Global Ad Trends: The real scale of the 2020 Covid-19 downturn | Customers and brands have turned to digital retail during pandemic
Dr. Evangelo Damigos; PhD | Head of Digital Futures Research Desk
- Competitive Differentiation
- Digital Transformation
Publication | Update: Oct 2020
COVID-19 has upended adspend forecasts. Here, James McDonald, WARC Data's managing editor, explains some of the reasoning behind the revised outlook presented in the latest Global Ad Trends report.
WARC Data published revised advertising investment forecasts by market, medium and product category in light of the COVID-19 outbreak, that factor in monthly data drawn directly from practitioners in WARC’s Global Marketing Index.
The headline finding is that global advertising spend will fall 8.1% this year, equating to a $ 49.6bn cut in brand outlay compared to 2019. Perhaps crucial, given the circumstances, this rate of decline is lower than that recorded in 2009 (-12.7% or .5bn) – but why?
Record political spending to stymie US decline
The US accounts for a third of global ad trade when measured in nominal dollars. Here, campaign spending during the 2020 presidential elections is expected to amount to between bn–bn, up markedly on 2016 cycle as explained in Global Ad Trends by Vincent Letang, EVP, Global Market Intelligence at MAGNA Global.
With this political money excluded, the US market would fall 9.0% this year compared to a forecast 3.5% decline. Removing incremental campaign spending from the global total results in a decline of 10.1%, though this is still softer than 2009.
Online advertising results much better than feared in Q1
A core structural difference is the influence of the Alphabet/Facebook ‘duopoly’, which now accounts for one in three dollars spent on advertising worldwide (compared to less than 5% in 2009).
Current projections from Pivotal Research suggest Alphabet’s ad income will dip on an annual basis for the first time in the second quarter of 2020, then again in the third, before a recovery in the final three months of the year. This would leave Alphabet’s ad growth at 0.6% for 2020, as explained by Michael Levine. Further, Pivotal expects constant growth for Facebook this year, though the full-year rate of +11.4% is far softer than previous rises.
Customers – and brands – have turned to digital retail during pandemic
Aside from these two media owners, we have recorded a surge in brand investment on e-commerce platforms – a trend recently echoed in Ebiquity research – as consumers turn online for their shopping. In the US, e-commerce as a share of retail sales had grown at an average rate of 10 percentage points each year; data show that this jumped by 11 points in just the first eight weeks of 2020.
The rising importance of e-commerce during the outbreak was alluded to in our last Global Ad Trends report in March but, as part of our latest study, Patrick Miller, co-founder of Flywheel Digital, outlines the precise dynamics currently at play in this area.
Amazon is performing particularly well, so too Walmart and Instacart, while in China FMCG sales on Tmall continue to maintain strong growth. The e-commerce sector was nascent in 2009 – Amazon’s income that year was a quarter of what it is today, Tmall was just a few months old, and Walmart’s primary focus was still its brick and mortar outlets.
Amazon now accounts for 2.3% of global advertising spend (4.8% of internet spend). When grouped with other e-commerce platforms, aside Alphabet and Facebook, we’re looking at two-fifths of the ad market performing resiliently this year.
And this is before we factor in Asian giants such as Tencent and Alibaba which released first quarter earnings ahead of expectations. Baidu recorded a sharp dip in online ad income during the period, though this is an amplification of a trend that began in the second quarter of 2019 and had been accounted for in our projections.
Second quarter results for the majority of the aforementioned will be dire, and while our models account for this, we will revise our findings in July once the full extent of the damage is known. As Dr. Daniel Knapp, Chief Economist at IAB Europe, notes in Global Ad Trends, forecasts are currently built on quicksand and are in need of constant review as the situation unfolds.
James McDonald notes three distinct phases to the downturn.
Firstly, an immediate demand-side induced paralysis for sectors such as travel, leisure and retail, combined with supply-side constraints for consumer packaged goods (CPG) brands. Our current projections show heavy falls in ad investment within the transport & tourism (-31.2%), leisure & entertainment (-28.7%) and retail (-15.2%) sectors.
Second, the recessionary tailwind will exert extreme pressure on the financial services sector (a forecast 18.2% reduction in adspend globally this year) as well as the consumer, whose disposable income is now heavily diminished.
Finally, we are already starting to see an added emphasis on healthcare and wellbeing credentials among brands not normally associated with the field, aside higher spending within the pharmaceutical sector to leverage the shifting consumer mindset.
Whether 2020 will be better or worse than what has gone before is largely moot; the very real pressures media owners, brands and consumers are facing cannot be embodied by a percentage. What matters now is how we cope – as part of our analysis, Brian Wieser, Global President, Business Intelligence at WPP, suggests canny businesses can turn today's negatives into positives.
Objectives and Study Scope
This study has assimilated knowledge and insight from business and subject-matter experts, and from a broad spectrum of market initiatives. Building on this research, the objectives of this market research report is to provide actionable intelligence on opportunities alongside the market size of various segments, as well as fact-based information on key factors influencing the market- growth drivers, industry-specific challenges and other critical issues in terms of detailed analysis and impact.
The report in its entirety provides a comprehensive overview of the current global condition, as well as notable opportunities and challenges.
The analysis reflects market size, latest trends, growth drivers, threats, opportunities, as well as key market segments. The study addresses market dynamics in several geographic segments along with market analysis for the current market environment and future scenario over the forecast period.
The report also segments the market into various categories based on the product, end user, application, type, and region.
The report also studies various growth drivers and restraints impacting the market, plus a comprehensive market and vendor landscape in addition to a SWOT analysis of the key players. This analysis also examines the competitive landscape within each market. Market factors are assessed by examining barriers to entry and market opportunities. Strategies adopted by key players including recent developments, new product launches, merger and acquisitions, and other insightful updates are provided.
Research Process & Methodology
We leverage extensive primary research, our contact database, knowledge of companies and industry relationships, patent and academic journal searches, and Institutes and University associate links to frame a strong visibility in the markets and technologies we cover.
We draw on available data sources and methods to profile developments. We use computerised data mining methods and analytical techniques, including cluster and regression modelling, to identify patterns from publicly available online information on enterprise web sites.
Historical, qualitative and quantitative information is obtained principally from confidential and proprietary sources, professional network, annual reports, investor relationship presentations, and expert interviews, about key factors, such as recent trends in industry performance and identify factors underlying those trends - drivers, restraints, opportunities, and challenges influencing the growth of the market, for both, the supply and demand sides.
In addition to our own desk research, various secondary sources, such as Hoovers, Dun & Bradstreet, Bloomberg BusinessWeek, Statista, are referred to identify key players in the industry, supply chain and market size, percentage shares, splits, and breakdowns into segments and subsegments with respect to individual growth trends, prospects, and contribution to the total market.
Research Portfolio Sources:
Global Business Reviews, Research Papers, Commentary & Strategy Reports
M&A and Risk Management | Regulation
The future outlook “forecast” is based on a set of statistical methods such as regression analysis, industry specific drivers as well as analyst evaluations, as well as analysis of the trends that influence economic outcomes and business decision making.
The Global Economic Model is covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure. We aim update our market forecast to include the latest market developments and trends.
Review of independent forecasts for the main macroeconomic variables by the following organizations provide a holistic overview of the range of alternative opinions:
As a result, the reported forecasts derive from different forecasters and may not represent the view of any one forecaster over the whole of the forecast period. These projections provide an indication of what is, in our view most likely to happen, not what it will definitely happen.
Short- and medium-term forecasts are based on a “demand-side” forecasting framework, under the assumption that supply adjusts to meet demand either directly through changes in output or through the depletion of inventories.
Long-term projections rely on a supply-side framework, in which output is determined by the availability of labour and capital equipment and the growth in productivity.
Long-term growth prospects, are impacted by factors including the workforce capabilities, the openness of the economy to trade, the legal framework, fiscal policy, the degree of government regulation.
Direct contribution to GDP
The method for calculating the direct contribution of an industry to GDP, is to measure its ‘gross value added’ (GVA); that is, to calculate the difference between the industry’s total pretax revenue and its total boughtin costs (costs excluding wages and salaries).
Forecasts of GDP growth: GDP = CN+IN+GS+NEX
GDP growth estimates take into account:
All relevant markets are quantified utilizing revenue figures for the forecast period. The Compound Annual Growth Rate (CAGR) within each segment is used to measure growth and to extrapolate data when figures are not publicly available.
Our market segments reflect major categories and subcategories of the global market, followed by an analysis of statistical data covering national spending and international trade relations and patterns. Market values reflect revenues paid by the final customer / end user to vendors and service providers either directly or through distribution channels, excluding VAT. Local currencies are converted to USD using the yearly average exchange rates of local currencies to the USD for the respective year as provided by the IMF World Economic Outlook Database.
Industry Life Cycle Market Phase
Market phase is determined using factors in the Industry Life Cycle model. The adapted market phase definitions are as follows:
The Global Economic Model
The Global Economic Model brings together macroeconomic and sectoral forecasts for quantifying the key relationships.
The model is a hybrid statistical model that uses macroeconomic variables and inter-industry linkages to forecast sectoral output. The model is used to forecast not just output, but prices, wages, employment and investment. The principal variables driving the industry model are the components of final demand, which directly or indirectly determine the demand facing each industry. However, other macroeconomic assumptions — in particular exchange rates, as well as world commodity prices — also enter into the equation, as well as other industry specific factors that have been or are expected to impact.
Forecasts of GDP growth per capita based on these factors can then be combined with demographic projections to give forecasts for overall GDP growth.
Wherever possible, publicly available data from ofﬁcial sources are used for the latest available year. Qualitative indicators are normalised (on the basis of: Normalised x = (x - Min(x)) / (Max(x) - Min(x)) where Min(x) and Max(x) are, the lowest and highest values for any given indicator respectively) and then aggregated across categories to enable an overall comparison. The normalised value is then transformed into a positive number on a scale of 0 to 100. The weighting assigned to each indicator can be changed to reﬂect different assumptions about their relative importance.
The principal explanatory variable in each industry’s output equation is the Total Demand variable, encompassing exogenous macroeconomic assumptions, consumer spending and investment, and intermediate demand for goods and services by sectors of the economy for use as inputs in the production of their own goods and services.
Elasticity measures the response of one economic variable to a change in another economic variable, whether the good or service is demanded as an input into a final product or whether it is the final product, and provides insight into the proportional impact of different economic actions and policy decisions.
Demand elasticities measure the change in the quantity demanded of a particular good or service as a result of changes to other economic variables, such as its own price, the price of competing or complementary goods and services, income levels, taxes.
Demand elasticities can be influenced by several factors. Each of these factors, along with the specific characteristics of the product, will interact to determine its overall responsiveness of demand to changes in prices and incomes.
The individual characteristics of a good or service will have an impact, but there are also a number of general factors that will typically affect the sensitivity of demand, such as the availability of substitutes, whereby the elasticity is typically higher the greater the number of available substitutes, as consumers can easily switch between different products.
The degree of necessity. Luxury products and habit forming ones, typically have a higher elasticity.
Proportion of the budget consumed by the item. Products that consume a large portion of the consumer’s budget tend to have greater elasticity.
Elasticities tend to be greater over the long run because consumers have more time to adjust their behaviour.
Finally, if the product or service is an input into a final product then the price elasticity will depend on the price elasticity of the final product, its cost share in the production costs, and the availability of substitutes for that good or service.
Prices are also forecast using an input-output framework. Input costs have two components; labour costs are driven by wages, while intermediate costs are computed as an input-output weighted aggregate of input sectors’ prices. Employment is a function of output and real sectoral wages, that are forecast as a function of whole economy growth in wages. Investment is forecast as a function of output and aggregate level business investment.