The Impact of Inflation on Your Advertising Plans and Budget
Five years ago, eggs were just the cornerstone of the American classic breakfast. They were a commodity like any other, readily accessible and a rounding error on the grocery receipts of most Americans. Today, if you say the words eggs, the conversation is more likely about the ever-ascending price of eggs as a proxy for the ever-ascending price of everything on the planet. The cost of living, the cost of doing business, both are on the rise with little relief in sight.
Inflation is here, in a way that we have never seen before. What makes you think it hasn’t had an impact on the advertising space? We’re seeing the chickens (see what I did there?) come home to roost in two ways:
1) Client budgets
Every one of our clients is feeling the pinch of inflation as well as the impact of high interest rates. In most cases, clients are looking for efficiencies in their marketing plans. Said another way, they are looking to trim any spend that isn’t generating a discernable result. “Can we do more with less” is the refrain.
Rising payrolls, rising inventory costs, rising carrying costs, and rising cost of goods are forcing some tough decisions when it comes to ad spend. When faced with a DOGE-like project, where should you begin?
- Look at the smallest line items first- This is counterintuitive to most, yet the vast majority of businesses are spending ad money on too many channels vs too few. I like to call it the death by a thousand cuts. There have never been more channels to choose from than we have today, and because of FOMO (fear of missing out), of course you want to be on all of them, right? Being a little-bit-everywhere is the same as being nowhere. A good litmus test when deciding whether to enter a channel: “Can I be a significant to dominant player in this channel?” If the answer is yes, play away. If you can’t be at least significant, pass entirely, cut away. Dominance isn’t a guess, it can be quantified by metrics like share of voice, reach + frequency and relative ad load.
- Look at extending contracts: This is also counterintuitive, but asking television and radio stations for a price concession in exchange for an annual commitment is a sure way to cut your budget. The stations are looking for stable revenue, and as long as the deal is struck in good faith, the stations will let you pause/adjust if the world gets wonky, another COVID hits, etc.
2) Cost of Media
With few exceptions, the cost of media continues to rise and, in some cases, rip higher due to inflation. Just one example to illustrate the point: in the Google Ads space (pay per click), there was a 13% rise in same-click costs, year over year. Let that sink in: Your ad budget on Google is going to produce 13% less results than last year. Fact.
With the costs of media on the rise, where can you look to make your existing ad dollar go further?
- Seek arbitrage- Arbitrage is taking advantage of price differences to make a profit/gain an advantage. In the advertising space, think of arbitrage as measure by DOLLARS per EYEBALL. If there are 1000 of your prospects on META, and the same 1000 are also on Reddit, what will it cost you on each platform to talk to that audience? That’s arbitrage- finding the least expensive way to effectively reach an audience, compared to competing platforms. This may allow for a trim that does not denigrate results.
- Seek exclusivity- When deciding on media channels, a key driver should be the competitive landscape. Not only am I trying to get the most eyeballs per dollar, I’d like to be in an environment where my competitors are absent. By way of example, if your biggest competitor has been on the top-rated morning news station for years, you might consider buying the #2+#3 stations to get the same eyeballs and be the only voice in your space.
- Seek new media- Being first on a platform has two benefits: the platforms are building a business and have max flexibility when they are getting started with the costs of media. Often we can find BOGO deals on new platforms, ridiculously low CPMs and bonus spots as well.
- Seek new models- Some media channels are amenable to performance-based monetization. So instead of just receiving a known number of impressions, some models allow for charging the client only when leads or sales are generated. Some other models (like YouTube) have models that only charge for the ad if the video was viewed to completion, proving out a higher level of value to most clients.
There is no advertised sale going on in media right now. The savvy shoppers, the data miners, the explorers, the active investors…those are the winners in this advertising economy.
