in various product categories such as food, personal care, and alcohol."

Below are helpful resources. Don't forget to read Marketing Planning Amid Uncertainty and What Happens When Brands Go Dark.

Resources

H2 Ad-Spending Expectations Jump but Broad Picture Remains Uneven. Marketing Dive, August 2022.
Ad spending in the year's second half is expected to be 7 percent higher than what marketers originally planned, according to a new survey of media decision-makers conducted by the Interactive Advertising Bureau (IAB). However, sentiment is uneven in category breakouts. Travel is forecasting 27 percent higher spending than anticipated, while tech is 15 percent higher. But automotive foresees spending that's 2 percent lower versus original plans, while health and wellness is projected to be down 5 percent.

Buyers pulling back pointed to several reasons, including a tightening economy (cited by 66 percent), supply chain issues (45 percent) and consumer inflation (38 percent). Marketers now expect full-year media spending to increase 9 percent over 2021, down from a prior outlook of a 13 percent gain.
These Global Brands Have One Thing in Common When it Comes to Recession Planning. Adweek, August 2022.
As the cost-of-living crisis weighs heavy on consumers and a potential economic downturn looms, businesses around the world are making tough decisions about price points and media plans. However, the outlook isn't entirely cloudy for the ad industry, as (for now at least) some of the world's top spenders are leaning on marketing to see them through. For one, Coca-Cola's CMO said it had developed a set of "best practices" to manage business outcomes in hyper-inflationary environments.

How Marketing Leaders Can Steer Their Brands Through Inflation. Fast Company, July 2022.
Unlike the ongoing supply chain issues that impact certain products or industries, inflation is impacting nearly everyone—and nearly every brand. The last time we saw inflation at today's levels was over 50 years ago in December 1981. It was a disastrous time for many businesses because they had few tools to combat inflationary pressures. Fortunately, it's a different story this time. Marketers could not only curb inflationary pressures, but also come out ahead as leaders in the industry by making the right performance improvements with the right marketing resources and tools. Marketing efficiency has never been more important than it is today—and improving efficiency is one of the most reliable ways to combat inflation. You can drive efficiency by accelerating your digital transformation, focusing on hyper-targeting, and maintaining smart marketing spend.
Maximizing Media Budget ROI as Ad Cost Inflation Soars. Kantar, June 2022.
Inflationary pressure is mirrored in the global advertising market, with media buyers wrestling with unprecedented levels of ad cost inflation, particularly for TV. The question now is which consumer habits will stick as we emerge from the pandemic, and what does that mean for media investment strategy? Kantar offers key actions to maximize media budget ROI as ad cost inflation soars:

Be bold – continue to invest in advertising but streamline the strategy, focusing efforts behind the top 20 percent most effective touchpoints
Know the rules of engagement – develop a consumer-centric understanding of the touchpoints that will engage your target audience and deliver brand impact in your category and market; there is no one-size-fits-all solution
Uncover the blind spots – paid media must work alongside earned and owned touchpoints to give your brand a competitive edge

Buckle Up: Even More Wage Inflation is Coming for Agencies. PR Week, June 2022.
What does economic inflation mean for the agency world? Get ready for even more wage inflation. According to the 2022 PRWeek/PR Talent Salary Survey, the median salary increase for agency pros in the U.S. was a robust 15.6 percent versus the 2021 survey, when the year-over-year hike was 6.8 percent. The 2022 survey was in-market amid a talent war, in large part fueled by communications' heightened role in helping companies navigate the pandemic. Now agencies are having to contend with economic headwinds.
How Brands and Agencies are Spending Smarter Amid Record Inflation. Trade Desk, March 2022.
Add inflation to the expanding list of issues impacting advertisers. "Marketers are caught in a scenario where the retailer doesn't want to increase costs that are passed on to the consumer and where shipping costs are impacting a brand's ability to deliver their products to stores," Jeff Roach, president and chief strategy officer at indie agency SCS, said. "The increased costs are squeezing margins during a challenging talent environment, which is creating turnover that is directly impacting a brand manager's ability to execute their media strategies."
Performance Media Report. Merkle, Q3 2022.
Record inflation is skyrocketing prices at the gas pump, in the grocery store, and across the web. At the same time, it's contributing to softer YOY growth in channels like paid search. That inflation is necessitating faster adoption of machine learning and automation, which can help marketers make the most of their ad dollars in paid media channels. Machine learning and automation are also the keys to unlocking personalized content for every customer across the various stages of their shopping journeys.

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