April 29, 2005

Chaos and Trade Promotion

Advertising Age recently ran an interesting front-page article by Bob Garfield, on what he calls the "chaos scenario" or "the marketing industry's coming disaster."

Garfield's argument starts with the pretty much incontestable points that TV, especially broadcast TV, is in serious decline, has lost audience, and is becoming seriously overpriced as an advertising medium. A few points in support:

According to Nielsen, network TV audience has eroded an average of 2% a year for a decade, although in the same period the U.S. population increased by 30 million.
In the last sweeps period, for the first time, cable commanded a larger audience than broadcast.
The cost of reaching 1,000 households in prime time has jumped from $7.64 in 1994 to $19.85 in 2004.

The argument goes on to say that the networks can't maintain their income levels without raising their CPMs to unacceptable levels.

"How can they continue to ask for more and more for fewer and fewer faces?" asks Geoffrey Frost, chief marketing officer of Motorola. "I don't believe that is sustainable. I believe there will be disruption. There's already disruption."

But without the level of income that the networks are used to receiving, they can't continue to produce the sort of programming that will sustain even their shrinking market share. The problem has been masked somewhat in recent years by the popularity of reality shows that are relatively cheap to produce, but that popularity won't last forever. The broadcast TV business model is an expensive one. Smaller audiences bring less income, which leads to lower quality entertainment, which leads to smaller audiences, which ...

"It's an inevitable kind of slow collapse of the entire mass media advertising market," says J.D. Lasica, author of Darknet: Remixing the Future of Entertainment and president of the Social Media Group consultancy. "What we're seeing is that not only does television have to reinvent itself from the content point of view, it has to reinvent itself as an advertising medium."

Additionally, there are some other problems facing TV. One is the effect of TiVo -- its ability to disrupt schedules and to zap ads -- and another is TV's selling points -- in an age of accountability, TV is sold on reach and frequency instead of incremental sales and profitability.

"The industry's key currency is basically reach, frequency, exposure and cost per thousand," says Rishad Tobaccowala, president of Internet media shop Starcom IP. "I'm not saying whether it's right or wrong but that's currently the currency. And (what) the currency ought to be is about outcomes, engagement and effectiveness. Because right now all I'm doing is I'm measuring how cheaply or how expensively I'm buying the pig. I'm not figuring out whether the hot dog tastes good."

So there it is, says Garfield, a looming disaster. Bloated, overpriced, and underperforming -- the broadcast TV empire is on the verge of collapse.

"So for the moment, let's assume that there is indeed major trouble ahead, that the law of diminishing returns will eventually kick in, that advertisers who've paid more and more for less and less will not pay indefinitely for nothing. Marketers will begin to abandon network TV. Ad prices will fall. Profitability will disappear. Program development will suffer, leading to more advertiser defection, and so on in a consuming vortex of ruin."

Why would this be a disaster? For the advertising/marketing community the answer is that the collapse of an empire, however deserved, is seldom without unpleasant side-effects. Garfield uses the break-up of Yugoslavia as an example -- it was good that an unresponsive and undemocratic central government collapsed and spun off smaller democracies, but it's hard to ignore the chaos and ethnic cleansing that also resulted. The ongoing turmoil in Russia and some of the other former Soviet countries is another example. The classic case is the Middle East, where we still see the effects, eight decades later, of the collapse of the Ottoman Empire.

These are overly-dramatic examples, of course, for what is a business revolution, not a life-and-death issue. But the historical analogies are instructive. No loss of life will result, but careers could be destroyed, for those who aren't ready to adapt. The point the analogies make is that the problem with the collapse of the old order is generally that, in the short term, the new order is not yet ready to take over. In this instance, if broadcast TV can't deliver mass audiences, what can?

The conventional wisdom is that new digital media, the Internet, mobile technology, video on demand, and other perhaps unimagined developments, will replace TV. Perhaps, at least in terms of how content is delivered and in terms of their overall audiences, but not as vehicles for reaching mass audiences with advertising messages. Broadcast TV allows marketers to reach tens of millions. The multitude of digital media will require those millions to be aggregated dozens or hundreds at a time.

While these specialized media represent great opportunities of their own, marketers still will want the mass audiences, and that's where Garfield sees the disaster -- there's no vehicle in sight to replace TV in delivering the mass market.

And this is where, having pretty much agreed with Garfield up to this point, I part company. I see an opportunity where he sees a disaster. What medium will replace TV? The greatest mass medium of them all -- the store. How will marketers reach huge numbers of consumers if broadcast TV collapses? The same way they often do now -- through trade promotion.

If you need to reach a mass audience, which is a more effective way to do it -- a thirty-second spot on CBS or an endcap at Wal-Mart? And the principle doesn't merely apply to broadcast TV and mass markets. If you want to segment somewhat, you could ask the question like this: what's a more effective medium for men -- ESPN or Sports Authority (or Best Buy)? Where can you reach women more effectively -- on Lifetime or at Kroger?

The most effective marketing medium today is the store -- it can be as mass or as targetted as you like. You can target by age, demographic, psychographic, or geography. To say nothing of the fact that it's more measurable than TV.

The problem for marketers will be that there is only a finite amount of space in a store. Increasing demand would of course mean increasing prices for prime territory. There have been indications that trade promotion budgets, having increased steadily for decades, may be being tightened, but if Garfield is right, there could be an impetus for further increases.

It's interesting that TPMA is using a revolutionary theme for their conference, based on financial and regulatory changes that are having a huge effect in finally getting trade promotion a seat a the grown-ups' table. But an even more prominent seat could be coming up.

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