Regulation of Television Advertising - Communications Committee Contents


Memorandum by the Institute of Practitioners in Advertising (IPA) (RTA 5)

  The IPA welcomes this opportunity to submit views to the Select Committee on the regulation of TV advertising.

SUMMARY

I.  BACKGROUND

    (a) The IPA in Advertising is the trade body and professional institute for UK advertising agencies, with a membership accounting for 85% of the UK's advertising agency business.

    (b) As an organisation, we are vitally concerned with the health of UK media (TV, press, posters, online etc) since these provide the vehicles through which our members deliver their clients' commercial messages to the public.

    (c) Having said this, we are also extremely wary when ownership is consolidated in any medium such that this might threaten the ability of our members to buy time/space in an open and competitive environment.

II.  SCOPE OF RESPONSE

    (a) We do not believe ourselves qualified to pass judgement on whether the entirety of UK regulation in the television sector is appropriate—however, we would draw a distinction between:

(i) Outmoded restrictions from a bygone age, when commercial broadcasting was viewed with suspicion and authorities believed it should be rigorously controlled (eg the prohibition of product placement);

(ii) More recent regulation relating to competition issues, which we believe remains valid to prevent the danger of abuse from a dominant player.

    (b) Recognising our restricted expertise and our direct interest in maintaining a competitive marketplace, the following paper therefore concentrates on the Contract Rights Renewal Mechanism as a key element in the Select Committee's Review—highlighting our belief that little has changed to diminish ITV's market dominance since the remedy was introduced in 2003 and concluding, as a result, that the need for CRR remains as vital now as when it was first implemented.

III.  THE STRENGTH OF ITV AND THE RATIONALE FOR CRR

    (a) The Contract Rights Renewal Mechanism was introduced following the merger of Carlton and Granada in 2003 to prevent the ITV sales force abusing its position of power. As such it recognised:

(i) ITV1 possessed a dominant share of advertising revenues (52.7%)

(ii) Its immense strengths as an advertising channel were unmatched by any of its competitors;

(iii) These strengths made it unsubstitutable by any other channel, or combination of channels;

(iv) The historically aggressive stance adopted by the ITV salesforce meant that without some form of protection, there would be a real risk of the broadcaster abusing its share/ non-substitutability to the detriment both of advertisers and its broadcasting competitors.

IV.  ITV'S POWER HAS NOT DIMINISHED OVER TIME AND NEITHER HAS THE NEED FOR CRR

    (a) Despite the arrival of online advertising, television—as a whole—has retained its vital importance for advertisers.

    (b) Although the TV sector has grown dramatically in terms of channel availability since 2003 (2003: 300 channels; 2010 500 channels), almost half the population (47.7%) has access to only 45 channels.

    (c) Within the market, the big players (ITV1, Channel 4 plus Digital, Five and Sky) continue to dominate—with ITV1 actually strengthening its "must have" status for major advertisers.
% Top 1000 Advertisers in the UK
Spending on ITV1
200387.6%
200995.6%

(Source: NMR)

    (d) By trading its "Family of Channels" (ie ITV1 + ITV2,3,4) in terms of pricing/value and access to audiences, ITV's dominance remains undiminished, with the broadcaster still almost double the size of its nearest competitor in terms of share of revenue ("ITV Family": 45.3% versus "Channel 4 Family": 23.8%).

    (e) Likewise, ITV1 continues to be unsubstitutable based on:

(i) Its continued and unchallenged ability to deliver mass audiences rapidly;

(ii) Its exceptional programming environment (big, "famous" programmes capable of generating "water-caller" discussion);

(iii) Its continued size and status (which grants status to new brands and reinforces the status of established products).

(iv) While ITV has shown it is theoretically possible to buy around ITV1 using a basket of channels, the above factors make this impractical in real terms.

(v) The creation of "media agency buying groups" has not countered ITV strength, with the largest such group (Group M) only accounting for 29% of total TV expenditure, while the freedom of action of such operations is restricted by:

    — Clients who have their own direct deals with ITV;

    — The requirement to recommend the most effective channel mix for individual clients, within which use of ITV1 will be essential.

V. CONCLUSION

    (a) We do not believe that ITV's power has reduced sufficiently, such that the removal of CRR would not open the gates to market abuse, allowing the broadcaster to leverage its size and unique audience characteristics to increase its revenues by:

(i) Additional share demands;

(ii) And/or additional volume demands;

(iii) Price rises on ITV1 and its other channels.

    (b) Which, in turn, would mean agency/advertisers would have three options open to them:

(i) To accept arbitrary ITV price rises;

(ii) To move monies out of the ITV "Family of Channels" and suffer punitive price increases on the monies remaining with ITV;

(iii) To move all the monies on to other non-ITV owned channels owned channels.

    (c) Of the above, it would be difficult for large advertisers, physically to transfer their monies into other channels (Channel 4, and Sky already put an expenditure limit on deal rates for big advertisers).

    (d) Likewise, it would be commercial suicide for agencies to inform their clients that they could not secure ITV1 airtime or state this could only be achieved significant cost premium.

    Advertisers and agencies would thus be forced into paying whatever ITV wished to charge—precisely the anti-competitive situation which CRR was set up to avoid.

VI. POST SCRIPT

  Finally, we are not convinced that CRR is the brake on creative programming, which ITV has claimed.

  We believe that the trend toward more soap operas/overtly populist programming to maximise audiences had begun prior to the Carlton and Granada merger.

  CRR simply takes account of the size of audiences, which is and always has been the basic trading currency in commercial television.

  The skill of the commercial programme controller is to commission programming, which is both creative and appeals to mass audiences. If he/she wishes to test out formats, it should be possible to do so on ITV2/3/4 in the same way as the BBC will use its digital channels for such purposes.

  If ITV's goal in seeking the removal of CRR is to be able to charge the same or more for air-time than delivered audiences would justify—and to use its unconstrained market power to force advertisers to accept this—this is clearly an objective which neither agencies nor advertisers could ever accept.

MAIN PAPER

I.  ABOUT THE IPA

  The Institute of Practitioners in Advertising (the "IPA") is the trade association and professional institute for UK advertising agencies. Our 265 corporate members are primarily concerned with providing strategic advice on marketing communications, including creating and/or placing advertising. Based throughout the country, they are responsible for over 85% of the UK's advertising agency business and play a pivotal role in advising the nation's companies on how they should deploy their total marketing communications spend of £42 billion.

II.  SCOPE OF THIS RESPONSE

  As the trade body for UK advertising and media agencies, we do not believe ourselves qualified to make valued judgements as to whether the overall level of current regulation on TV advertising is appropriate.

  However, having said this, we would draw a distinction between:

    (a) Constraints left over from a bygone age, which viewed commercial broadcasting per se with suspicion and believed its activities should be rigorously controlled. (This would cover things like the current product placement rules, which we believe are outmoded and will soon be removed anyway.)

    (b) More recent regulation relating to competition issues, which we believe remains valid and should be maintained to prevent the risk of abuse by a dominant player.

  This, then, explains why, in the immediate past, we have firmly supported the removal of the product placement rules on television and the liberalisation of the broadcasting code on radio—while vehemently opposing the abolition of the Contract Rights Renewal Mechanism.

III.  OUR STANCE TOWARDS COMPETITION ISSUES

  One of the fundamental roles of the IPA—enshrined in the Terms of Reference of its main media policy committee (the Media Futures Group)—is that it should "promote and ensure the continuation of cost-effective commercial media" for its members and their clients.

  The Institute has therefore always been very wary of the concentration of media power in any medium.

  Thus, in 2003 we expressed our profound concerns over the market dominance which would have resulted from the merger of Carlton and Granada and, together with ISBA—the advertiser trade body—were instrumental in pushing for the safeguards against potential sales abuse, which emerged as the Contract Rights Renewal Mechanism.

  Since that date, our members have been protected, to an extent, from the possible adverse effects of the merger by this arrangement, with the IPA providing regular reports on its effectiveness to the CRR Adjudicator—including the highlighting of instances where ITV has sought to work round the mechanism, either in potential breach of the Undertakings or through the leveraging of its digital channels.

IV.  HOW WE PROPOSE TO APPROACH THIS PAPER

  Given the broad nature of the Select Committee's inquiry, rather than spend time considering things like product placement or airtime sales rules, where decisions have already been made, we propose to concentrate on what we believe to be the key issue under examination—the Contract Rights Renewal Mechanism—and why, to our knowledge, all but one of our member agencies continue to believe it plays a critically important role in ensuring the fair running of the UK television market.

  In so doing, we are conscious that a lot of this work will be going over old ground, drawing on submissions previously made in this context to the OFT and to the Competition Commission.

  Having said this, we believe the observations we made then remain valid—although, for general readership purposes, we have not included some of the more detailed computer-generated schedules which our members generated to counter the various ITV hypotheses which were floated at that time.

V.  WHY IS CRR IMPORTANT AND WHY IS IT STILL VALID TODAY?

    (a) Background

    As Members will be aware, the Contract Rights Renewal Mechanism was introduced to prevent the ITV sales force abusing its position of power after the merger of Carlton and Granada in 2003.

    The decision by the Competition Commission to impose this remedy recognized:

(i) That ITV1 possessed unique strengths as a communications channel, unmatched by any of its competitors;

(ii) That these strengths made it unsubstitutable;

(iii) That the historically aggressive stance adopted by its sales force in airtime negotiations meant that, without some form of robust protection, there would be very real risk of abuse.

    In 2007, ITV contested these original criteria, stating that:

(i) The TV market had moved on;

(ii) It was now only one of many broadcasters;

(iii) The constraint was severely and adversely affecting its financial health and business future.

    The IPA sought to show that this was not the case and that the need for the remedy remained as valid as ever.

    Following its deliberations, the Competition Commission concurred with this view—a decision with which we continue to agree.

    (b) Has anything changed in the media/TV market since 2003 and, if so, has this reduced ITV1 (and ITV's) dominance, such that CRR is no longer necessary?

    We believe that the simple answer to this is "no" for the reasons outlined below:

(i) While the overall media market has changed significantly since 2003, the importance of TV remains undiminished

The last seven years have clearly seen a major new arrival in the sector in the form of internet advertising.

From the chart below, it is apparent that online growth has taken share from all the other main media—other than "out-of-home" and cinema.

However, the greatest "hits" have taken place on direct mail, regional press and radio—with the first two of these possibly losing direct business to the perceived greater accountability of the Internet.

TV as a whole, however, has maintained its key position.

THE PATTERN OF ADVERTISING SPEND ON DIFFERENT SOURCES OF ADVERTISING TOTAL ADVERTISING EXPENDITURE 2009 vs 2003


2003     20092009 vs 2003
Share Index
2009 vs 2003
Volume Index


Share of
Total %
£msShare of
Total %
£ms
Medium
TV
25.13722 24.3352596.8 94.7
National Press12.81902 10.6153282.8 80.5
Regional Press20.02962 11.8170859.0 57.7
Consumer Mags5.3784 4.159577.4 75.9
Business and Professional Mags7.1 10483.8553 53.552.8
Radio3.6526 2.840477.8 76.8
Outdoor5.3786 5.4782101.9 99.5
Cinema1.0149 1.2180120.0 120.8
Online3.1465 24.43541787.1 761.5
Direct Mail16.72467 11.6168669.5 68.3
Total10014811 1001450697.9

(Source: Advertising Association)

Moreover, it is important to note that while advertising on the Internet has grown massively, the role it fulfils for both the advertiser and the public is very different to television.

It is estimated that over 80% of the money spent online by advertisers is on "Search".

The importance of traditional media in building brands—which consumers subsequently search for on the Internet—currently remains largely unchanged.

(ii) TV revenues have not been constrained by the growth of the Internet

There is no evidence to suggest that the growth of online (or added supply in any other media) has constrained the price of television.

Television represented 57.5% of total media spend for the top 20 advertisers on TV in 2009- only slightly less than the share for the top 20 advertisers on television in 2003 at 64.9%. (Source: NMR)

Over this period, the cost of television fell to mirror the financial climate:

2003
All Adult CPT*
2009
All Adult CPT*
ITV1£6.86 £5.59
Broadcast£5.76 £4.28* Cost per `000
(Source: Industry estimates)


    Whereas, according to industry estimates, the price of online media fell by 20%.

(iii) While the TV sector has expanded dramatically since 2003, power still rests with the big players

It has been variously suggested that the growth in the number of digital channels since 2003 has reduced the importance of ITV1.

Analysis, however, indicates that while the number of digital channels available to viewers has increased from 300 to around 500, the impact of this growth has, in fact, been considerably less than might have been supposed—with a significant proportion of the viewing population having access to only 45 channels (ie DTT homes, which accounted for 47.7% of homes in the UK in March 2010)



Moreover, within the digital and terrestrial channels, the big players (ITV1+ Digital, Channel 4 + Digital, Five and Sky) continue to dominate, with ITV1 actually strengthening its "must have" status for major advertisers:
% Top 1000 Advertisers in the UK
Spending on ITV1
200387.6%
200995.6%
(Source: NMR)


(iv) Likewise, within the TV sector, ITV's importance remains undiminished

Given the arrival of the digital channels, ITV1 has inevitably lost revenue share in the last seven years (from 51.7% in 2003 to 37.0% in 2009).
Having said this, by trading its "family of channels" in terms of pricing/value and access to audiences, ITV, as a whole, has retained its position of market dominance (52.7% in 2003 vs. 45.3.% in 2009).

Significantly, this means that ITV plc is still almost double the size of its next largest competitor (Channel 4 Family at 23.8%)—and by exploiting the combined strengths of its analogue and digital offering whenever and wherever possible, has continued to be by far the most powerful advertising-funded commercial TV player in the sector.


THE PATTERN OF TV ADVERTISING SPEND ON DIFFERENT TV CHANNELS

BROADCAST TELEVISION REVENUES
2003
% share of
revenues
£ms% share adult
impacts
Index share of
revenue on share
of impacts
ITV151.71628.5 42.7121
C419.9626.7 16.5121
Five8.0251.4 11.172
GMTV1.959.1 2.965
Sky11.3356.0 11.995
IDS4.0125.0 6.759
ITV Dig1.033.0 2.837
C4 Dig1.444.0 1.3107
Five Dig0.00 00
Others0.928.0 4.122
Total Broadcast3151.7
ITV Family52.71661.5 45.5116
C4 Family21.3670.7 17.8120
Five Family8.0251.4 11.172

2009
% share of
revenues
£ms% share adult
impacts
Index share of
revenue on share
of impacts
ITV1371101.9 28.4130
C418535.6 12.1149
Five6.9206.5 8.185
GMTV1.852.7 272
Sky11.6345.5 1790
IDS6.7200.1 11.558
ITV Dig8.3245 9.587
C4 Dig5.8172 783
Five Dig130.7 2.442
Others2.984.8 2145
Total Broadcast2974.8
ITV Family45.31346.9 37.9120
C4 Family23.8707.6 19.1125
Five Family7.9237.2 10.575


(Source: OMD)
(v) ITV1 continues to be un-substitutable

As Select Committee Members will be aware, in 2003 the Competition Commission concluded that ITV1 was non-substitutable for major advertisers. This was based on:


    — The ability of the channel to deliver mass market audiences rapidly. (Key for advertisers seeking to communicate their messages quickly to large numbers of people);

    — Its programming environment (big, "famous" programmes capable of generating "watercooler" discussion);

    — Its size and status (which granted status to new brands and reinforced the status of established products).

While it is technically possible to run most campaigns in non- mass market programming, the vast majority of advertisers believes—with good reason—that to be successful, it needs large audiences and is prepared to pay significant price premiums to achieve this.

The attached Nielsen spreadsheet reveals that only 1.7% of TV revenues in 2009 was spent behind campaigns which used no ITV 1 at all.

The reason for this lies in the importance attached not simply to the reach levels achieved at the end of a campaign, but the speed with which that reach is attained. Put simply, almost all advertisers will want to see their advertising investment having as much impact as possible, as early as possible, in their activity.

This highlights a fundamental flaw in the substitutability analysis historically put forward by ITV in that it ignored the importance of rapid cover build.

Of course, there will be certain categories of campaign for which generating such reach quickly and in shorter periods of time will be critical (eg most retail accounts, promotional activity, seasonal advertisers and new product launches).

However, leaving these aside, there are powerful reasons why all advertisers would want large programmes on their schedule, including:

    — Prestige (both for external reasons eg, status with the consumer—and internal reasons, eg status within the retail trade and the advertisers' own sales force, staff etc);

    — Rapid sales generation (advertisers like to know that a campaign is working);

    — The driving of trade distribution (retailers expect significant support to underwrite their stocking of products and allocating them appropriate shelf facings and favoured locations in their premises)

ITV has always been proud of its ability to build brands and to achieve both business and media deliverables quicker than anyone else, and it has attributed this to the mass audiences that it consistently delivers over and above its competitors.

ITV "Fame Rating" research published in May 2005 concluded that TV advertising made brands "famous" and the more famous a brand, the higher the consumer's intent to purchase. Behind this research was the implicit assertion that ITV built this "fame" faster than all other channels through its ability to deliver mass audiences larger and more frequently than its rivals.

By contrast, comparatively few types of advertiser can operate without mass audience programming and will largely comprise DRTV operators (who will generally use in the daytime) and advertisers targeting children.

(For further information on ITV Fame research and the importance of rapid cover build—see the Appendices A and B.)

To what extent has any of the above changed?

In 2008, in a submission to the OFT, we wrote "to illustrate how (ITV's strength) has remained largely unchanged over the last five years, it is worth considering the top 500 programmes by volume of audience in 2007. Of these 328 (or 66%) were ITV1 programmes, with 171 being broadcast by the BBC and the remaining one by Channel 4. Even if we were to exclude Coronation Street and the other "soaps " from the calculation, ITV1 is still responsible for 196 of the 500 (39%), with only six (1%) being broadcast by other commercial channels".

As a point of comparison, we have checked the data for 2010, looking at the week ending 31st May. Of the top 500 rating programmes, ITV1 accounted 326, while BBC1 accounted for 174.

Clearly there has been no change in the dominance of ITV1 and BBC1 in delivering large audiences, and the balance of power between ITV1 and BBC1 in this respect also remains unchanged.

(vi) ITV1 remains vital for a range of key advertisers

As stated elsewhere, we believe that most advertisers are dependent on ITV1.

Having said this, the mass reach and rapid cover build that this channel can deliver, will be particularly vital for advertisers in the following categories:

    — Mass appeal advertisers (eg FMCG brands, with regular product turnover).

    — Major spending advertisers restricted from moving money away from ITV (eg Unilever, COI, Procter & Gamble)

    — Regional advertisers

    — Short-term "sale"/news-based advertisers (eg retailers/ newspapers/ new product launches)

    — Seasonal advertisers, including the gift market (eg Christmas/ Easter/ Mother's Day, weather related products (eg gardening) and the fixed event related promotions.

ITV would certainly discriminate against these advertisers in the absence of CRR, by demanding price increases, higher shares of expenditure and/or volume increases and other measures.

(vii) The creation of media agency "buying groups" has not countered ITV's strength

In 2008 there were six major trading groups, sharing the investment responsibility for over 81% of commercial television expenditure.

However, while concentration of "buyer power" has increased since 2003, it is still limited/weak in comparison with ITV's position.

Not only has no single agency group gained a monopolistic advantage (the largest, GroupM, accounts for only 29% of total television expenditure)—such operations are severely restricted in their freedom of action by the fact that they are only representatives of their advertiser clients, and as such will be:

    — Restricted from using overall agency expenditure to counter ITV strength by clients who have their own direct deals with the broadcaster;

    — Required to recommend the most effective" channel mix for individual clients/campaigns, and in many instances ITV1 will be regarded as essential for effective campaign delivery from both objective and subjective reasons.

(In this context, Select Committee Members may like to note the power of agency group buying operations is constrained more generally by the consolidation which has taken place on the sales side. In 2003 there were eight TV airtime sales points of note (Carlton, Granada, Channel 4, Five, Sky, IDS (Flextech), Viacom and GMTV); today there are just five, and most likely this will fall to four (ITV, Channel 4, Five, Sky), if the sale of Virgin TV to Sky is cleared by the Irish regulatory authorities and IDS VMTV channels are absorbed into Sky Sales. In 2003, four sales points controlled c81% of TV ad revenues; at the end of 2009 c83% of revenues were controlled by three sales points.)

VI.  THE REMOVAL OF CRR WOULD OPEN THE GATES TO MARKET ABUSE

  As I hope we have shown via this paper, while ITV1's market position may have declined in terms of its share of commercial revenue and commercial viewing, in real terms, the power of the broadcaster remains intact.

  This is based on three factors:

    (a) ITV's policy of selling its analogue and digital channels together on a conditional basis

    (b) The fact that ITV1 still dominates the delivery of large audiences

    (c) The increased value of large audiences as a result of fragmentation. Although ITV 1's top rating programmes have declined in absolute levels of delivery, they are just as valuable now/more valuable because of the overall decline in peak time programme audiences across all channels.

  On this basis, if ITV were released from its CRR obligations on ITV1, we believe it would leverage the combination of its overall market trading power and its unique ITV1 audience characteristics in order to increase its revenues through:

    (a) Additional share demands;

    (b) And/or additional volume demands;

    (c) Price rises on ITV1 and its other channels.

  Which, in turn, would mean that agencies/advertisers would have available to them one of three options:

    (a) To accept arbitrary ITV price increases;

    (b) To move some monies out of ITV (ITV1 and ITV's overall family of channels) and then be subject to very substantial and punitive price increases on the monies remaining with ITV); or

    (c) To move all the monies into other non-ITV owned channels

  The last of these options would be extremely difficult for large advertisers—indeed certain channels (Channel 4/Sky Sports1) already put a limit on expenditure at deal rates for bigger players for inventory management/ income optimisation reasons.

  On a campaign by campaign basis, it would simply be impossible for many campaigns to be delivered (regardless of campaign reach performance) without ITV1. Many campaigns that run at a high weekly weight or require weights on specific days would not be able to get those weights away whilst substituting ITV1. Likewise products in categories that are heavily advertised would often find it impossible to substitute ITV1 as most appropriate breaks on non-ITV1 Channels will already feature clashing products. (eg retailers at holiday times, perfumes at Christmas and cars at registration times).

  Moreover, even if any of the above were achievable, agencies would be placed in an impossible position since it would be commercial suicide either to inform their client base that they could not secure ITV1 airtime, or to say that this could be achieved, but only at a significant cost premium across all the ITV family of channels.

  This inability to move large sums of money away without attracting inevitable punitive action would mean that advertisers and agencies would simply be forced into paying whatever ITV wished to charge—precisely the anti-competitive situation which CRR was set up to avoid.

VII.  FINALLY, HAS CRR REALLY LIMITED ITV'S ABILITY TO COMPETE IN THE PRODUCTION OF QUALITY PROGRAMMING?

  Having put forward our reasons why we believe it is vital that the Contract Rights Renewal Mechanism should be retained—we should perhaps state that the IPA has as much interest in ensuring that ITV1 remains healthy, vibrant and attractive to audiences as broadcasters—since without it, our members' clients, the advertisers, would lose perhaps the most important single vehicle for delivering their commercial messages.

  Programming is not an area over which the IPA would claim any special expertise, although clearly we would like to see the broadcaster producing the best and highest quality output that is able to afford.

  Having said this, we do feel it is possible to make a few observations.

  While we are aware that Michael Grade has stated historically that CRR has acted as a brake on experimentation—whether under the ownership of ITV, Carlton or Granada, ITV1 has not—in recent years—been a risk taker, particularly with regard to peak programming.

  The trend towards more episodes of soaps, etc., exploiting strong programmes and programme franchises to maximize audiences—and quickly removing underperforming programmes from schedules—had begun pre-merger.

  CRR takes into account audiences traded—and so it is to ITV's benefit to produce more programming designed to appeal to audiences that advertisers are targeting more over time—and less programmes designed to appeal to audiences that advertisers are targeting less over time.

  If ITV's objective in removing CRR were to be able to charge the same (or more) for airtime in programming, irrespective of the audience it delivers, then Select Committee Members will understand the advertising industry's lack of sympathy with this goal.

APPENDICES

A.  ITV FAME RESEARCH

  ITV produced research entitled "ITV Fame Ratings" in May 2005 to promote the TV sector and combat what it perceived as "Historical complacency" within the TV market place and the "Demand for evidence based ROI". It also hoped that its research would provide some reassurance about TV advertising and safeguard revenues in the face of the successful growth and proliferation of both the multichannel TV world and other media, notably online.

  ITV1 looked across 16 different sectors from a cross section of advertisers' with different media strategies.

  The conclusion of the study found that TV advertising made brands famous and the more famous a brand, the higher a consumer's intent to purchase was. Behind this research was the implicit assertion that ITV built this "Fame" quicker than all other channels through its ability to deliver mass audiences larger and more frequently, than all its rivals.

  Indeed Jeremy Bullmore, former chairman of both JWT and the Advertising Association is quoted to that effect in the research, stating:

  "A brand, if it is to enjoy genuine celebrity, must be known to a circle of people that far exceeds what we in the business so chillingly call its target group ", or to paraphrase Jeremy Bullmore, the most important thing is being seen by the largest group of people as possible.

  In 2008, ITV1 delivered 92 out of the top 100 rating programmes on commercial TV and it should be remembered that this only includes the top incidence of each programme occurring. If we look at absolute numbers, ie every episode of Coronation Street rather than just the top episode, ITV1 are responsible for delivering the top 540 rating programmes before we get to a non ITV programme (Peter Kay's "Britain's Got The Pop Factor", appeared on Channel 4 delivering 6.3 million adult viewers).

B.  WHY BUILDING COVERAGE QUICKLY IS IMPORTANT

  There are two key reasons for fast coverage build being linked to business performance:

    (1) A key objective of advertising (esp. FMCG advertising) is to influence as many purchasing occasions as possible (known as recency). So each rolling 2-3 day period is like a mini-campaign. The higher the coverage in each rolling period, the higher the likelihood of strong sales performance. Hence, coverage across longer periods of time is almost irrelevant, what is relevant is catching a consumer when they are in the mindset of buying a product.

    (2) For longer term branding campaigns, even if 1+ coverage is not the objective, building 1+ coverage quickly is very important, as 1+ build affects the frequency distribution across your campaign. eg. If your effective frequency is 3 exposures, building fast 1+ will do two things: 1) enable you to build the quickest 3+ coverage 2) reduce the length of your frequency tail. If 1+ doesn't build quickly, your campaign will end up delivering an amount of 3+ but optimising at a much higher frequency of 6-7+.

  In both cases (ie for hard and fast FMCG campaigns and for longer term branding campaigns) building quick 1+ coverage has a direct effect on sales and cost efficiency. Some of the theory and the research studies that have reached these conclusions is detailed here:

The effect of advertising on sales

  Most recent studies on the relationship between advertising and sales have sought to measure the effect of frequency on purchasing, the best of these using single source data, where the purchasing behaviour of a panel is measured (these days generally by scanning all purchases) and the television advertising exposure is also measured (generally via a TV set top box)

  We have picked out a few of the key studies, some of which analyses the effect of frequency on sales and some which use other measures of effectiveness (most often advertising awareness).

John Philip Jones 1990 & 2000's

  A significant step was taken in the early 1990's when John Philip Jones released the results of a large-scale analysis of ACNielsen panel data. He developed the research technique of STAS (Short Term Advertising Strength), which compared a brand's share of purchase occasions in those households where there had been at least one exposure to the brand's TV ad in the last seven days, with those households not exposed to recent advertising.

STAS SCORE



Source: John Philip Jones/Colin McDonald

  The analysis confirmed earlier findings from single source research that advertising was capable of generating immediate sales. It also came to the surprising conclusion that just one exposure generated the highest proportion of sales with additional exposures having relatively little effect (Chart 1).



Source: Colin McDonald

  Among the 78 brands in 12 categories, Jones found a considerable variation in STAS score (Chart 2). For the top 10% of brands, the average STAS differential was 136%, meaning that the share of purchase occasions in households who had been exposed to the advertising was more than double the share in "unexposed" households.

Erwin Ephron—1990's

  Erwin Ephron took up the results of this work. He concentrated on the issue of time rather than frequency and created the concept of "Recency Planning". This says that all that is needed is one exposure in the period immediately prior to purchase. This may not be the first exposure, it may be just one in a long series of exposures. However, because purchases, and purchasing decisions, are being made all the time, the ideal plan is a continuous one maximising both the number of weeks on air and weekly cover. What counts is whether the consumer is ready to buy, not how many times he or she has been exposed to the advertising.

AGB 1990's

  In the UK in the early 1990s, research company AGB fused viewing data from the BARB peoplemeter system on to their grocery purchasing panel "Superpanel". The data was analysed to compare the number of brand purchases made by housewives who had been exposed to the advertising with the number of brand purchases by those not exposed to it. Allowance was made for "purchase viewing bias" by examining different weight-of-viewing groups separately.

RESPONSE CURVES—ESTABLISHED BRANDS
BrandResponse Curve Saturation level (4 wks)
HConvex5
IConvex2
AConvex3
EConvex5
BConvex7
JConvex4
KThreshold at 3None
LConvex5
GConvex5
MConvex5
NConvex4
OLinearNone
PConvex5
QConvex4
RConvex4
SConvex5
TConvex1



chart 3

Source: TNS

  Among the first 24 brands to be analysed, 17 were established ones and the remainder new or re-launched brands. 15 of the 17 established brands exhibited convex response functions with the first exposure having a greater incremental effect on purchasing than any subsequent exposure (Chart 3 & 4).

RESPONSE CURVES—NEW/RELAUNCHED BRANDS
BrandResponse Curve Saturation level (4 wks)


A
Linear None
BLinearNone
CLinearNone
DLinearNone
ELinearNone
FS-Shape10
GThreshold at 2None


chart 4

Source: TNS




  In most cases there was little additional effect after 4 or 5 exposures. One brand had a linear response, and the other a threshold at 3 exposures. Among the 7 new or re-launched brands, 5 showed a linear response.

  More recent analysis by the same company (now re-named Taylor Nelson Sofres) of true single source data has highlighted the relatively greater impact generated by concentrating exposures in the period immediately prior to purchasing (Chart 5)

  While diminishing returns are seen to exist over a longer period, they show a benefit of multiple exposures across a 3-day period immediately prior to purchasing. In these circumstances, 3 exposures will produce an effect many times greater than that produced by a single exposure (Chart 6)


Summary

  Over the last 30 years the advertising industry has moved from away from an almost universal belief in the S-shaped response curve with effective frequency levels at around 2 or 3. It is clear from the more recent research that the first exposure can, and frequently does, have a greater effect than later exposures. This is particularly true for the larger and more established brands, suggesting that they can be effectively supported at relatively low weights of advertising. For newer brands, higher frequencies may be more appropriate. Here an element of learning is involved rather than a mere reminder of a brand's presence and its qualities.

  In the same way that the response curve of a brand may vary over time (possibly s-shaped at launch, then increasingly convex as it matures) it will vary between different consumer groups. To persuade someone to switch brands may well require more exposures than just encouraging them to stick with their existing brand.

  As important as the number of exposures is their timing—particularly in relation to the time of purchase or purchase decision. Advertising seen in the days before a purchase will have a greater effect than that seen several weeks before. The issues of timing and frequency need to be considered together. An "effective frequency" does not really make sense unless it's related to a specific time period.

  The first edition of "Effective Frequency" published in 1979 by the Association of National Advertisers (of the USA) concluded "One exposure of an advertisement to a target group within a purchase cycle has little or no effect in all but a minority of circumstances". Over twenty years later we can say, with some certainty, that this is not the case.

September 2010



 
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