Procter & Gamble, Airbnb and other major advertisers see marketing opportunity amid inflation
Whisper it – because this unstable economy has kept nothing true for too long – but big advertisers apparently view advertising less as a cost, more as an investment.
That doesn’t mean they’re going to spend big during the recession. Given inflation and supply constraints, this is simply not possible. It also doesn’t mean that ad spend is going to be reduced. But that creates a dilemma: Limit spending too much and advertisers risk being left behind at a time when price increases have become easy to achieve, but inflation is still squeezing profits.
This is neither an entirely good or bad situation for the ad industry – it’s complicated. After all, inflation can be a good marketing opportunity to get consumers to pay more for a product they like when they’re prepared for price increases. They are now making advertising investments that they hope will pay off in driving growth.
This is clear at this point in the current earnings window.
So far, the biggest advertisers have broadly said the same thing: advertising is more strategically important than ever, as they need to push through bigger-than-expected price increases based on their strong brands. Which means those who hold the purse strings of these companies need to think differently about ad spend.
Where are the dollars going?
“We are actively shifting our spend from linear and untargeted television to programmatic and digital spend that is much more targeted and much more precise in terms of reach,” said Andre Schulten, chief financial officer of Procter & Gamble. income update last month. “It’s hard to describe the smugness of the media in dollars.”
This led P&G to think about the reach metric with more clarity.
It shifted more advertising dollars from untargeted linear TV to more targeted and accurate programmatic and digital media when it comes to delivering reach, Schulten said. To do this, marketers need to think less about making budget plans based on annual spend by category, and more about a brand’s scope objection. Only then can they calculate the type of media exposure needed to achieve the required reach goal, Schulten continued. Get it right, it is thought, and those brands should be able to achieve the required reach at lower total advertising costs than P&G has historically spent.
This last thing is essential for P&G. Like so many of its contemporaries, the company decided that the response to rising commodity prices was not to cut costs to stretch margins, but rather to pass those increases on to consumers and take the hit on the profitability. Eventually, costs will decrease while price increases rarely do. So there’s no better time to try to convince people to shell out more for the same thing, given that they’re all too aware that inflation is everywhere. Even better if the company can do it without spending as much as it did on marketing. A permanent increase in margins thus becomes steeper.
“Consumers are clearly taking on more price increases than many companies anticipated, so now is a good time to advertise to push through price increases,” said Ian Whittaker, analyst at market and founder of Liberty Sky Advisors at a recent event hosted by media management firm Ebiquity. “This raises an interesting question as to whether companies that can pass price increases through to the consumer are likely to see a permanent increase that ripples through to their margin. In this way, advertising, or rather brand advertising, becomes more like intangible capex.
This certainly seems to be the case at Airbnb.
The company just had its most profitable quarter yet. It grossed $2.9 billion over the period, up 29% from a year earlier. Of this total transport, its net income was $1.21 billion, an increase of 46%. At least some of these gains were due to advertising. Or more specifically, a shift from search advertising to brand advertising that began three years ago. Needless to say, the company’s senior executives are pleased with these returns, even though they have reduced their advertising spend. They are a given in the current climate.
When to cut spending
The real challenge is knowing how much advertising to limit before it starts having a negative effect on the business – something Airbnb seems to have figured out (at least for now).
“In terms of advertising return on investment, we’re really happy with our marketing strategy approach that we’ve had in that our brand marketing results are delivering great results overall with a strong return rate” , said the company’s chief financial officer. Officer Dave Stephenson. “We think one of the biggest drivers of our traffic is public relations. And then brand marketing is really important. And actually, we think of it a bit more like product marketing. We want to educate people about our new features.
These are not necessarily new ideas. Indeed, performance marketing has always been about spending a dollar today to get a dollar back tomorrow, next week, next month, or anytime in the sales cycle. Here, however, Airbnb is using performance marketing to essentially balance supply and demand, Stephenson said, instead of buying large numbers of customers. This should allow for a “very effective, “very dynamic” marketing approach that should “become more effective” every year, he continued.
Like P&G’s focus on reach, Airbnb’s pivot comes down to pushing fewer dollars further. There are also consequences to completely disabling the ad valve.
“Building strong profit metrics into campaigns is essential for marketers and successful online businesses become savvier with their advertising spend and take the time to understand and implement the wide range of innovations technologies available to them, such as automation and AI that enable greater optimization,” said Liam Patterson, CEO of e-commerce marketing platform Bidnamic. “It’s important that brands don’t succumb to temptation to reduce advertising as a whole, as this will lead to long-term loss of brand awareness, which is difficult to recover.”
Advertising drives growth
PepsiCo saw the benefits in its most recent quarter.
“The investment we have made in our brands over the past few years is paying off, in the sense that our brands are being extended at higher prices and consumers are following us in Europe and other parts of the world,” said the CEO and President. Ramon Laguarta during the company’s earnings call last month.
Without advertising, it would have been more difficult to pass on price increases to buyers. Advertising drove growth. The numbers back it up: Revenue in Europe hit $3.7 billion in the quarter, up from $3.6 billion a year ago, while operating profit rose 28% to $564. millions of dollars.
“We try to be engines of growth for our customers,” continued Laguarta. “If you look at the majority of our conversations with our customers, it’s focused on growth and how we grow our categories and then bring consumers there and continue to bring new opportunities into those categories. That’s the role we we play to our customers and how we create long-term business value.
So many of Unilever’s brands have weathered the recession (so far) relatively unscathed. So much so that 80% of the company’s brands have held or gained market share, CEO Alan Jope said.
“We’ve gained market share and that’s a consequence of the health of our brand, of the investments we’ve made, not just in advertising but in product quality,” he said. “Coping with price increases is not easy and we are very attentive to the pressure this puts on consumers.”
Not all ad managers see it that way. Sir Martin Sorrell, the founder and executive chairman of the holding group of agencies S4 Capital is one of them. He said brand advertising would be removed at the Web Summit conference in Lisbon last week, per exchanger.
In many ways, he’s right. P&G, Airbnb, Unilever and others are working with tighter budgets these days. However, they only reduce up to a certain point, and moreover, these reductions will not always benefit performance media. Not when advertisers have doubts about the the efficiency of these places, or pushed these platforms as far as they could when it came to optimization.
Instead, these companies have taken a calculated gamble to invest what they can now when things are tough in hopes that they can reap the rewards once the economy stabilizes.
“Advertisers know that a stop and start approach to brand advertising would only increase costs in the long run, just as it would if they kept opening and closing a factory – there are costs. incurred every time that happens,” Whittaker said. “There’s a case for many companies realizing that – strategically – advertising is becoming more and more structurally important.”