Brands this year, have come to appreciate the potential of digital communication in 2020. With ad budgets set to be closely scrutinized this year, the power of data- driven advertising to abet growth and gain market share has never been more important.
After a turbulent year that saw almost all predictions for the advertising industry thrown out of the window during the earliest months of the pandemic, consumer electronics brands and advertising agencies have turned their sights to 2021 and what lies ahead.
Despite initial setbacks in the first half of 2020 as the bottom fell out of advertising spend, digital advertising made a steady comeback, with some channels – like mobile advertising – remaining resilient, and others – like out-of-home – anticipated to bounce back in 2021. Shifts in consumer behavior due to COVID-19 have likewise made for some interesting trends in terms of which types of advertising are achieving cut-through.
As corporates continue to rationalize spends and discretionary costs post pandemic, advertising and promotions are likely to see cuts in the financial year 2021. According to Care Ratings estimates, advertising and sales promotion spends in India may see a decline of 20–30 percent in FY21 as corporates earnings have eroded.
Television was the only medium for advertisers to resort to, but with weak economic activity and revival expected to be quite distant, advertising spending may stay muted until 3QFY22. The impact of this black swan event of COVID-19, on the advertising-driven media sector will be far reaching.
The aggregate advertising and sales promotion spending across all sectors in India during 2020 saw no activity growth despite big sports events like Indian Premier League (IPL), ICC Cricket World Cup, and Football World Cup which typically attract large number of advertisers. Such negligible growth comes against the backdrop of a strong 22 percent increase in FY19.
There is no clear linkage between growth in sales and advertising and sales promotion spending by brands. For sectors like consumer durables where such spending grew by 8 percent, sales witnessed trivial growth of 0 percent, while for some sectors like retailing where advertising and sales promotion spending fell by 16 percent but net sales grew 24 percent.
India embraces digital advertising
Brands and marketers have witnessed a swift transition from traditional advertising to digital advertising, including social media, paid search ads, display ads, and online videos, among others. The low data costs, the growing penetration of smartphones, and the rise of millennials and Gen Z drive this transition.
Finally, the consumer durables industry has embraced digital advertising. According to Dentsu Aegis Network (DAN), social media was the leading digital advertising format with the highest ad spends in 2020. Over 28 percent of the digital advertising budget was spent here. In a close second, was paid search ads with 25 percent of ad spend. The promise of an immediate stream of relevant search traffic is the primary reason for the growth. The marketers of top consumer electronics companies were willing to spend and focus more on digital and social media advertising, especially during the festive season. The aim was to compensate for the industry’s losses in 1H20 due to COVID-19.
Obviously, this also makes business sense for brands as digital ads are seen as affordable than traditional TV commercials. These ads’ lifespan is also optimized as they stay on the internet as long as the campaign lasts, and even after. However, the most interesting part of a digital ad is that the audience is targeted more precisely based on their behavior, demography, likes, and interests. So, the ads are not intrusive and are almost personalized for the target audience.
The digital advertising industry in India will grow at a CAGR of 31.96 percent by 2021. It will contribute 29 percent to the ad market size by next year. Durables brands are all rapidly building up their e-commerce networks while creating relatable online personalities. Brands are also working with their trade partners to enable easy discovery and accessibility of the products.
Ad narratives change focus
From treating homemakers with respect to offering families a way out of the tedium of daily chores, durables makers are scripting their advertising narratives around the new lockdown lifestyle. Nothing about new launches, premium extensions, sleek looks, or even discounts and offers. Is this the way forward and does this also mark an end to the sector’s premiumization pitch?
Given that all the regular triggers on a typical consumer decision journey—from replacement purchases to celebratory and aspirational buys—have been blunted by the pandemic, brands have had to find new ways to enter the conversation. Hence, the ads talk about convenience, but with a keen eye on the budget as that is the way most brands will look to address latent needs and reignite desires in a post-pandemic economy.
According to the Retailers Association of India, consumers have started investing in durables to the extent that it makes working from home easier. At the same time, the lockdowns have seeded a desire for new products, companies witnessed a growing interest in segments that had been slow-starters like dishwashers. Both trends reflect the mood of the nation and that is what the advertising takes into account.
Brands make up for lost sales during festive season
Festival season is one of the best times of the year for consumer durable brands to garner sales. While some of the categories of the durables are seasonality driven, but during the festive season there is a good spike for the overall consumer electronics category. Brands aggressively promote with all kind of attractive discounts and freebies to lure the customers.The festive period usually accounts for between 30–40 percent of the total advertising spend for the year across categories. Although there was slowdown in hard-hit sectors like consumer electronics, brands spent heavily during the festive season. The festive quarter became the biggest opportunity to revive sales and bring back consumer confidence. Hence, brands leveraged various advertising channels in the best possible manner.
With the radical change in media consumption, festive season of 2020 offered opportunities for brands as marketers to connect with consumers like never before. They focused on solutions that are relevant for the new normal like re-looking at the media-mix to build the right RoI and focusing on truly incremental marketing outcomes.
Some brands opted for an intelligent marketing mix for AdEx with digital playing a key role. Through digital, they connected proactively with its consumers and through TV they penetrated the rural markets, which is helping in brand recall and visibility. This hybrid advertising model has introduced various localized, vernacular initiatives for a better brand connect. They are also planning hyper-local/geo-targeting digital campaigns with localized content to extend impactful experiences. Many media houses are now consolidating their offerings instead of individual mediums, and this is the way marketers should also look at.
The global ad market has recovered more rapidly than expected from the severe slump in 2Q caused by the coronavirus pandemic and is now forecast to shrink by 7.5 percent to USD 587 billion across 2020 as a whole, according to Zenith’s Advertising Expenditure Forecasts.
The global ad spend is expected to grow by 5.6 percent to USD 620 billion in 2021, boosted by the favorable comparison with 2020, as well as the delayed Summer Olympics and UEFA Euro Football tournament. Despite this bump, spending will remain below the USD 634 billion spent in 2019. In 2022, ad spend is expected to grow by 5.2 percent to reach USD 652 billion, exceeding 2019 by USD 18 billion, though it will be about USD 70 billion lower than it would have been if it had remained on its pre-pandemic track.
These forecasts assume that the global economy will start a sustained recovery as COVID-19 vaccines are introduced in 2021, and are subject to the wide uncertainty over how rapid this recovery will be.
Shifting budgets to digital advertising
The global digital ad spend will rise 1.4 percent in 2020, and increase its share of total ads pend to 52 percent, up from 48 percent in 2019. The pandemic has forced brands to step up their digital transformation, as e-commerce has proved a vital tool for maintaining relationships with existing customers, mitigating the loss of in-store sales, and even finding new customers. Euromonitor International forecasts that e-commerce sales will increase 25 percent this year, while in-store sales drop by 5 percent. Brands have increased their spending on digital media to promote and drive traffic to their own e-commerce operations and to retailer partners. Search and social media, up 8 percent and 14 percent, respectively, have proved particularly useful for these purposes.
The growth of e-commerce is not expected to reverse once the world starts to recover from the coronavirus pandemic. Now that brands have proved the value of digital transformation under stress, they are likely to press ahead with it enthusiastically, devoting even more of their budgets to digital advertising. Digital advertising will account for 58 percent of global ad spend by 2023.
Advertising on connected TV is compensating for rise of SVoD
Consumers’ viewing habits have been evolving for years, but 2020 saw a real step change as online video platforms benefited from a long-term boost to awareness and demand. Forced to spend much more time at home, consumers flocked to existing SVoD platforms. Importantly for advertisers, who are locked out of SVoD platforms, demand for ad-funded video on demand (AVoD) has been even stronger, especially on connected TV sets.
As it continues to grow over the next few years it will counterbalance the loss of audiences to SVoD and help fuel an average of 8.4 percent annual growth in online video ad spend between 2020 and 2023. Now that it offers mass reach in key markets, it is the right time for brands to invest in connected TV. Brands should use connected TV for both branding and performance, exploiting its high ad recall and full targeting and tracking capabilities to drive awareness and sales conversions at the same time.
Retailer media is diverting commercial budgets to advertising
The spike in e-commerce this year fueled rapid growth in demand for retailer media – display or search ads that appear on retailer platforms and direct users to products available for purchase there. This is a well-established channel in China but is relatively new elsewhere.
By promoting products at the point of purchase, it acts more like in-store displays than traditional above-the-line advertising, and brands commonly pay for it from commercial budgets set aside for negotiating with retailers, rather than from marketing budgets. It can, therefore, grow without cannibalizing existing ad expenditure. Amazon is the main supplier of retailer media outside China, and its revenues grew by more than 40 percent YoY every quarter in 2020.
Retailer media has huge potential for growth globally, given that its market share outside China (3%) was less than a sixth of its market share in China (19%) last year. Advertisers spent USD 35 billion on retailer media in 2019, and will spend USD 51 billion in 2020, up 46 percent YoY.
Retail platforms are powering their growth by putting pressure on brand margins. Their focus on bottom out price wars, and enhanced consumer experiences, benefit consumers while brands bear the cost. In this scenario, brands must flex their own power, by selecting retailer partners who offer demonstrable value through transparent data and measurement, as well as the ability to deliver the consumers who will drive much needed category growth.
APAC and Europe to lead recovery
Ad spend is forecast to bounce back to 2019 levels in 2021 in both APAC, and Central and Eastern Europe. The successful containment of COVID-19 infections in many APAC markets has limited the economic damage and prepared the region for rapid recovery in 2021. Countries in Central and Eastern Europe have generally suffered more, but their ad markets are less developed – accounting for 0.4 percent of GDP compared to 0.7 percent in APAC – and they have a faster underlying growth rate. Ad spend in both regions are forecast to shrink by 6 percent in 2020 and grow by 7 percent in 2021.
North America is estimated to shrink by just 5.3 percent in 2020, but that is partly owing to very heavy political spending in the run-up to the US Presidential election. The absence of political ad spend will make the comparison look tougher for 2021, when Zenith forecasts just 3.3 percent growth. Ad spend will then grow by 4.5 percent in 2022, which is when North America will return to pre-pandemic levels of spending.
Western Europe, Latin America, and the Middle East and North Africa (MENA) are all forecast to shrink by 12.3 percent, 13.8 percent, and 20 percent, respectively. Of these, the quickest recovery is expected from Latin America, another underdeveloped advertising region with the fastest long-term growth rate of the three, which will overtake 2019 spending levels in 2022.
Mature Western Europe will not return to 2019 levels of spending until 2023. MENA has been shrinking for years as a result of conflict, political instability and volatile oil prices, which the pandemic has only exacerbated. Ad spend in MENA will still be 4.1 percent lower in 2023 than it was in 2019.
Programmatic advertising at the fore?
2021 is believed to be the year when programmatic is no longer simply a line item on the media plan, but rather a central part of the planning process and any successful campaign. Daniel Gilbert, CEO, Brainlabs, has some reservations about the immediate future of programmatic on the back of the ongoing demise of third-party tracking cookies, on which programmatic very much depends; however, many other digital channels will provide major opportunities for advertisers.
Programmatic as a whole may need some re-evaluating as the cookie starts to crumble, but it will be a breakthrough year for connected TV and digital audio, which is going to grow massively with lots of big tech already investing. In search, Google’s algorithm will focus more strongly on user experience and intent and e-commerce players continuing to expand their ad offering will keep flourishing.
Paid social will offer new opportunities for marketers thanks to improved shopping features across platforms, and is also going to enjoy a boost outside of Facebook with alternative platforms gaining traction internationally. Digitalization and the rise of programmatic in OOH advertising will have crucial roles to play in the revival of that channel, which was severely impacted by the pandemic as footfall dropped to a fraction of its usual amount.
The lockdowns caused by the pandemic have accelerated the shift toward digital across all areas of the society. To address this, many businesses are reinventing themselves around online trading principles, and media and advertising businesses are no different. In an uncertain and increasingly digital-first world, the need for flexibility and data-driven campaigns has arguably never been greater and will continue to impact the future of OOH.
Programmatic will hold the secret to the OOH industry’s recovery. As the industry navigates further uncertainty, the flexibility that programmatic techniques and technology offers advertisers, to pause, pivot, and optimize campaigns at a moment’s notice will be crucial to its continued adoption and to the overall recovery of the outdoor advertising sector.
The continued rise of connected TV and video
The growth of connected TV advertising has been one of the great success stories of 2020, and this trend is expected to continue into 2021. 2020 saw many trends that had been gradually evolving significantly accelerate as a result of the onset of COVID-19. One such trend has been the rise of connected TV (CTV).
With most consumers’ day-to-day routines up-ended, the on-demand, flexible nature of CTV led to a huge growth in consumption. And where consumers go, advertisers follow. In addition to shifts in consumer behavior, the desire of advertisers to invest in CTV is linked to its adaptiveness as a channel; like programmatic OOH, this has the potential to be a major boon in a still-uncertain climate.
There has already been a shift away from the up-front model of TV ad-buying, and this will only gather pace in 2021. So, it is no wonder advertisers are enjoying the flexibility and speed offered by CTV. However, it is still early days for the channel. Advanced TV (or connected TV) became a big topic in 2020 with its ability to reach younger and niche audiences. But, still in its infancy, advertisers and agencies are trying to figure out how to use it in a way that complements marketing objectives and existing channels, while still managing reach and frequency.
A positive aspect of advanced TV is that it has never been a cookie-driven environment, though the challenge then is integrating it with other parts of a media plan, including applying the right kind of targeting to reach incremental audiences and delivering creative solutions that exploit its position as a hybrid of TV and digital.
Looking ahead to 2021, marketers will become more comfortable relying on advanced or connected TV as an ad channel. AVoD services are expected to grow and become a serious source of competition for eyeballs and ad spend, especially with viewers losing tolerance for additional SVoD services, and a few of the big broadcaster video on demand (BVoD) players beginning to open up their supply to programmatic demand sources. The surge in the use of connected TV apps and devices due to the pandemic will continue into 2021, along with the continued growth of video advertising, as marketers have greater access to performance metrics for their campaigns.
For the first time, media planners will be armed with data that provides insight into the incremental reach and performance across TV and digital. Coupled with the vast majority (86%) of consumers saying they want to see more video content from brands in 2020, brands will up their video content production to meet this demand and video ad budgets will continue to grow in 2021.
In order to make these budgets work as hard as possible, brands will put pressure on video advertising platforms to provide more creative insights and editing solutions, resulting in digital marketers having greater insight and control over creative strategy, historically a responsibility held by creative agencies.
New channels to connect with consumers
Changes in consumer behavior have been a prevailing theme of 2020. Alongside the continued growth of channels like connected TV and video, there have been more fundamental shifts in the way that consumers interact with brands, which subsequently change the landscape for marketers and advertisers as they seek out the best opportunities to reach consumers where they are.
The biggest sea-change is the shift to mobile devices becoming the primary method of interaction consumers will have with brands, period. To take advantage of this, brands and advertisers of all stripes are looking to reach consumers when they are already on their mobile devices. It is a quick jump to the app store to create an order. Putting a QR code on the screen during an OTT delivered ad simply does not lead to downloads and orders in the same way.
The direct-to-consumer (DTC) trend has also accelerated exponentially during COVID-19 as brands take advantage of their newly-online audience to sell and market to consumers directly. There will be a new wave of DTC business models as the age of the high street and intermediary agents comes to an end, accelerated by marketing services available to everyone as well as more hybrid agency models.
At the same time, there will be a rise in innovative partnership models from larger agencies who can support clients with bespoke technology, consultancy, or training; bolstered by acquisitions of specialist agencies that are struggling to scale on their own in a risk-averse climate. The COVID-19 pandemic has led to a surge in online consumer spending across all retail sectors, which will continue through 2021.
In response, brands are moving away from selling everything via external channels and adopting a direct-to-consumer strategy. Consumers will benefit from these direct relationships as brands will be able to offer personalized promotions, which will make this a long-term change in retail habits.
2020 has been an exciting year with unprecedented change in digital advertising. There is no doubt that COVID has accelerated DTC and helped advertisers that were already well set up in digital advertising and data management to capitalize on their foundations. Many companies were quick to pivot their ways of connecting and transacting with consumers.
Brands are setting up their own e-commerce solutions in record time or partner with shopping solutions to fulfil consumer demand. Others who already had e-commerce have witnessed phenomenal direct revenue growth from which to further invest and improve data management.
A catalyst for wider changes
There will be a rethink of how brands approach advertising blocklists for potentially sensitive topics, prompted by the coronavirus pandemic. The global pandemic has highlighted weaknesses within blocklist systems. As COVID-19 reached the UK in spring, advertisers and agencies scrambled to protect brands against coronavirus with blocklists. But, as brands saw their ads blocked from huge swathes of engaged audiences, it became apparent how flawed blocklists can be when used as part of a broad-brush approach.
While for some, blocking ads against keywords on certain channels will improve brand safety, for others this blanket approach will cause more damage than good – limiting campaign reach and reducing share of voice, for no good reason. The silver lining is that this has given the industry a great opportunity to reassess – and consider the value of taking an approach that’s granular enough to optimize reach, relevance, and brand safety across each channel.
While there may be a vaccine, COVID-19 is not going anywhere soon, so it is important that brands take proactive action to create the best advertising and marketing solutions. In 2021, the experiences of the past year will be seen serving as a catalyst for change – forcing advertisers to communicate more with their partners up the supply chain.
Digital advertising is here to stay. This could have a massive impact on digital advertising, as there will be more innovations in technology and personalization. Brands are now going to deal with the consumer of a new informed world. They are definitely going to transform their media mix for this informed consumer. TV advertising with a focus on new entertainment and infotainment avenues along with digital platforms is going to be a safe bet for brands in the near future.
OTT will be the new area where an increasing number of brands will invest. In fact, programmatic advertising could become the future of digital advertising. Given how Indian consumers are going mobile-first and consuming more digital videos and mobile ads, programmatic advertising seems to be gaining popularity.
2021 is looking bright, and brands will ensure that they make the most of the new advertising technology available.