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Gray Skies Are Forming on Advertising

October 10, 2017

My condolences to our friends and colleagues affected by this season’s hurricanes. Right now, more than anyone else, they know the tremendous damage gray skies can thrust on a community. With that said…

Economics 101 teaches us that pricing is based on supply and demand. Past blogs have outlined how digital advertising has impacted advertising rates from a supply side. Now, the prices advertisers may be able to charge might be negatively impacted on the demand side.

WPP is the largest advertising agency in the world. In a recent Wall Street Journal article (“WPP Sounds a Warning Signal on Consumer-Ad Spending,” Aug. 23, 2017), WPP’s Chief Executive Martin Sorrell pointed to a pullback from many large advertisers, including Unilever, Heineken, P&G, AB InBev, Nestle, and Colgate. While he believed that part of the problem is cyclical, he also notes that package good giants are having a difficult time boosting sales. Sales volumes at consumer goods companies are flat or falling.

Unless handled properly, this cutback on demand by these big advertisers could have a negative impact on radio’s AUR. While there is no a single magic bullet that will solve falling advertising demand, there are a few things radio broadcasters need to remember.

Cautious Advertisers Want Proven Advertising Outlets
This same article outlines that advertising companies have “questions about the effectiveness and quality of digital advertising, digital ad fraud, and demands for assurances that ads won’t run alongside inappropriate content.”

Proving the value of radio and its ability to deliver an impressive ROI is what radio is all about. Make sure your advertisers, and potential advertisers, know that radio advertising is a proven tool to drive customers’ actions.

Broadcasters Can’t Rely on Transactional Business
This goes without saying. Every good sales manager in the business is preaching new business development. This news, that many big advertisers’ ad expenditure is contracting, makes new business more important than ever before.

Unfortunately it is not a one-to-one tradeoff. It will take a hard concerted effort and several new business orders to replace just one of these advertisers. However, good service and an effective ROI can convert these non-radio advertisers to loyal radio advocates.

Finally, this is not a permanent situation. The WSJ article stresses that this cutback is cyclical, and consumer base advertising will grow again. We just need to prepare for the storm damage.

-Charlie Sislen, Partner

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