The early assumption was that life would return to normal and media teams could revert to their typical budgeting and planning processes. But there are clear indications that consumer behavior has changed for good, with the pandemic accelerating a trend toward online channels that was already in progress. In the space of five months, consumer online buying in the United States grew from around 15 percent to 45 percent for most categories.
Much remains uncertain. It is against this backdrop that advertisers are trying to plan for 2021, figuring out how much to budget, how to use that money as efficiently as possible, and how best to position themselves to adjust to whatever the future might hold. If a silver lining exists, it’s that the shift toward digital channels should be making it easier to track media-spend performance with much greater precision. This budget precision is particularly useful when it comes to budget negotiations between marketing and finance, which tend to be protracted given how hard it is to ascertain the budget’s impact on growth. In times of uncertainty, those negotiations are likely to be harder still, with stakeholders pulling in different directions.
While advertisers have made adjustments to their media spend, media planning often still does not reflect the scale of the change in the market or the precision now possible through analytics. Taking old plans and adding or subtracting a percentage, as has often been done, won’t do.
In this light, we suggest that marketing leaders focus on answering the following five questions before locking in their media plans for 2021.
1. Are you spending the right amount for your business ambitions?
The first problem that companies need to solve is not how much to spend, but how much they should spend. That depends on whether there is opportunity to grow market share or a threat of losing share that could be addressed with better media spend.
Benchmarking overall media spend as a percentage of revenue against industry peers is therefore a good starting position, though one few companies choose. There will naturally be wide variation between different sectors and companies of different sizes. But only with a gauge of how much competitors are spending can a company start to figure out whether ramping up or turning down its spend is the right approach on the basis of its growth ambitions.
Capitalizing on a trend toward casualization and working from home fueled by the pandemic, one North American apparel company saw an opportunity to amplify its brand awareness at home and abroad. External benchmarks suggested that it was underspending peer brands by up to 50 percent in paid media. By bringing together its key leaders in marketing, finance, and operations, it was able to understand the value of substantially increasing its budget.
Growth ambitions are not, of course, the only consideration. Competitor activity (for example, new product launches or promotions), the life cycle of products, and historic returns on media investments must all be factored in. So, too, must the company’s financial position. Together, they guide the company toward a baseline budget. Using this approach, one global CPG company concluded that it could meet its growth targets not by increasing the budget but by reallocating it between brands.
While useful, this benchmarking exercise is just a starting point and needs to be refined. Using up-to-date market research, trend analysis, market conditions, and consumer insights into brands and products, marketing leaders can develop a deeper understanding of which customers are truly persuadable and addressable in 2021. This analysis, often with the support of specialty agencies, is crucial in developing final budget projections and outcome forecasts.
2. Do you have the analytics available to fine-tune your spend?
During these unusual times, it’s important to build flexibility into media plans. Precision budgeting, in fact, builds in regular adjustments based on monthly reviews. Regular reviews of performance—effect of spend on audience targeting and personalization, for example—allow marketers to pull back spend if its marginal contribution starts diminishing, or to maintain and even increase spend if its contribution is rising. Alignment on spending between marketing and finance is also easier to achieve if there is room for ongoing review and reallocation.
To make such quick adjustments, however, companies need to accelerate their analytics capabilities to update models in days and weeks, not months. Those models should assign the value of media not just to e-commerce sales but to sales made through all channels, including in stores and call centers.
Given the higher use of digital and other addressable channels, such as smart TV and over-the-top channels, the task is to some extent becoming easier. For example, some 33 percent of consumers in Europe and 41 percent in the United States say they have begun to use online streaming during the pandemic or have been using it more. Moreover, advertisers are finding ways to overcome the long time it can take to accumulate and assess data on the sales impact of TV ads. The best way to build impact models in the short term for TV is to use data sources available quickly and test to see if they exhibit any material divergence from longer-term ratings beyond the first week after airing. In most cases, there is little divergence, and what there is can be worked into the modeling process to have no more than a one- to two-week lag.
This assessment might not be perfect, but it will suffice to begin making initial budget and allocation adjustments, which can be updated later. Speed here is more important than developing the perfect model.
3. Are you spending enough on addressable channels?
The traditional media-planning process has generally been to set the national TV plan first, buying slots up front for key sports and other big-audience events, before turning to other channels to fill gaps in the funnel. That process has been weakened by the pandemic, however. Few big, live-sports events have been screened, and the focus of many budget-constrained companies has been on reaching and keeping existing customers though more targetable, bottom-of-the-funnel media. At the same time, consumers are moving to digital channels in large numbers.
In response, many advertisers are allocating spend away from TV. On average, traditional media accounted for 46 percent of the media budget in 2019, a figure expected to fall to 40 percent in 2021. And more than half of ad buyers are shifting their dollars from broadcast (53 percent) and cable TV (52 percent) to connected TV (CTV).
TV spend is, of course, a crucial pillar of a media-spend plan. However, the “TV first” mindset still proliferates, creating significant blind spots in media-spend performance models. Only 50 percent of advertisers surveyed are currently using ad-supported streaming video in their media mix on the likes of YouTube and Hulu, for example (Exhibits 1 and 2).
This shift to more addressable channels creates a huge measurement challenge. TV-metrics methodologies based on reach and frequency are not transferable to addressable media. In addition, video marketplaces are highly fragmented and becoming more so, further complicating the measurement challenge. Since there are no ready-made solutions available to address this issue, advertisers are building into their plans ways to build capabilities that can provide a more comprehensive and accurate way of gauging the impact of their spend on brand building. Some are also considering how to work with boutique firms that have these capabilities already in place.
4. Do you have the right mix of agencies to move fast?
With a clearer view on where to spend, the planning process should also take a close look at how that budget will actually be spent on campaigns. The usual campaign planning and execution processes, however, often take days or even weeks rather than hours, which is the increasingly necessary time frame for them to be effective.
Recognizing the need to be more nimble, some global agencies are building capabilities internally or acquiring smaller boutique shops. And agencies across the globe are focusing on automating basic processes, such as inserting orders, digital-media buying, and back-end reporting. But in many cases, they haven’t gone far enough, and in response, many of the biggest advertisers have been bringing aspects of their agency work in-house, often citing the need to react faster to changing consumer sentiment. In the United States, 55 percent of companies now handle some of their own media planning and/or buying, particularly for social media, search-engine marketing, and other digital channels.
These kinds of changes will continue over the longer term. But in the short term, advertisers will need to work with their agencies to find a model that will reduce campaign development time. One place to start is with incentives. The replacement of commission-based compensation models with performance-based models that adjust fees in line with faster turnaround times, as well as higher return on ad spend and higher e-commerce sales, align the incentives of advertisers and agencies. This isn’t about just reducing costs. With incentives aligned, advertisers and agencies should both be more satisfied.
To increase agile campaign delivery, all advertisers should also reassess their balance between in-house and agency support as well as their agency mix. Some companies that work in fast-evolving markets where the value of personalization is high may conclude that bringing everything in-house is the answer, provided they have the necessary budgets and talent. Others will go for hybrid models, perhaps choosing to bring only digital media in-house, given its small relative cost and the strategic advantage it delivers.
When it comes to the mix of agencies chosen, smaller national agencies and boutique shops with specialist knowledge of niche markets and channels might be able to deliver faster results on occasion than global ones.
5. Are you experimenting enough with strategic publishers?
In mature markets such as the United States, the majority of consumers can be reached through a relatively small number of publishers. The European market is more fragmented, with many more local publishers serving local markets. Nevertheless, some of the leading digital platforms have a pan-European presence.
As advertisers develop their media plans, the most forward-thinking are considering how to work more closely with such publishers to take advantage of their reach, first-party data, and analytical power. Some of the digital platforms invest alongside retailers to help CPG companies understand how media drives store traffic and returns on investment. Traditional publishers are beginning to follow suit, especially in markets where broadcast networks are more consolidated.
In the United States, one of the large incumbent media companies is partnering with technology and data providers to better understand consumer preferences across multiple platforms—smart TVs, digital radio, laptops, and smartphones, for instance—in order to control the overall amount of advertising a consumers views, coordinate the messaging, and optimize the overall brand experience across devices.
Given this fast evolution of capabilities and services, multiplatform media conglomerates are considering how to partner with media technology platforms and data providers to measure outcomes and evolve traditional gross rating point (GRP) and cost per mille [thousand] (CPM) metrics, in order to build comprehensive views of their own audiences across platforms.
Advertisers will need to position themselves alongside such publishers in order to better test, execute, and measure their media plans, as well as to pilot new automation and targeting technology. Eventually, experimentation will likely lead to strategic relationships in which advertisers can reward publishers not for the number of impressions they deliver but for outcomes such as the extent to which they drive sales and a stronger brand. This expansion in the partnering ecosystem will challenge advertisers to track metrics and integrate media planning, buying, and optimization across publishers and platforms.
Just as consumer sentiment and behavior changed at the start of the pandemic, so it will continue to change as communities go through stop-start lockdown and reopening cycles, making it impossible to predict the future with any certainty. Advertisers therefore need to position themselves to adapt to change when planning their media spend. Moving decisively to implement precision budgeting, focus more on addressable channels, make campaign delivery more agile, and develop new relationships with publishers will be indispensable in executing effective media plans.
About the author(s)
Cody Butt is a partner in McKinsey’s Denver office, Jeff Jacobs is a partner in the Chicago office, Craig Macdonald is a partner in the Southern California office, and Priya Rammohan is an associate partner in the Brussels office.