Digital is the new black for marketers hoping to convince investors that they can stay out of the red. But investors aren't always buying the argument.
In recent weeks, a growing number of advertisers have been touting digital-marketing efforts on earnings calls and at investor conferences--not just to impress audiences with how forward-thinking they are but to show how they're tapping digital's lower costs and social power to get more bang for their buck.
At last week's Consumer Analyst Group of New York conference in Boca Raton, Fla., references to digital campaigns were as commonplace as the boilerplate TV reel was years ago.
At least some of those marketers are directly or indirectly citing digital to explain why shrinking media budgets won't damage their brands. The companies making such a case last week included the world's biggest ad spender, Procter & Gamble Co., and its biggest retailer, Walmart Stores.
P&G Chairman-CEO Bob McDonald, speaking at CAGNY, contended that $1 billion in marketing-spending efficiencies tucked into a five-year cost-cutting plan that would shave $10 billion from the budget and 5,700 jobs from the payroll won't hurt his company's brands, partly because of the increased efficiency of digital and mobile advertising.
"We're using technology to shift our spending from more traditional advertising and television to digital and mobile advertising," said Mr. McDonald, adding that the improvements will allow P&G to grow marketing spending more slowly than sales over the next five years. He is also banking on better consumer targeting and multibrand efforts to spread the burden among a wide array of brands.
Investors sent P&G shares up about 3% on the news, though the focus was on the cost cuts, which were two to three times as deep as many expected.
Walmart U.S. CEO Bill Simon said on the retailer's prerecorded fourth-quarter earnings call Feb. 21 that "we reached even more consumers through even more channels during the holidays, while lowering our overall advertising expense for the year by 10%."
Though Mr. Simon didn't specifically mention it, people close to Walmart say digital has played a major role in applying the company's "everyday low price" approach to marketing. That means taking advantage of the lower cost-per-thousand of paid-digital advertising, as well as increasing reliance on earned- and shared-media impressions generated by social media.
Facebook, where Walmart now has 12.5 million fans, has been a big part of the giant's getting loads of consumer impressions with lower outlays. Walmart has ramped up spending on Facebook advertising in recent quarters, according to people familiar with the matter.
However effective, Facebook advertising is cheap. The social network was serving nearly a third of all digital display impressions as of the first quarter of 2011, according to ComScore. But Facebook's global display-ad revenue equals only about a fifth of all display-ad revenue in the U.S., as tracked by the Interactive Advertising Bureau. Some interactive-media executives peg Facebook's CPM at a meager $1.
But investors sent Walmart shares down 4% as growth of 1.5% in comparable store sales in the U.S. wasn't strong enough to dispel concerns about a $100 million margin hit to roll back prices.
And all the discussion about digital and social media sometimes confuses more than impresses investors.
One investment-portfolio manager attending CAGNY, recalling the chief financial officer of a major packaged-goods advertiser stating that Facebook "shares" are worth more than "likes," wondered aloud how well a CFO understands the value of either.
The portfolio manager said that , regardless of how much more efficient digital spending might be, experience shows that when consumer-goods companies cut marketing spending, they usually experience share losses and slower sales. He pointed to PepsiCo, which has recently pumped up its budgets after years of restraint.
"Investors don't give companies credit for margin gains that come from cutting advertising," he said.
Ali Dibadj, analyst at Sanford C. Bernstein, said that "investors have learned that when advertisers talk about spending being more efficient, it's a euphemism for "cutting.' " As a result, he said, "you have to take that with a big grain of salt."
For all the conversation, Mr. Dibadj said, digital marketing remains a relatively small part of most marketers' budgets, "so there's skepticism about what it really means."
Deutsche Bank analyst Bill Schmitz sees the the talk as a smoke screen for lackluster sales.
"You wouldn't be hearing all this about digital advertising if there were any volume growth at all in North America," Mr. Schmitz said.
Not everything about digital is couched in discussions of slashing or restraining ad spending, however.
General Mills has put a particular emphasis on digital. Its spending in the discipline has grown three times as fast as that in TV--though both are increasing--and the marketer expects digital outlays to jump by double-digits again this year, CEO Ken Powell said at CAGNY.
Initiatives include Pillsbury's recently launched "Ideas Made Easy" online campaign, which features simple-to-prepare recipes.
"Millennials learn more about cooking online than they do through cookbooks or TV," Mr. Powell said. "So we've been enhancing our websites with more recipes and how-to videos."
Smucker's, whose brands include Folgers and Jif, reported that it's also expanding digital and social-media efforts, which account for 10% of the company's marketing spending.
But the shift to digital, and particularly to social media, makes it harder for marketers to detail to investors how much they're really investing in their brands.
For example, Reckitt Benckiser has for years told investors how much it spends on media. But CEO Rakesh Kapoor said this month that the company would, by next year, replace that number with a "Brand Equity Index" that will better reflect RB's total spending on brands, including development of earned and owned media.
In an email, RB spokeswoman Andraea Dawson-Shepherd said that because digital delivers more per dollar spent and the content may cost no more to create, a change to digital "can look to investors that your investment is going down, even though your reach is the same" or more.
"We are moving to a measure that enables us to have the flexibility to put our dollars where we get the best ROI of brand equity-building but that also gives investors a better and more transparent measure," Ms. Dawson-Shepherd said.