Packaged-goods marketers now spend more on digital than all forms of traditional advertising combined, according to a new study by Cadent Consulting Group. Yet the firm's online survey of 600 brand marketers, retailers and shoppers finds the latter two groups give digital lower marks for effectiveness than any other marketing option – something that could cap that growth in years ahead.
The survey also finds shopper marketing, long one of the hottest areas of CPG spending, has plateaued and even started to decline as a share of budgets.
Trade promotion remains the industry's biggest marketing line items, accounting for 46.2% of spending, according to about 100 manufacturer respondents. But that's down from more than 49% in 2012, and marketers project they'll cut it further to around 43% in 2017.
The decline may reflect efforts by such big players as Procter & Gamble Co. and Unilever to reduce the promotional dollars they spend with retailers, or at least get more bang for the buck. P&G Chief Financial Officer Jon Moeller, speaking at the Consumer Analyst Group of New York conference in Boca Raton, Fla., Feb. 22, cited cases where putting products in a retail endcap display at full price could generate higher revenue and profit for brands and retailers alike, without the additional spending on price reductions.
But Cadent Managing Partner Don Stuart said trade spending, which includes temporary price reductions and payments for off-shelf display and features in retailer ads, will likely rise from manufacturer's early-year projections as they face pressure to meet sales goals.
Overall the CPG industry spends around $225 billion on marketing, according to Cadent, which includes spending on trade and consumer promotion in its mix, though those outlays are classified largely as reductions of net sales rather than marketing spending in corporate financial statements. The advertising and shopper-marketing portions of industry spending amount to around $100 billion annually, by Cadent's estimates.
The survey finds digital edged traditional advertising as a share of total CPG spending for the first time last year – by 15.9% to 15.5%. Digital's lead should widen this year, with brand marketers planning to spend 19.9% of their total marketing outlays on digital vs. only 13.2% on traditional advertising, according to Cadent.
Yet retailers and shoppers alike gave digital advertising low marks for effectiveness. Only 60% of the roughly 200 retailers in Cadent's survey said they thought digital advertising works for brands. That was up slightly from two years ago, but still lower than any other type of marketing spending. Retailers developed a much brighter outlook on traditional ad spending by brands though, with 65% rating it effective last year, up 27 points from two years ago.
Of 300 shoppers surveyed, only 14% said they were aware of brands' digital ads, and only 10% said they were influenced by them. Those numbers are well below levels for traditional advertising, and even further below tactics such as price promotion or in-store marketing.
Cadent didn't ask manufacturers to rate effectiveness of their own spending for this survey, in part because Cadent works for manufacturers and was seeking more perspective from retailers and shoppers, Mr. Stuart said. He added that he's found manufacturers have relatively limited data on how well their marketing efforts are working.
But at least for Clorox Co., digital is growing and working, said Chairman-CEO Benno Dorer in a Feb. 22 CAGNY speech.
Clorox spends 45% of its paid or "working media" on digital, he said. "It's very ROI driven. We know our ROIs in the company well, and we're essentially going where the ROIs are."
At least part of the driving force is the growth of e-commerce, which has doubled for Clorox in the past three years, with expectations it will double again in the next three, he said, though it remains only 3% of company sales.
But the relatively dim outlook by retailers and shoppers about CPG digital spending comes amid some recent sharp criticism from industry heavyweight Procter & Gamble Co. about the integrity of the digital media-buying supply chain. Will that halt the advance of digital as a share of marketer spending?
"We wouldn't be surprised to see a bit of a backlash and a move back into more traditional proven vehicles," Mr. Stuart said. "I don't know if that's going to be 2018 or 2019, since digital offerings are just proliferating and every manufacturer is trying to test what could potentially drive their business."
Shopper marketing, which also seemed poised for continuous growth, clearly has stalled, topping out at 13.5% in the 2012 Cadent survey but declining last year, with marketers expecting to trim it further to 12.9% this year.
Some of the budget shifts may stem from definitional shifts or blurring of lines, Mr. Stuart said. More shopper marketing – joint marketing programs with retailers that include in-store ads and co-branded media efforts outside stores in some cases – is handled by specialty agencies that are part of holding companies, increasingly bundling their efforts into teams that include consumer promotion and PR shops, he said.
And a growing portion of what CPG marketers count as digital advertising also flows through a growing number of retailer-owned and -operated programmatic buying exchanges, such as the Walmart Exchange (WMX), or ads placed on e-commerce sites, he said.