Kantar Media, the data- and insights-oriented consulting division of WPP, earlier this month released a report that revealed that the top 10 US retailers spent a combined $1.2BN on television ads last November and December, more than double what they spent on digital advertising. Interestingly, while Facebook-specific digital spend remained relatively flat over the period, television spending spiked up around Thanksgiving and Cyber Monday, which are the two largest retail sales dates of the year.
That television captured such a large share of advertising spend from these large retailers last holiday season bucks a few different macro trends in the advertising industry. “Internet” advertising spend overtook television advertising spend in 2017 according to the IAB:
And within that “internet” bucket, mobile overtook desktop in 2016:
One of the reasons for the transition of advertising dollars away from television and into digital over the past few years is transparency: in 2015 I wrote about “Mediapalooza”, in which a number of large brands and retailers put their agencies into review over the rebates they were receiving from their advertising partners that didn’t seem to get passed back to them in the form of reduced costs. While that episode did catalyze some changed behaviors, the other problem with television ads relative to digital ads is their ability to be attributed to revenue. Some sophisticated statistical models have been deployed at this problem, but those models can just as easily be deployed against digital video ads, where the process of buying is more automated and straightforward (anyone who has ever purchased television ad inventory knows how manual and “intuitive” it is) and where click-oriented ads alleviate that problem in the first place.
But another reason that advertisers have cooled to television is that customers have, too: “cord cutters” and “cord nevers” are not watching television and are thus not reachable by television ads, while almost every cohort when broken down by age is watching less TV than it did 10 years ago:
All of these macro factors have produced an environment that is friendly to retail companies with deep digital advertising expertise, which is what the fairly recent ensemble crop of “D2C” (direct-to-consumer) retailers is. These companies are able to reach their ideal consumers efficiently via targeted ads (especially Facebook ads) and build marketing flywheels out of the virtuous cycles that arise out of revenue attribution and customer data with flexible, configurable, and algorithmically-powered digital ad campaigns. Terence Kawaja, the CEO of LUMA Partners, presented a D2C “LUMAScape” infographic last month, providing a roster of the D2C start-ups that are challenging large, established brands in various retail categories:
Given all of this — the changes in macro factors and general advertiser sentiment around television — it seems odd that the largest US retailers apportioned so much of their budgets to television in the holiday season last year. So why did they?
Assuming perfect information, rational behavior, and righteous incentives, the economist’s explanation would be that television advertising must work for those retailers. That’s one possible explanation, and it’s probably the one to which those retailers would lay claim. Another explanation is that those retailers might have a harder time accessing the digital marketing talent pool and building digital marketing teams than smaller, nimbler, and likely better-paying start-ups, and so those retailers’ expertise is concentrated in functional groups that would naturally gravitate toward television advertising. It’s easy to say “if it ain’t broke, don’t fix it” when you don’t have measurement in place to reveal that something is broken.
Of course, it bears mentioning that many retailers aren’t fundamentally optimized for digital advertising and their primary goal in reaching potential customers is in-store ad recall or motivating someone to actually leave the house and go to a store. This argument doesn’t explain why television would be the advertising channel of choice, though: rich video recall ads work just as well on mobile and desktop as they do on television and are more measurable and transparent. Yet this mentality — that a successful advertising outcome is someone getting in their car, and ads seen in the living room are superior for that than ads seen on a mobile screen — is pervasive, and it’s ultimately what created the space for D2C companies to flourish in the first place.