How should advertisers react to media cost inflation?

Dentsu examines why prices are going up, which platforms are impacted the most and how to get as much value as possible out of a plan.

Much like Canadians visiting the grocery store or gas station in recent months, anyone tasked with managing a media or advertising budget has likely had one issue top of mind: inflation.

Like with any good or service, inflation is caused when demand outstrips supply. In media, that comes from advertisers looking to buy more ads than there exists inventory for.

In a summer update to its ad spending forecasts, Dentsu took a look at why 2022 has become a “perfect storm” for media inflation, as well as some strategies advertisers can take in order to ensure they get value out of their spending until prices come down.

A big reason media inflation has accelerated this year is huge demand. As pandemic restrictions ease, businesses are either looking to spur their recovery, capture the increased rates of consumer spending, or both. This has created higher demand, particularly in categories like travel, entertainment and restaurants. There are also totally new sectors that are trying to help maintain their place in a post-pandemic world, such as grocery delivery. On a global scale, 2022 is also an election year in many markets (in Canada, Ontario held a provincial election in June, with Quebec’s next election coming in October).

According to data from the World Federation of Advertisers, inflation on each platform in Canada is largely in line with the global average, except for one key area. Prices for digital video ads in Canada are inflated by 8.1%, compared to a global average of 5.3%. The only market with a higher inflation rate is the U.S., with 8.6%.

The biggest area of inflation, however, remains linear TV, where inflation in Canada is 10.8%, roughly in line with the 10.2% global average (though it is far behind the 21% inflation in the U.S.).

One area where Canadian inflation is slightly more manageable is radio, where it sits at 2.7%, one percentage point behind the global average. Inflation for display ads is also at 2.7% in Canada, while print prices have inflated by only 0.8%.

There is some potential for relief as more ad inventory could open up in SVOD platforms, either as new services launch or existing ones, like Disney+ and Netflix, move forward on plans to bring ad-supported tiers to their platforms. But until then, Dentsu recommends a few key measures advertisers can take in order to mitigate the impact of inflation.

The first is committing to spending earlier and for longer periods. This is not a new principle, but media owners tend to give better value to advertisers who can commit budgets to them, so committing for somewhere in the neighborhood of two to three years, and sticking to those plans, can be a way to get the most value out of your spend. That may not always be feasible, especially on digital platforms where things can change rapidly and where the ability to pivot is a selling point. But even there, Dentsu points out that partnerships can help mitigate the effects of higher price volatility on dynamic marketplaces.

The second is to combine different channels that are accessed from the same sales point, meaning looking to opportunities to shift spending to a different platform owned by the same company. For example, TV budgets can be shifted between a broadcaster’s TV networks and their owned streaming or on-demand platforms based on where viewership (which may be an especially prudent move, giving the high rate of TV inflation).

Advertisers should also look at the data. More specifically, Dentsu is encouraging more adoption of market mix modelling, a burgeoning data technique focused on understanding how several different marketing methods impact higher-order results, such as sales and market share. This will not only help ensure that advertisers understand which channels deliver the best results, but also provide a better understanding of goals beyond reach and impressions, ensuring they are actually getting the kind of results they are paying for.

Data also has a big role to play in the final measure Dentsu suggests: advertisers should get creative with where they send their investment. This can be in finding inventory that others may have overlooked, using their audience data to guide them to the right niche podcast, or OOH locations that have high reach with a specific audience. Or, it could be in exploring non-traditional inventory, like sponsorship or branded content tied to a property or interest that resonates with the target.