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— SUMMARY REPORT —

MAY 2009

IN ASSOCIATION WITH

Association of Canadian Advertisers

The Association of Canadian Advertisers (ACA), the only national association exclusively representing client marketers, is dedicated to helping members maximize the value of their investments in all forms of marketing communications. Members realize value through proprietary education, research and consulting services. The ACA safeguards the right to commercial free speech, and demands an advertising marketplace that is accountable for the value provided to the advertiser.

For more information, visit www.ACAweb.ca.

Strategic Marketing Counsel

Strategic Marketing Counsel Inc. is a Canadian-owned, independent marketing consulting agency. The firm provides research, planning, and performance metrics sevices that assist advertisers with their top-line results.

For more information, visit www.strategicmarketingcounsel.com.

Toronto Star

Toronto Star , founded in 1892, is read in print and online by 2.8 million readers every week. Toronto Star is a division of Star Media Group, which includes Toronto.com, Torstar Syndication Services, Shop TV, Eye Weekly , Sway Magazine and The Canadian Immigrant . Star Media Group also includes the jointly owned Metro free daily newspapers in Toronto, Ottawa, Vancouver, Calgary, Edmonton and Halifax, and the Chinese language newspaper Sing Tao . Star Media Group is a division of Toronto Star Newspapers Limited, which is a subsidiary of Torstar Corporation.

For more information, visit www.thestar.com.

MARKETING COMMUNICATIONS EXPENDITURE SURVEY

Summary Report

Background / Purpose 2

Data Collection 2

Important Notations 2

Sample Profile 3

Caveats 4

Summary of Findings 5

1/ Year over Year Change in MarCom Budget 5

2/ Impact of Economy on Marketer / Respondent’s Business 5

3/ MarCom Budget Allocation by MarCom Channel 6

4/ Choice of MarCom Channel Used by Respondents 7

5/ Number of MarCom Channels Used by Respondents 7

6/ Correlation of Number of MarCom Channels and Size of MarCom Budget 8

7/ Number of Respondents Allocating >30% of MarCom Budget by Channel 8

8/ Internet Activities 9

9/ Shift from Traditional Media to Internet Applications 9

10/ Confidence Ratings by MarCom Channel 10

© 2009 by the Association of Canadian Advertisers 95 St. Clair Avenue West, Suite 1103 Toronto, Ontario, Canada M4V 1N6 (416) 964-3805 / www.ACAweb.ca

All rights reserved. No part of this publication may be used or reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without the prior written permission of the copyright holder.

MARKETING COMMUNICATIONS EXPENDITURE SURVEY

BACKGROUND / PURPOSE

There has been a significant increase in the number of marketing communications (MarCom) channel choices that marketers face in today’s media environment. This has resulted in a change in allocation of media expenditures across the various channels. Why and how monies shift among these channels are of critical interest to the advertising and media communities.

The objectives of this study were:

• Using a single source, identify trends in MarCom expenditure and explore the reasons for them • Investigate use of digital media overall and probe for insights into types of usage • Determine trends within the digital arena • Acquire a more granular understanding of MarCom expenditure by company type and budget • Assess the influence of the economic environment on MarCom budgets and plans • Establish a benchmark for ongoing measurement and monitoring of advertising expenditure and the strategies driving the expenditure

DATA COLLECTION

Methodology Questionnaires were mailed to pre-screened respondents who agreed to participate

Universe Chief Marketing Officers, or their equivalent, at major Canadian advertisers selected from trade association and other lists

Response 54 respondents completed the survey

Fieldwork Wave 1: Approximately 10% - August through September 2008 Wave 2: Remaining 90% - November through December 2008

IMPORTANT NOTATIONS

Data analyses for this report were conducted by both the ACA and Strategic Marketing Counsel. The data that has been collected and analyzed does not represent a statistically significant sample base. This data cannot be projected to the total Canadian universe of marketers. The results must be interpreted with extreme caution and considered directional at best. See page 4 for fuller explanation of ‘caveats.’

This report provides factual information for 2007 and 2008, with projections for 2009. Given that much has changed since the beginning of this year, the 2009 projections may have also changed significantly and should be viewed as the best estimate at time of data collection.

The following analysis is intended to provide a reference for marketers interested in assessing their decisions for MarCom budget allocation against a sample of industry marketers. If other analysis is required, please contact:

Susan Charles Bob Reaume Vice President, Member Services Vice President, Research & Policy Association of Canadian Advertisers Association of Canadian Advertisers 416 964-1538 / [email protected] 416 964-0248 / [email protected]

Summary Report 2 MARKETING COMMUNICATIONS EXPENDITURE SURVEY

SAMPLE PROFILE

Participating organizations represented a full range of products and services:

Apparel/Accessories Automotive Beverage Alcohol Communications Confectionery Dairy Products Consumer Electronics Financial Services Government Household Products Information Technology Insurance Lottery/Gaming Office Equipment/Supplies Packaged Goods Pharmaceutical Quick Serve Restaurants Retail, Multi-market large (Local retail excluded) Travel Transportation Utilities

For the purpose of this report, ‘current year’ is identified as 2008, ‘previous year’ as 2007 and ‘next year’ as 2009.

Each respondent was asked to provide MarCom budgets for their current fiscal year, previous year and projections for next year.

Almost half (48%) of participating companies start a new MarCom budget in January. Another 15% start in April, and 23% start in September, October or November. The budgets tend to cover 12-month periods (83%); 9% of participants plan for six-month periods; and 6% for three months or shorter intervals.

The following chart shows the distribution of MarCom budget size among the 54 respondents. There is a broad representation of budget sizes within the context of this survey.

NUMBER OF RESPONDENTS BY SIZE OF MARCOM BUDGET BASE=54 <$1M $1-5M $5-10M $10-20M $20-50M $50-100M >$100M 2007 2 9 9 11 11 10 2 2008 3 8 9 9 13 10 2 2009 3 9 8 9 13 10 2

Summary Report 3 MARKETING COMMUNICATIONS EXPENDITURE SURVEY

CAVEATS

The following should be taken into consideration when reviewing the data:

1. While response reflects a full range of industries, the following categories are more highly represented in the data: Financial Services, Quick Serve Restaurants, Packaged Goods.

2. The retail sector is significantly underrepresented in the sample. Their input would probably have influenced response regarding MarCom channels effective for local advertising.

3. The majority of response was staggered throughout November and December when the global economic crisis grew in scope on a daily basis. Business and consumer credit was more and more restricted. To varying degrees, response to this survey may reflect reaction to extraordinary MarCom conditions over and above the prevailing advertising trends.

4. These data relate to a small sample of advertisers. Although they do include some of the biggest advertisers in Canada, the data are not a prediction of total MarCom expenditure nor of overall trends related to MarCom budget allocation strategies. This information must be viewed with this understanding. The observations from this data are not projectable to the Canadian marketplace.

5. Slightly less than half of the respondent companies have calendar years for their MarCom planning periods. The terms ‘last year,’ ‘this year’ and ‘next year’ do not correspond exactly to 2007, 2008 and 2009 but are close approximations to the calendar years.

Summary Report 4 MARKETING COMMUNICATIONS EXPENDITURE SURVEY

SUMMARY OF FINDINGS

1/ Year over Year Change in MarCom Budget

Overall, there appears to be only marginal softening in the overall change in size of MarCom budgets among respondents.

In 2008 vs 2007, 67% (36 of 54 respondents) maintained the size of their MarCom budgets (within +/- 10% range). This increased to 74% as a projection for 2009 vs 2008. This shift was sourced from the number of respondents who projected a budget increase of greater than 10%. 11 respondents (20%) indicated an increase in 2008 vs 2007, and this was reduced to 13% projected for 2009 vs 2008. The number of respondents who decreased their budgets by greater than 10% was constant at 13% in 2008 vs 2007 and 2009 vs 2008.

NUMBER OF RESPONDENTS BY % CHANGE IN MARCOM BUDGET BASE = 54 2009 VS 2008 (PROJECTION) 2008 VS 2007 (ACTUAL) >10% increase 7 (13%) 11 (20%) no change (+/- 10% range) 40 (74%) 36 (67%) > 10% decrease 7 (13%) 7 (13%)

When viewed as a total expenditure, there is virtually no change over the 3 years of collective reported budgets. TOTAL MARCOM EXPENDITURE CLAIMED BY 54 RESPONDENTS PREVIOUS YEAR (2007) CURRENT YEAR (2008) NEXT YEAR (2009) Total Total % chg vs 2007 Total % chg vs 2008 ($000) ($000) ($000) 1,658,116 1,655,769 +/-0% 1,663,296 +0.5%

2/ Impact of Economy on Marketer / Respondent’s Business

Overall, the economy is perceived to have a greater negative impact on business than it does on the degree of MarCom support to ride through the recession.

When asked to rate the negative or positive impact of the economy on their businesses, 57% of respondents foresaw a negative impact; 22% were neutral; and 15% rated it positive. 11% indicated the impact would be “very unfavourable.” No one predicted the economic impact would be “very favourable.”

% OF RESPONDENTS RATING IMPACT OF ECONOMY ON BUSINESS RATING IMPACT ON BUSINESS Negative 57% Neutral 22% Positive 15% Don’t know 6%

In response to the question related to economy and impact on MarCom budgets, exactly half thought the economic environment would affect their MarCom budgets over the next 12 months. Almost one third (31%) claimed it would have no affect, and 15% “didn’t know.”

Summary Report 5 MARKETING COMMUNICATIONS EXPENDITURE SURVEY

3/ MarCom Budget Allocation by MarCom Channel

MarCom budget allocation across MarCom channels (16 were identified) has seen marginal shifts when viewed in the context of total expenditures for the 54 respondents.

Increasing reliance on the Internet accounts for the single major shift in activity. Reflective of the national advertiser sample base, TV (31.7%) and newspapers (9.6%) accounted for the largest share of dollars in 2008 and are projected to do so in 2009. Over the three-year survey period, Internet activity gained 3.6 share points and increased ad revenue by 79%. In 2009 shares for traditional media and digital applications are projected to remain constant.

TOTAL MARCOM EXPENDITURES ALLOCATED BY MARCOM CHANNEL Previous Year (2007) Current Year (2008) Next year (2009) 2008 vs 2009 vs 2007 2008 Total Share Total Share Total Share (000) (000) (000) Share Share chg chg

$0 (%) $0 (%) $0 (%) (pts) (pts) Total Expenditure 1,658,116 100.0% 1,655,769 100.0% 1,663,296 100.00% TV 523,878 31.6% 524,098 31.7% 506,475 30.5% +0.1 -1.2 Radio 98,853 6.0% 88,962 5.4% 92,803 5.6% -0.6 +0.2 Magazines 56,091 3.4% 52,814 3.2% 49,890 3.0% -0.2 -0.2 Newspapers 188,743 11.4% 158,921 9.6% 151,977 9.1% -1.8 -0.5 Flyers & Inserts 27,547 1.7% 26,190 1.6% 22,712 1.4% -0.1 -0.2 Online/Internet 75,818 4.6% 98,967 6.0% 135,432 8.1% +1.4 +2.2 Out of Home 110,393 6.7% 101,421 6.1% 104,470 6.3% -0.5 +0.2 Telemarketing 8,500 0.5% 8,500 0.5% 8,500 0.5% +/-0 +/-0 Direct Mail 78,381 4.7% 76,042 4.6% 76,554 4.6% -0.1 +0.01 Mobile Marketing 1,461 0.1% 1,625 0.1% 3,945 0.2% +/-0 +0.1 Word of Mouth 550 0.0% 870 0.1% 1,655 0.1% +/-0 +0.1 In-Store 51,611 3.1% 53,390 3.2% 51,444 3.1% +0.1 -0.1 Product Placement 2,331 0.1% 2,400 0.1% 2,375 0.1% +/-0 +/-0 Branded Entertainment 3,980 0.2% 5,537 0.3% 6,260 0.4% +0.1 +0.1 Direct Response 0 0.0% 2,000 0.1% 2,000 0.1% +0.1 +/-0 Sponsorship 95,442 5.8% 99,766 6.0% 103,530 6.2% +0.3 +0.2 Other 311,849 18.8% 328,318 19.8% 320,310 19.3% +1.0 -0.6

The major reasons respondents gave for changing expenditure patterns are:

• Adapting to the media behavioural profiles of their customers – better targeting • Acceptance of the Internet’s marketing value and wanting to make more use of it • Fragmentation of existing media, particularly TV as it transitions partly online • Experimenting with new media and their applications • Existing media less effective • The importance of being able to measure the ROI • The impact of the economy

Summary Report 6 MARKETING COMMUNICATIONS EXPENDITURE SURVEY

4/ Choice of MarCom Channels Used by Respondents

Television remains and continues to be a dominant MarCom channel used by respondents, with 83% claimed usage in 2009. It must also be noted there is close to the same number of respondents who claim they will use the Internet in 2009. This is a significant increase in the use of the Internet from 72% of respondents who reported using it in 2007.

There are fewer respondents who are using the other traditional mass media channels and there appears to be no significant shifts in usage patterns overall. The other non-mass MarCom channels, such as direct marketing, in-store promotions and sponsorship fees, are not experiencing significant change in their usage rates.

NUMBER OF RESPONDENTS (%) USING EACH MARCOM CHANNEL RESPONDENT BASE = 54 # USING IN 2007 (%) # USING IN 2008 (%) # USING IN 2009 (%) TV 46 (85%) 45 (83%) 45 (83%) Radio 40 (76%) 38 (70%) 39 (72%) Magazines 40 (74%) 35 (65%) 35 (65%) Newspapers 36 (67%) 35 (65%) 34 (63%) Inserts 15 (28%) 14 (26%) 13 (24%) Out of Home 33 (61%) 31 (57%) 30 (56%) Internet 39 (72%) 45 (83%) 46 (85%) Telemarketing 1 1 1 Direct Marketing 24 (44%) 24 (44%) 22 (41%) Mobility 1 2 4 Word of Mouth 3 5 7 In-store Promotions 19 (35%) 20 (37%) 20 (37%) Product Placement 3 4 4 Branded Entertainment 6 6 7 DRTV 0 1 1 Sponsorship 23 (43%) 24 (44%) 22 (41%)

5/ Number of MarCom Channels Used per Respondents

The number of MarCom channels used per respondent ranges from a minimum of 2 channels to a maximum of 10 channels (based on the provided list of 16 channels). The majority of respondents used between 4 and 7 channels for their MarCom programs.

NUMBER OF MARCOM CHANNELS USED PER RESPONDENT ( BASE = 54) # OF MARCOM CHANNELS USED 2007 2008 2009 1 0 0 0 2 4 4 2 3 4 2 3 4 5 5 8 5 32 (59%) 7 35 (65%) 9 35 (65%) 10 6 10 12 10 7 10 9 7 8 6 6 5 9 4 3 4 10 4 4 5 > 10 0 0 0

Summary Report 7 MARKETING COMMUNICATIONS EXPENDITURE SURVEY

6/ Correlation of Number of MarCom Channels and Size of MarCom Budget for 2008

There does not appear to be a strong correlation between the number of MarCom channels used and the size of the MarCom budget. As demonstrated by the chart below, the largest budgets did not use maximum number of channels.

NUMBER OF MARCOM CHANNELS USED PER RESPONDENT BY BUDGET SIZE (BASE = 54) # OF MARCOM <$1M $1-5M $5-10M $10-20M $20-50M $50-100M >$100M TOTAL # OF CHANNELS RESPONDENTS 1 channel 0 2 1 1 1 1 4 3 1 1 2 4 1 1 1 2 5 5 2 2 2 3 9 6 1 5 2 3 1 12 7 1 1 1 3 1 2 9 8 1 1 1 1 2 6 9 1 2 3 10 1 1 2 4 >10 channels 0 Total # of 3 8 9 9 13 10 2 54 Respondents

7/ Number of Respondents allocating > 30% of MarCom Budget by Channel

In 2008, 27 of 54 of respondents (50%) allocated > 30%+ of their total MarCom budgets to television. In 2009, this fell to 46%. Fewer than 4 respondents allocated a dominant share of their MarCom budgets to any of the other specific MarCom channels. It is interesting to note that just over 25% of respondents did not allocate >30% of their MarCom budget to any single channel.

NUMBER OF RESPONDENTS ALLOCATING > 30%+ SHARE OF MARCOM BUDGET BY CHANNEL BASE = 54 2007 2008 2009 TV 26 (48%) 27 (50%) 25 (46%) Radio 1 1 3 Magazines 3 1 1 Newspapers 4 4 4 Inserts 3 3 3 Internet 2 2 2 Out of Home 1 1 1 Telemarketing 0 0 0 Direct Marketing 3 3 3 Mobility 0 0 0 Word of Mouth 0 0 0 In-store Promotions 1 1 0 Product Placement 0 0 0 Branded Entertainment 0 0 0 DRTV 0 0 0 Sponsorship 0 0 0 No dominant channel 14 (26%) 14 (26%) 16 (30%)

Summary Report 8 MARKETING COMMUNICATIONS EXPENDITURE SURVEY

8/ Internet Activities

In answer to the question “Which of the following Internet activities is your company/organization engaged in?”, company websites, followed by display advertising, search-engine marketing and e-mail topped the activity list (80% or greater).

PROMOTIONAL ACTIVITIES Company Websites 93% Display Advertising 87% Search-Engine Marketing 80% E-mail 80% Video 61% Rich Media 59% Social Media 33% Classified/Directories 24% OTHER ACTIVITIES Media Relations 65% Jobs and Careers 63% Customer Service 61% Direct Sales/E-commerce 59% Newsletters and Blogs 57% B2B Communications 52% Investor Relations 35% Other items 17%

9/ Shift from Traditional Media to Internet Applications

When asked to name the Internet applications that would account for the greatest potential shift in advertising expenditure from traditional media, participating companies were most likely to identify:

Search-Engine Marketing 48% Display Advertising 31% Rich Media 24% Social Media 24% Company Websites 22% Video 17% E-mail 17%

Summary Report 9 MARKETING COMMUNICATIONS EXPENDITURE SURVEY

10/ Confidence Ratings by MarCom Channels

Based on a MarCom Channel ability to “deliver against MarCom objectives,” respondents rated their confidence for each channel. The question did not specifically refer to the respondent’s own organization’s objectives. In many instances, there was a disconnect between the use of a MarCom channel and the confidence the respondent had in that channel. Reflective of the national advertiser sample base, TV, followed by the Internet, generates the most confidence. Average scores are in the top half of the scale, with the exception of telemarketing.

On a seven point scale, where 1 is not at all confident and 7 is very confident, in general how confident are you that each of the following media can deliver against advertisers' MarCom objectives?

BASE = 54 SCALE 1-7 TV RADIO MAGAZINES NEWSPAPERS FLYERS & INSERTS ONLINE/INTERNET OUT OF HOME TELEMARKETING DIRECT MAIL Not at all Confident 1 0% 2% 6% 0% 6% 0% 0% 26% 4%

2 2% 6% 15% 6% 9% 2% 7% 24% 13%

3 7% 15% 15% 17% 13% 11% 6% 13% 7%

4 11% 17% 26% 26% 28% 15% 20% 11% 19%

5 41% 31% 24% 24% 22% 30% 37% 11% 22%

6 24% 15% 11% 20% 11% 31% 20% 7% 17%

Very confident 13% 15% 4% 7% 7% 11% 9% 4% 15% 7 Top 2 points 37% 30% 15% 27% 18% 42% 29% 11% 32%

Bottom 2 points 2% 8% 21% 6% 15% 2% 7% 50% 17% Total positive 78% 61% 39% 51% 40% 72% 66% 22% 54% (4-7) Average Score 5.1 4.8 4.0 4.6 4.0 5.1 4.8 2.8 4.4

The confidence factor for respondents who used TV as a dominant MarCom channel in 2008 is slightly higher at 5.4 versus 5.1. (Note: Dominant channel is defined as >30% share of MarCom budget.)

The respondent base for the other MarCom channels which received dominant share of MarCom budget was extremely small and therefore not reported in this analysis.

Summary Report 10