This is a significant missed opportunity. Despite a long-term decline of traditional broadcast TV, the channel continues to be a dominant force in the global media landscape, especially for reaching older audiences (Exhibit 1). Whether delivered through cable, satellite, or the airwaves, broadcast TV (as opposed to streaming programs) still accounts for a majority of consumers’ TV watching hours, and that is expected to continue for at least the short term. Broadcast TV is also the single biggest advertising vehicle across all countries and industries.
While brand leaders dedicate significant effort and expense to developing ads, we have found that they pay far less attention to how to best deliver them. Marketing leaders often insist there are no savings to find in their TV spend or argue that it is already fully optimized. More often than not, that is not the case. Regardless of company size, historical levels of spending, or pandemic response, hidden TV ad efficiencies and improvements are, in fact, waiting to be unearthed in many cases. By rigorously reevaluating when, where, and how their linear TV ads appear, we’ve seen leading advertisers in the United States and Europe generate savings of up to 30 percent of their TV advertising budget—even category-leading advertisers with decades-long experience in TV.
Now, in fact, is an ideal time to reprioritize linear TV. Even as brands allocate funds to digital channels, inflation rates have significantly slowed down across most parts of the world (with the notable exception of the United States), thanks to the simultaneous surge in viewership and decrease in advertising activity caused by the pandemic. In some European markets, cost per 1,000 impressions (CPM) inflation even reversed in 2020. In the United Kingdom, for instance, TV ad rates dropped 19 percent compared with 2019.
However, reduced TV inventory is also creating pricing pressures and raising severe challenges for media companies, advertisers, and agencies alike. In the United States, underdelivery of ad inventory has become so drastic that media houses are trying to pay advertisers back for unfulfilled commitments rather than provide make-goods (for example, positionings or free space) in subsequent quarters. Despite these limitations, media executives and agencies are still expected to maintain reach among targeted audiences for their brands. These dynamics may help explain why, in a recent survey, 64 percent of US advertisers said they intend to evaluate and reforecast their media strategy more frequently in 2021.
We’ve seen marketers generate surprising amounts of value through two primary elements: smarter spending and getting the most out of your agency partnership.
1. Smarter spending
Traditionally, linear TV has been a blunt instrument. Able to generate powerful emotional responses among large numbers of people, it hasn’t been easily customizable or trackable for specific effects, like who exactly saw an ad and what, if anything, they did in response. This is starting to change with advances in advertising technology, such as data-driven linear (DDL) TV. Using DDL solutions, advertisers can match a variety of viewership data sets (standard TV-audience info like Nielsen as well as more sophisticated household-level smart-TV and set-top-box viewing data) to their target audiences and to measures of impact, such as online conversions, brand lift, and in-store sales.
Despite the promise of DDL and other advertising advances, many have not been widely adopted, especially in European markets. Multiple factors accounting for this reticence include a lack of unified, accurate measurement models and increased campaign-management complexity and costs.
Even as advertisers explore more-advanced options, far simpler methods already exist to bring a more precise and data-driven approach to TV spend. The first step, quite simply, is to get detailed data. Many brands let their agencies collect TV performance data across markets but don’t actually receive this info until well after a campaign has ended, when it’s far too late to optimize anything. At one US-based consumer packaged goods (CPG) company, gathering the full set of data from various media-buying agencies took a full four weeks and yielded results that weren’t standardized. At best, information delivered this late in the game can only be used to plan the next campaign.
After collecting and regularly evaluating performance data (at least every three months), advertisers can use data-backed insights to identify areas of waste and inefficiency. The most advanced advertisers are building integrated data hubs and distinct analytical capabilities in-house to enable the continuous optimization of their media strategy. This more comprehensive approach to data can create even more value.
We have found that 11 actions have the greatest impact on TV advertising ROI (Exhibit 2). The following two simple “no-regret” moves don’t require any trade-offs in ad quality or performance—just additional rigor and smart data analysis:
- The right days of the week: Brands tend to track and monitor the effectiveness of ads that run during valuable weekend spots, when higher-income viewers tune in, but they often ignore the weekdays. This omission is driven by the belief that there isn’t much meaningful variation in CPM and cost per rating point (CPP) from day to day. However, one European financial-services provider found that its CPPs varied by as much as 16 percent from one weekday to another, with no attendant changes in audience size. The company opted to act conservatively and only shifted small parts of its spend, but it still improved its efficiency by approximately 2 percent without compromising reach or quality of contacts.
- The right position in the ad break: To determine the right amount of spend that should go into the premium first and last ad slots in a commercial break (which are more likely to be seen before or after viewers switch channels or leave the room), many advertisers rely on gut feel or generic market research. But a detailed analysis of performance data can often turn up surprising results. When it used detailed spot-level data to evaluate the number of eyeballs it was delivering at what price and in what position, a leading CPG company found that its best CPMs were not in the first and last positions, but in the second and penultimate slots.
Two additional steps for smarter spending are more tactical, requiring a clear understanding of what is important and where trade-offs can be made:
The right frequency: Research shows that after a consumer sees the same TV ad three or four times, its effectiveness declines, with the drop-off growing larger each additional time the ad is shown. Yet stiff competition for share of voice often compels brands to run ads past the point of diminishing returns. For one leading consumer brand, for instance, TV ads in some of its smaller, less mature markets were seen more than 15 times by the same consumers, even though the guidelines from global marketing leaders called for maximizing the number of people viewing the ad only once (one-plus reach), which should not result in frequency levels as high.
To avoid this trap, brands should use actual performance data and not reach-frequency curves derived during planning. The point of diminishing returns will likely be different for different target audiences, countries, and even regions within a country. By eliminating ads that are delivered past the point of diminishing returns and shifting spend to more effective areas, brands can reach the same targets with 3 to 10 percent less spend. A European CPG company, for example, found that its reach-frequency curve, modeled with actual performance data, was much flatter in Italian-speaking regions than in German- and French-speaking areas, meaning the company was paying much more to reach one person in the Italian region. It moved some of its ad spend into the German region and was able to reach many more people with the same level of investment (Exhibit 3).
- The right spot length: Although the go-to format for TV advertisers has long been the 30-second commercial, research suggests that shorter ads are actually more cost efficient. Beyond a length of 15 seconds, the gains from longer ads are marginal and likely not worth the additional cost. 7 Research has also shown that short “tag-on” ads (typically seven or 15 seconds) can serve as impactful reminders when combined with longer ad formats.
- After testing several ads for likability and brand recall among consumers, a global retailer found that its 30-second spots did not perform any better than 20-second spots, and thus there was little point in paying for the longer ads. Similarly, advertisers across industries found savings potentials of up to 9 percent by shifting spend to shorter ad formats, in line with their core competitors in respective markets.
2. Getting the most out of your agency partnership
A critical lever for saving TV spend is optimizing the price of nonbiddable media budgets. While agency audits can help generate visibility into ad rates, the variability and ambiguity of prices is such that the only way to really know if you’re paying too much is to take your business into the market. Chances are good that if you’ve been with the same agency for more than two to three years without a media tender, then you’re giving up significant savings.
In our experience, best-in-class, multiround, competitive agency media tenders consistently deliver ad rate improvements for nonbiddable media of between 10 and 30 percent, without any impact on the quality of media inventory purchased. This is true even when an incumbent agency keeps the business. Agencies often work hard to maintain their clients and are willing to offer additional innovative capabilities and more competitive rates. These rate savings also apply to brands that don’t think they need to initiate a competitive media tender. For instance, a financial-services company that spends upward of $200 million annually on advertising believed its media rates were already optimized and that they had significant rate-tracking capabilities. Yet a structured media tender process unearthed a 12 percent savings and revealed that the financial-services company could have reduced its spend by 9 percent.
At the moment, advertisers with significant amounts of media spending are in a strong position to entertain bids. Even brands with smaller budgets can use the media tender process to get more than they think they can and to punch significantly above their weight class. The reduction of advertising budgets and cancellation of sporting events for much of 2020 created a decline in up-front buying and greater amounts of spot purchasing. This has made brands that can guarantee significant blocks of up-front buying attractive clients to serve.
It is essential for the media tender process to be highly granular and structured, covering multiple elements, such as agency capabilities and services, media pricing, and a practical media-planning case, in order to ensure the best value for media dollars (Exhibit 4). This means a detailed request for proposal (RFP) that states desired efficiency targets and capability needs, as well as a representative sampling of media buys drawn from an in-depth view of an advertiser’s current media inventory. The aforementioned financial-services company created a comprehensive media bid sheet that represented more than 100,000 individual ad spots and packages, bundling like media spots across nine parameters (for example, channel, spot length, air time, and position in ad break). This consolidated bid sheet allowed the advertiser to not only provide participating agencies with enough information to bid on like-for-like media but also to provide detailed feedback between each round and encourage agencies to share the best rates on every ad buy. This allowed the company to improve its media rates by 12 percent.
Media tenders also provide an opportunity to increase the level of transparency and collaboration between client and agency. Advertisers can also leverage media tenders to mandate that their agencies (whether incumbent or new) go the extra mile to regularly report the detailed post-buy performance data that will enable optimization.
By operating much closer to real time and demanding best-in-class rates from media agencies, all TV advertisers can produce significant savings and reach a new level of sophistication in their linear-TV planning. Building in-house capabilities to continuously optimize the still-dominant media channel of broadcast TV should be an important part of this effort. There is no need to wait for data-driven linear solutions to mature. Advertisers can get started today by applying more rigor to integrating and analyzing their data.
About the author(s)
Marco Aukofer is a consultant in McKinsey’s Munich office, where Thomas Bauer is a partner; Cody Butt is a partner in the Denver office; and Priya Rammohan is an associate partner in the Brussels office.