Big Spenders on a Budget: What the Top 200 U.S. Advertisers Are Doing to Spend Smarter

U.S. ad spending for the 200 Leading National Advertisers rose a slim 2.0% in 2014, but the story is not that marketers are pulling back. They are spending smarter. Ad Age's annual LNA report provides more evidence of how blue-chip marketers are getting more bang for their billions of bucks by doubling down on digital and taking unnecessary costs out of marketing. While total U.S. ad spending for the top 200 advertisers reached a record $137.8 billion in 2014, the growth rate was the lowest since the ad-market recovery took hold in 2010, according to the report. The full LNA report, including rankings and a database of the top 200 advertisers, is now available online to Ad Age Datacenter subscribers. A summary of the report will appear in Ad Age's July 13 print edition. Procter & Gamble Co., the nation's and world's largest advertiser, is among those making the pitch to Wall Street that digital is more efficient. "We're shifting more advertising to digital media, search, social, video and mobile as consumers spend more time there," P&G Chief Financial Officer Jon Moeller said at a June investor conference. "In general, digital media delivers a higher return on investment than TV or print." The nation's 200 biggest advertisers last year reduced measured-media spending by 1.8%, with cuts in every major medium except broadcast network TV and cable TV networks. Among the 200 LNA, the measured medium showing the sharpest decline may be a surprise: The top 200's spending on internet display advertising last year tumbled 13.3%. The 200 LNA boosted spending on other forms of marketing by 6.5% in 2014. Ad Age refers to spending on other forms of marketing as unmeasured spending, a bucket meant to capture the difference between measured-media spending figures and a company's total U.S. advertising and promotion outlays. The measured-media drop and unmeasured-spending gain add up to a 2.0% increase in 2014 total spending for the 200 LNA. Total spending consists of measured-media spending (calculated by WPP's Kantar Media for 18 forms of traditional media along with internet display spending) plus Ad Age Datacenter's estimate of unmeasured spending (including digital plays -- search marketing, online video, mobile, unmeasured forms of social media -- and promotion, experiential marketing and direct marketing). Unmeasured spending continues to take a bigger slice of marketing budgets, capturing 47.8% of the 200 LNA's ad and promotion spending last year. That's up from 45.8% in 2013. The 200 LNA accounted for more than half (50.9%) of U.S. measured-media ad spending in 2014. If you're in the TV business, the 200 LNA is your hot list: This blue-chip roster in 2014 accounted for 79.9% of broadcast network TV advertising and 64.6% of cable TV network advertising. The top 200 are under-represented in other (non-TV) measured media, making up well below 50% of spending. For example, the 200 LNA accounted for 41.9% of measured spending in magazines, 40.6% of internet display spending and 25.3% of newspaper spending. Here's another way to consider this. Look at the accompanying pie and click on the "200 Leading National Advertisers" slice. TV (broadcast network, cable TV network, spot, syndicated) grabbed 68.5% of the pie; internet display had a 7.2% slice; print media, radio and outdoor divvied up the remaining quarter (24.3%). Then go back to the main pie chart and look at the pie's "All other advertisers" slice, the universe of advertisers outside the 200 LNA. TV consumed 41.7% of the pie; internet display had an 11.0% slice; print media, radio and outdoor accounted for nearly half (47.3%) of the pie. When it comes to measured media, the 200 LNA are going in a different direction than smaller advertisers. U.S. measured-media spending for the universe of all advertisers edged up 0.7% to $141.2 billion in 2014, according to Kantar Media. Advertisers outside the 200 LNA boosted measured spending by 3.5% even as the top 200 trimmed measured spending by 1.8%. Ad Age's 60th annual LNA report ranks and analyzes spending of the top 200 U.S. advertisers, up from previous reports that focused on the 100 LNA. Among the 200 LNA, 119 marketers boosted U.S. ad spending in 2014 while 79 decreased spending. Ad spending was flat at two marketers. There were 38 marketers with 2014 U.S. ad spending above $1 billion. Average (mean) U.S. ad spending last year for the 200 companies: $689 million. In terms of scale, the average was $1.1 billion for the top 100 and $279 million for Nos. 101-200. There is a huge delta between No. 1 P&G (estimated total 2014 U.S. spending: $4.6 billion) and No. 200 Liberty TripAdvisor Holdings ($180 million). The top 100 accounted for 40.9% of U.S. measured-media spending in 2014; Nos. 101-200 made up 10.1% of spending. The top 100 increased their total U.S. ad spending by 2.2% vs. a 1.4% gain for Nos. 101-200, according to Ad Age's estimates. Total U.S. spending for the 200 LNA increased 2.0%. The report offers evidence of how major marketers are tightening budgets, with a pullback in measured media. By contrast, the 100 LNA in 2013 increased spending 4.4%, including a 3.2% boost in measured media. Total spending last year for the 200 LNA rose in 12 of the 15 largest marketer categories. The biggest gains were in travel (up 14.5%), apparel (9.8%), entertainment/media (5.2%) and pharmaceuticals (5.0%). Spending fell in food (down 4.1%), technology (-3.5%) and personal care (-2.2%). Total spending last year for the top 100 rose in 11 of the 15 biggest categories. Spending fell for food, technology and personal-care marketers and restaurants. That mixed picture in 2014 contrasted to 2013, when total spending for the 100 LNA rose in every major industry. Major marketers are intent on spending smarter, putting budgets under intense scrutiny. First, companies are reallocating marketing budgets toward digital, with a strong consensus among top marketers that digital is more efficient. Brian Goldner, president-CEO of toymaker Hasbro, told analysts on an April earnings call: "We're employing every one of the digital strategies that are available to us. That does add a level of efficiency and effectiveness to our messaging." Digital is "exponential in terms of advertising," Franck Moison, chief operating officer, emerging markets and business development at Colgate-Palmolive Co., said at a June investor conference. "We went from 2.5% of our advertising budget in 2006 (to) 13% in 2014, and we are growing very quickly towards 25%. … It depends largely country-by-country, but the trend is there." Second, companies are looking for ways to cut non-media marketing costs -- agency fees (consolidating rosters and pushing for lower fees), production costs (seeking efficiencies by producing ads that can be shared across geographic regions) and marketing overhead. Mr. Moeller, P&G's financial chief, this spring revealed a plan to cut agency spending by up to $500 million. "One non-media cost area that offers significant opportunity is agency spending, which includes fees and production costs for agencies we use for advertising, media, public relations, package design and development of in-store materials," he said on the company's April earnings call. "We plan to significantly simplify and reduce the number of agency relationships and the costs associated with the current complexity and inefficiency while upgrading agency capability to improve creative quality and communication effectiveness. We see an opportunity for up to half a billion dollars in cost savings in this area." Personal-care and pharmaceutical marketer Johnson & Johnson discussed its marketing makeover at a June investor conference. "We've reinvented the whole way we think about marketing and how marketing happens at J&J…," said Sandra Peterson, group worldwide chairman. "We now have 12 brands that we manage globally, and we have eight brands that we manage regionally. … And that means that we get a massive amount of better consumer insight and efficiencies and better reach and frequency in how we market our products to all of our consumers around the globe. "We also have shifted already to about 30% digital, which drives improved efficiencies. ... [With] every marketing dollar, you actually know the ROI in a better way," Ms. Peterson said. "And then last but not least, we also completely changed the way in which we work with advertising agencies," she said. "So we created a new model to work with agencies that also drives efficiencies, not only in our media buying but also in our creative. So all of those things are driving improved profitability." In what should be an unnerving point for old-line media, some marketers are finding that their fastest-growing brands need less -- or no -- traditional media advertising. That's the case at beauty-products marketers L'Oréal and Estée Lauder Cos. L'Oréal Chairman-CEO Jean-Paul Agon said on his February earnings call: "The brands that grew the most in 2014 were also very low [advertising-and-promotion] intensive like Urban Decay, like Kiehl's, etc. ... NYX" -- a cosmetics brand acquired in 2014 -- "has no media. Kiehl's has no media. Urban Decay has no media. Many of these brands have no media." At Estée Lauder, "the fastest-growing brands such as M.A.C .or Jo Malone or La Mer or Bobbi Brown are not advertised the traditional way," President-CEO Fabrizio Freda said on the company's May earnings call. "They are advertised more in digital. And most importantly, a lot of what we consider their marketing is in their freestanding stores and is in areas where the cost is somewhere else...not on the advertising line." Tracey Travis, Estée Lauder's exec VP-chief financial officer, noted at a June investor conference: "This year, our marketing investment will be flat spending in dollars as many of our fastest-growing brands do not require as much traditional advertising, and digital is becoming a larger share of our media mix." Ms. Travis added: "As we get smarter about resource allocation with some of the advanced analytics that we now have and [shift] some of our television, and in some cases promotional expense, to more digital expense, that's generating a pretty nice return."

Big Spenders on a Budget: What the Top 200 U.S. Advertisers Are Doing to Spend Smarter

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