Advertising Pays The economic, employment and business value of The Commercial Communications Council 2017 Advertising Pays NZ

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Advertising’s contribution to New Zealand’s economy was $6bn in 2015

supporting over 44,000 jobs

Includes 5 more employees for every 2 employed directly Businesses spend at least $2.4bn annually on ...but, successful advertising in campaigns can have New Zealand big returns to a dollar $17

3 Contents

Executive summary 05

1 Introduction 13 1.1 What is advertising? 14 1.2 Outline of this report 15 1.3 Approach 15

2 Economic value 16 2.1 How advertising delivers economic benefits 18 2.2 Advertising’s impact on the economy 20 2.3 Costs of advertising 24

3 Employment impact of advertising 26 3.1 Direct advertising employment 27 3.2 Advertising supply chain (indirect) 30 3.3 Advertising-supported industries and occupations 30 3.4 Summary of employment impacts 32 4 Advertising and business 34 4.1 Key insights 35 4.2 Advertising helps deliver business objectives 37 4.3 Advertising has a role to play in corporate strategy 39 4.4 Advertising is an investment in brand 42 4.5 Know your customers and the best channel to reach them 45 4.6 Creativity is critical to advertising 46 4.7 Don’t overlook other audiences 48 4.8 Advertising can achieve broader social objectives 50

Conclusion 53 References 54 Appendix 59 Advertising Pays NZ

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Executive summary

Advertising is a critical way for businesses to connect with customers and drive revenue growth. Investments in advertising can deliver strong returns for business, and in an environment with changing customer preferences and disruptive , businesses can also use advertising to achieve their strategic objectives.

Advertising also plays an important role The advertising can be typecast in our economy and society. The industry as simply the final stage in the customer is a significant employer in its own right strategy; but in fact, it can also play and advertising is a critical driver of a significant role in the core of corporate competition, lower prices, and productivity strategy. The industry includes over 1,000 growth. It can help governments professionals who specialise in connect with the public and drive and , who can provide deep behavioural change. insights throughout the product lifecycle.

We estimate that advertising in New In the short term, advertising can be Zealand was worth 2.4% of GDP, or viewed as cost. However, it can have $6 billion in 2015. This is a significant a significant return, for example Effie economic contribution, roughly equivalent winning advertising campaigns in New to what tourists spend in New Zealand Zealand in 2015 returned $17 in sales every six months. Furthermore, the revenue for every $1 of advertising advertising industry is a significant expenditure (Nielsen & CAANZ, 2016). employer. Over 44,000 jobs are It is also an investment in the company’s supported by advertising in New Zealand, brand asset. This can be a business’s including over 12,000 people directly most valuable asset; New Zealand’s top employed in advertising. 10 brands were collectively valued at $4.7 billion in 2012. This report re-examines advertising’s role in contributing to business success In a fragmented media market, reaching in a changing economic climate, the right target audience in the most based on insights from New Zealand’s effective way is instrumental to an business leaders. advertisement’s success. Agencies with a deep understanding of customers and markets can help businesses advertisements and media strategies that are more likely to succeed.

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In New Zealand, businesses have access Advertising generates growth to some of the most creative advertising Annual expenditure on advertising in New agencies in the world. In 2015, Auckland Zealand is significant, worth $2.4 billion was ranked fourth in the Cannes Lions or almost 1% of GDP in 2015. During the Global Creativity Report as a highly creative period from 1980 to 2015, Advertising city – ahead of hubs like Tokyo, Bangkok expenditure has been growing, on and Sydney. average, at a rate of over 7% a year in nominal terms. Other potential audiences for advertising – like suppliers, investors and staff – The positive impact of advertising on should not be ignored. For example, the economy is much bigger than direct sales workers represent almost one in spending. It facilitates competition in the ten employees in New Zealand. Informing market, inspiring , and improving and engaging with these customer-facing efficiency and productivity. Advertising staff can be an effective way of provides incentives for businesses; to offer a common sense of purpose, and better products or services, or at lower engaging and communicating with the prices, and to win market share. organisation’s customers. This provides benefits to consumers and Finally, government objectives can be the economy. By providing information aided by advertising. Advertising has a to consumers, advertising helps buyers wide reach and can portray safety and compare different products and services social change messages effectively. and make informed choices. Evidence This ability is demonstrated through shows that this strong competitive campaigns such as the successful force ultimately leads to lower prices 'Legend' drink‑driving campaign.

Chart i : Real advertising expenditure in New Zealand ($ million), 1980-2015

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500

0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: ZenithOptimedia

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for consumers. Chart ii : Contribution of advertising to GDP by industry ($ million), 2015

The annual benefits of advertising to $815.64 the New Zealand economy were worth Leisure, $587.57 $6 billion in 2015, in addition to direct spending on advertising. Foodstuffs $566.39

Automotive $526.32 That is, as a result of advertising activity, the New Zealand economy was $6 billion Government Departments, $382.62 Services & Community larger through great innovation by Travel $296.03 businesses, more productive use of resources, and lower prices for consumers, Investment, Finance, Banking $285.86 driving more economic activity. This is in Toiletries/ $243.46 addition to the $2.4 billion spent annually on advertising. This is a significant impact, Pharmaceuticals, Health $235.14 with $6 billion being equivalent to six Home Improvements $234.25 months’ worth of spending by international tourists in New Zealand. $205.51

Increasing spending on advertising can Household Electrical Products $202.73 be used to drive economic growth. Based Beverages $167.03 on analysis in this report, for every dollar spent on advertising in 2015, GDP is Household Furnishings $166.79 expected to increase by around 13 cents in Telecommunication $159.32 the following year (in addition to the extra dollar spent). If the increase in advertising Business Services $156.25 expenditure is sustained, the long run Real Estate $145.40 impact will be greater. Computers $123.79 These benefits to the New Zealand Miscellaneous $100.47 economy are in turn the result of industries spending money on advertising. The Clothing $84.81 largest economic benefits of advertising Agricultural $71.04 are generated from the retail sector, worth over $800 million in 2015, as shown in Household Cleaning Products $60.27 Chart ii. The leisure and entertainment 0 100 200 300 400 500 600 700 800 900 industry, as well as foodstuffs and automotive, also contribute nearly $600 Source: StatsNZ (2016); Deloitte Access Economics calculations million each of the $6 billion total economic benefit of advertising. In rare cases, advertisements could have significant costs through encouraging While advertising is a significant driver of problematic behaviours, such as economic growth and creates value for irresponsible alcohol consumption or consumers, it is important to recognise that gambling. Regulators play an important it also imposes costs. These include the role in managing these costs and impacts. time lost by individuals as they are exposed to advertisements, the potential for Advertising supports jobs artificial differentiation and the downsides Advertising is associated with the of excessive consumerism. employment of over 44,000 people in the New Zealand economy. For every Misleading or offensive advertisements two people who are directly employed can lead to erroneous perceptions in advertising, one is employed in the and dissatisfaction among consumers, advertising supply chain, and four are inducing decisions that ultimately decrease employed in industries where advertising individual or social welfare. provides significant financial support.

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There were 12,412 full-time equivalent Additionally, some industries rely on (FTE) jobs directly created by advertising in advertising as a source of revenue. For 2013. This is similar in size to employment businesses in content generation (like in the motor industry (13,703), graphic designers and film producers) postal, courier, pick-up, and delivery and media (including and radio), services (12,234) or in insurance and advertising agencies are a key customer. superannuation funds (10,764). We find that 26,421 FTE individuals were employed in occupations supported by Just under half of these jobs were in advertising revenue. traditional advertising services businesses; more than 6,000 were spread across the In total, this means that for every two economy in other industries, ranging from people directly employed in advertising and design to in New Zealand, there are around advice and financial investing. five more people employed in the advertising supply chain and advertising- We estimate that a further 5,341 FTE supported industries. employees were indirectly employed as part of the adverting upstream supply chain. This includes business services such as software design (used by advertising agencies in the development of creative content) and human resources (used by agencies for recruitment).

Chart iii : Industries that advertising professionals in, 2013

27%

44%

3% 3%

3% 3% 4% 6% 6%

Advertising Services Computer System Design and Management Advice and Related Services Related Consulting Services Newspaper Publishing Magazine and Other Radio Periodical Publishing Other Specialised Design Services Financial Asset Investing Other

Source: StatsNZ (2016); Deloitte Access Economics calculations.

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Figure i: The employment impact of advertising

For every... =

people employed …one is employed in and four are employed in in advertising… the supply chain supported industries

Source: Deloitte Access Economics

Advertising pays: insights for business The key insights from our research and and for government interviews are: Advertising is an important component of a business’s corporate strategy, allowing 1. Advertising helps deliver business businesses to engage with customers and objectives spread their messages to a wide audience. Advertising, at its core, is about It can also help governments achieve a generating revenue for businesses wide range of public policy objectives. by helping to sell and distribute the products they make. Although it has Beyond just selling a product, advertising a far wider reach within a business, agencies can help to build a brand its central aim is to promote business profile for a business, using their broad sales, awareness, and help grow market industry knowledge to design products share, and it can be very effective which appeal to the target market, and at this. Effie winning advertising advising on consumer appetites and the campaigns in New Zealand in 2016 right combination of channels to make returned $17 in sales revenue for every maximum impact in a market. $1 of advertising expenditure (Nielsen & CAANZ, 2016). Leveraging these opportunities can pay significant dividends, not just for the 2. Advertising has a broader role to business, but for consumers, government, play in corporate strategy and the economy more broadly. As consumers have access to more For this report we reviewed several high information about products and profile ad campaigns and interviewed services, and become increasingly New Zealand business leaders at Air New sophisticated at contextualising Zealand, Holden, NZ, and Mitre 10 information, it is more important than to understand the role that advertising can ever to ensure that those products, play in achieving business goals. services and customer experiences deliver clear and consistent expressions of a firm’s brand. Customer-facing advertising agencies have a role to play at the core of business strategy.

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3. Advertising is an investment 6. Don’t overlook other audiences in brand Advertising that is focused on building In a world with increasingly more choice awareness of a brand’s greater purpose available to consumers, brand can and meaning can not only strengthen be an essential ingredient for market customer relationships, but can differentiation. It can be a business’s also positively impact on employee most valuable asset, providing an engagement, talent attraction, supply effective way to build market share chain connections, and shareholders. and grow a business. In 2012, Brand For example, Chemmanur and Yan Finance estimated New Zealand’s top (2010) find that, based on stock 10 brands to be collectively worth $4.7 turnover patterns immediately following billion based on what those companies an IPO, “an IPO firm could increase its would be willing to pay to licence offer price to gain a valuation premium their brands if they did not own them. of 1.5% to 3% relative to its intrinsic As a highly visible and direct form of value if it increases its advertising brand communication, recognising intensity by 1%.” advertising’s strategic role is critical in tailoring content and the planning of 7. Advertising can achieve for broader its delivery. social objectives Public sector advertising is best when 4. Know your customer and the best employed transparently in the pursuit channels to reach them of outcomes for the public good. It Increasingly, the effectiveness of can be a tool in the arsenal of policy advertising is determined by how well it making as part of a complementary, is targeted; content alone is no longer integrated suite of measures. For enough to ensure success. The right example, the ‘Legend’ drink driving mix will vary according to the strategic campaign ran for three years and objectives of a business; expert advice was highly successful – the number can assist to ensure maximum impact. of young people caught over the limit Rarely will a one-channel strategy – halved, and number of young deaths digital or otherwise – serve a brand’s on the fell from an average of 214 best interests. For example, 69% of the before the advertisement to 145 after 3.5 million New Zealanders who watch the advertisement. TV every week do so via a (Nielsen, 2016).

5. Creativity is critical for advertising The success of a marketing campaign also depends on the extent to which content conveys an engaging message that audiences retain. Portraying the role of business through a ‘human’ lens remains important for communicating the values behind a brand, an area of increasing importance for consumers when determining their loyalty over the longer term. New Zealand’s advertising agencies are repeatedly recognised on the world stage for their creativity. By harnessing this strength, businesses can optimise the effectiveness of their investment and campaigns.

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Business insights

“Everyone is competing for “…making sure advertising “Brands need to explain customers. The challenge is appropriately targeted themselves and give is to work out how to use – that the right people are audiences a reason to advertising to compete seeing it at the right time care. All the science in most effectively – how to in the right medium for the world won’t, in the attract attention, and to them – can be a more cost end, convince people to convert to sales.” effective way of delivering stop smoking, vote, buy Annabelle Fowler a more powerful message.” a , have safe General Manager of Market Development Kevin Bowler and Retail Sales, Air New Zealand sex, or choose one CEO, Tourism NZ over another. You have to persuade them. And “Advertising forms a “You can clearly see the in the art of persuasion, big part of how we cause and effect – a the most powerful communicate what couple of days after instrument is creativity – we offer and who we launching an ad we see the currency of ideas.” are. Increasing sales is sales increase by 15%... David Redhill only a small part of this when we take our staff Partner, CMO, Deloitte overall strategy.” through e-learnings, sales Marnie Samphier Chief Marketing Manager, Holden NZ increase further, reaching up to 65% because staff are more equipped to help our customers.” Dave Elliott General Manager of Marketing, Mitre 10

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Introduction

Advertising plays an important role in our economy and society. For individuals, advertising improves access to information. For business, it is a means of communicating with customers and positioning in the market. Advertising also helps governments to connect with the public and drive behavioural change.

Beyond these direct impacts advertising For businesses, this understanding of what has broader economic impacts. It facilitates customers want can pay big dividends. competition in the market, inspiring By addressing these needs using creative innovation, and improving productivity. thinking, advertising can do more And evidence shows that this can ultimately than just encourage sales – it can add lead to lower prices for consumers value throughout the supply chain, and (Tellis and Amber, 2007, and Milyo and build brand. Waldfogel, 1999).

For as long as people have traded Advertising improves and services, sellers have used advertising to provide information to potential information provision, customers. But as markets have evolved, so has advertising. From outdoor carvings and can ultimately in the ancient world to individualised and targeted messages today, lead to lower prices advertising has always been innovative and adaptive – quick to leverage new mediums for consumers and respond to the changing tastes Tellis and Amber of consumers. (2007)

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The Commercial Communications Council In this context, this report employs engaged Deloitte Access Economics to a broad definition of advertising, examine the value of advertising to the New encompassing communications through Zealand economy. Our analysis measures paid, owned, and earned media, proposed these impacts in terms of economic activity by Jeremy Bullmore in 1983, shown on and employment. It also discusses how the bottom of this page. This definition is business can use advertising to achieve consistent with previous work by Deloitte strategic objectives. in the UK in 2012, 2014, and 2015, and in Australia in 2016. 1.1 What is advertising? The lines between marketing, selling, and The focus of this report is advertising that providing services are blurring. Businesses is intended to draw consumer interest now have the opportunity to do all three in brands, products and services, or to simultaneously across a wide variety change consumer behaviour in some of channels. other way. While broader marketing and communications functions, such as public Advertising is no longer limited to paid- relations, are increasingly integrated with for slots on broadcast media like radio, advertising today, they are not central television and newspapers, out of home to this analysis and not captured in the advertising, and direct . advertising spend figures used.

Businesses can now reach consumers Advertising agencies are businesses directly through ‘owned’ channels of dedicated to creating, planning, and communication – ranging from business handling advertising and other forms and blogs, to videos and social of marketing and for clients. media. And though ‘earned’ advertising Throughout this report, we refer to the mechanisms – like word-of-mouth and use of advertising agencies by other endorsements – are old, they now have businesses, and the services these broader reach than ever. Social media and agencies offer - including building a review services and platforms can magnify business's brand, assisting in development and amplify individual experiences. of corporate strategy, and finding creative ways to reach target audiences and deliver on a business's objectives.

“Advertising is any paid-for, owned, or earned communication intended to inform and/or influence one or more people”

Adapted from Bullmore (1983) in Deloitte Access Economics (2016a)

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1.2 Outline of this report 1.3 Approach This report analyses the effect that We have combined research from a advertising has on the New Zealand number of areas for this report. The economy. We consider the benefits that evidence base comes primarily from: advertising brings to the economy through information provision, encouraging Literature review – We conducted an innovation, stimulating competition, extensive literature review of academic lowering prices, and generating and papers and industry research to develop a supporting jobs. The remainder of the picture of the benefits and costs that arise report is structured as follows. from advertising for business, government, and society. This review also helped to Chapter 2 considers the direct and inform the methodology used to analyse indirect economic benefits of advertising economic growth and employment data expenditure in New Zealand. We use an in the New Zealand context. augmented Solow-Swan model to estimate the impact that advertising spend has on Data collection and analysis – Data productivity in the economy, and the extent used in this report comes predominantly to which the economy is larger than it from freely available information sources would otherwise be because of advertising. such as the World Bank, OECD, UNESCO, and Statistics New Zealand. This was Chapter 3 examines and quantifies the supplemented with bespoke data from employment supported by advertising in Statistics New Zealand, ZenithOptimedia, New Zealand. This is divided into three and Nielsen AIS. These data sources categories: those directly employed by were used to create a time-series panel the advertising industry (for instance of economic growth indicators such as advertising professionals), those employed GDP, population, levels, and in sectors which supply the industry advertising spend across 35 countries, (software designers), and those whose as well as detailed data on employment employment is supported by the industry in New Zealand. (newsreaders and sportspeople). Econometric modelling – We used an Chapter 4 discusses the importance of augmented Solow-Swan growth model advertising for businesses, and the benefits to estimate the impact of advertising on that arise from its use. Our industry economic growth. More information on this consultations reveal key insights about the model is available in Appendix A. value of advertising to a business and the importance of brand. Industry consultations – We conducted consultations with senior business The report also includes a technical leaders in order to gauge businesses appendix, which details the modelling perceptions of advertising. These consults used in Chapter 2 to quantify the focused on the role of advertising, how indirect economic impact of advertising advertising budget is allocated, how the in New Zealand. success of a campaign is determined, and views on advertising agencies versus in- house capabilities.

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Equivalent to around

New Zealand's 6 months economy is of spending by international tourists $6bn larger in New Zealand each year than it would otherwise have been as a result of advertising

6x

Some of the biggest contributors by industry are

Retail Leisure & Foodstuffs Entertainment

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Economic value The advertising industry is a significant part of the New Zealand economy.

Expenditure on media advertising alone was worth $2.4 billion in 2015.1 By Advertising expenditure investing in advertising, organisations create value for themselves. And Advertising expenditure was $2.4 billion beyond driving revenue and customer in 2015. We use this ZenithOptimedia engagement, advertising agencies estimate for modelling because it allows can support a better understanding for international comparison. It is also of customer needs, inform corporate broadly consistent with the most recent strategy, and bolster brands, as detailed Advertising Standards Authority estimate in Chapter 4. This expenditure also supports employment – directly in the of $2.38 billion in 2014 (ASA, 2014), though advertising industry, but also more more up to date. broadly through New Zealand’s creative and media industries, which receive a We note that the size of advertising is likely significant proportion of their revenue to be even larger, because advertising from advertising. spend does not include all production costs, such as the revenue earned on Beyond the direct impacts, advertising enhances competition, productivity, and creating advertising content. Production innovation across the economy. This has costs can be very significant. According delivered far more substantial benefits; to estimates from the Commercial in 2015 these were worth around $6 Communications Council, net revenue of billion to the NZ economy (or 2.4% of communications agencies (that is, revenue GDP), equivalent to what international to the creative agency on total sales tourists spend in New Zealand every six months. This contribution is in addition of creative services, less payments for to direct spending on advertising. production) is around $300 million, and This chapter quantifies the value total payments by clients (which include of advertising to the New Zealand production costs) are approximately 3-4 economy in terms of its impact on times net revenue. gross domestic product as a result of greater market efficiency and growth. This would imply that revenues from the There is value beyond what is captured production of content are around $1 in this model however, specifically billion annually, in addition to the $2.4 greater consumer surplus and better outcomes in non-market sectors such billion of advertising expenditure. This as health and education. These are would take total advertising expenditure discussed later in this chapter. to over $3 billion, highlighting the significance of this sector to the economy.

1. This figure is based on ZenithOptimedia advertising expenditure estimates which include all expenditure on newspapers, magazines, TV, radio, outdoor, cinema, and . The data is calculated after discounts and excluding production costs, but including agency commission, classified advertising for newspapers and internet (but not magazines), and including display/classified/search/mobile internet advertising.

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Chart 2.1 Real advertising expenditure in New Zealand, ($ million), 1980-2015

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2500

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1500

1000

500

0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: ZenithOptimedia (2015)

2.1 How advertising delivers Advertising expenditure in New Zealand economic benefits in 2015 was $2.4 billion2 (or 0.97% of GDP). Advertising expenditure grew substantively This is a conservative estimate because in real terms over the three decades data limitations mean that it is based to the GFC (see Chart 2.1). However, a on paid channels only. These include decline in spending after the GFC raised newspapers, magazines, TV, radio, cinema, broader concerns about the industry’s outdoor and online display, classifieds, and overall trajectory, particularly in light of the search payments, but not other, unpaid disruptive force of new digital channels, forms of advertising such as word of mouth enabling and facilitating an increase in or social media posts by customers. It also owned and earned advertising. However, excludes spending on the production of the industry has since recovered; in fact, advertising, such as money spent on the 2014 and 2015 saw real expenditure reach development of creative content. Thus, historic highs. Clearly, the drop in spending total spend is likely to be larger than $2.4 during the GFC was cyclical, and does not billion, but due to data limitations only the reflect a broader structural change. expenditure on advertising (in terms of media spend) is modelled in this report.

2. In New Zealand real terms. 18 The Commercial Communications Council

This spending supports employment in Figure 2.1 Mechanisms by which the advertising industry directly, as well advertising works as flow-on employment through creative and media industries, as discussed in Chapter 3.

Evidently, investing in advertising can provide a direct return for businesses and Informative Complementary government – whether that be increased sales, engagement with customers, broader social outcomes, or other benefits, as explored in Chapter 4.

But even businesses and individuals who Persuasive don’t directly invest in advertising can benefit from it. This is because advertising enhances competition, productivity, and innovation across the economy.

It does this through three mechanisms Many studies, dating back to the 1950s, have (Bagwell, 2005) presented in Figure 2.1. linked a range of business performance indicators such as sales, profit, and price. •• Informative – as markets are often And, as detailed in Chapter 4, advertising characterised by imperfect information can also contribute to broader business (i.e. consumers do not always know of objectives. The effectiveness of advertising a product’s existence, price, or quality), as a means of achieving business objectives advertising promotes competition is well‑established. and lower prices by providing this information at a minimal cost However, studies that focus on firm level to consumers. analysis are of limited use for explaining advertising’s long term contribution to •• Complementary – advertising is broader economic development. Advertising complementary to the products being is highly combative in nature, and a consumed. For example, consumers unilateral increase in advertising by one firm may value the ‘social prestige’ that often leads to reciprocal increases by its is derived from the advertising of a competitors. This causes contemporaneous particular product. positive relationships between advertising •• Persuasive – advertising shifts and business performance, so advertising’s consumer preferences and enhances impact cannot be isolated and wider product differentiation and brand conclusions as to the value of advertising loyalty. As a result, firms can charge cannot be drawn. higher prices for their products due to reductions in the price elasticity Recent work suggests that the analysis of of demand. advertising should look at the performance of the economy as a whole, including the These impacts all flow through to improved effects on growth and market efficiency, productivity in the economy, and higher rather than individual firms. overall economic activity. However, the defining work in this space But quantifying them in practice is a was predominantly completed earlier, challenge. Each advertisement is unique, in particular the work of Nobel-winning with its own goals and impacts. As such, economist Clive Granger (Ashley et al., 1980) there is no generic way of measuring the that found a positive relationship between cumulative impact of advertisements - advertising and aggregate consumption3 each will differ on a case by case basis. epitomises this body of literature.

3. The paper found that an increase in advertising spend led to an increase in aggregate consumption in the economy, suggesting that advertising generates consumption. 19 Advertising Pays NZ

As such, recent literature focuses on Building on the notion that advertising broader economy-wide methods to promotes competition, boosts quantify the impact of advertising. consumption, and increases consumer Specifically market efficiency and growth, awareness about products, numerous consumer surplus, and non-market studies have attempted to value the sectors. These are discussed in more contribution of advertising to economic detail below. growth. McKinsey & Company (2012) estimated that advertising has fuelled 15% 2.1.1 Market efficiency and growth of GDP growth on average across G20 As previously established, advertising countries over the period 2002 to 2010 by impacts the economy in a number of generating new business. Taking data on different ways, and so attributing a uniform each of the G20 countries’ growth rates, approach to quantifying its effect can be consumption and investment rates, and misleading. The major ways that advertising advertising expenditure over the period, impacts economic efficiency are (Deloitte the report used a Solow macroeconomic Access Economics, 2016a): model to estimate the extent to which increasing advertising expenditure Pushing price competition – Firm grew GDP. advertising translates to low-cost information about the market for Deloitte LLP (2012) augmented a standard consumers. The more information economic growth model to include available, the more efficient the market, advertising as a determinant of GDP demand becomes increasingly responsive growth and found that a 1% increase in to price. This promotes competition advertising expenditure leads to a 0.07% between firms and pushes prices for increase in GDP per capita in the UK, consumers down. Further, advertising can relying on data from 1998 to 2011. help facilitate market entry as it provides a means through which new entrants In Australia, it was estimated that can publicise their existence, prices, and advertising generated $40 billion worth products, and establish market share (Tellis of benefits in 2014 (Deloitte Access and Amber, 2007). Economics, 2016a). This was based on an earlier version of the model employed in Encouraging innovation – In today’s this report, and used data from the OECD increasingly globalised marketplace, from 1980-2014. businesses need to find new ways to stand out from the crowd and meet consumers’ 2.2 Advertising’s impact on needs. A strong advertising industry helps the economy companies to continually improve their Beyond the direct benefits of investing in and differentiate themselves from advertising (detailed in Chapter 4) and the their competitors, and this contributes associated employment in the industry to the advancement of and (as discussed in Chapter 3), advertising improved products. Innovation is critical plays an important role in driving for business growth as well as broader economic growth. economic growth, and advertising is a strong driver of that. While a number of empirical studies have established a link between advertising Signalling quality – Product quality expenditure and economic activity, this information is essential to a strong and analysis fills a gap in the evidence base efficient market (Dukes, 2008). Conveying by quantifying the benefits in the context product quality is not always easy, for of the New Zealand economy. To do instance if differences will only be noticed this, we attempt to formalise the value over time, and advertising can be used to of advertising by using a growth model overcome these difficulties. commonly used to decompose the drivers of economic development.

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2.2.1 Results Chart 2.2 Contribution of advertising to GDP by industry ($ million), 2015 We find that,for every extra dollar spent on advertising in 2015, GDP is Retail $815.64 expected to increase by around 13 cents Leisure, Entertainment $587.57 (in addition to the extra dollar spent) in the following year.4 If the increase in Foodstuffs $566.39 advertising expenditure is sustained, the Automotive $526.32 long run impact will be greater. Government Departments, $382.62 Services & Community As discussed in Chapter 1, advertising Travel $296.03 benefits come through a number of channels. It facilitates increased Investment, Finance, Banking $285.86 competition in the market, improves Toiletries/Cosmetics $243.46 information provision for consumers, encourages innovation, and ultimately Pharmaceuticals, Health $235.14 increases productivity in the economy. Home Improvements $234.25 To better understand the magnitude of these benefits, we modelled a scenario Insurance $205.51 under which advertising expenditure fell by Household Electrical Products $202.73 around 95% to see what would happen to the economy if the industry did not exist. Beverages $167.03

Using this hypothetical, we find thatthe Household Furnishings $166.79 5 annual contribution of advertising to Telecommunication $159.32 the economy is around 2.4% of New Zealand’s GDP. This means that New Business Services $156.25 Zealand’s economy is around $6 billion Real Estate $145.40 larger each year than it would otherwise have been as a result of advertising. Computers $123.79 Miscellaneous $100.47 These benefits can also be attributed across industries, presented in Chart 2.2, Clothing $84.81 based on advertising expenditure Agricultural $71.04 estimates provided by Nielsen AIS (2015). In particular, we note that the retail, Household Cleaning Products $60.27 leisure and entertainment, and foodstuffs industries are the three largest advertising 0 100 200 300 400 500 600 700 800 900 sectors in New Zealand, together experience one third of advertising Source: StatsNZ (2016); Deloitte Access Economics calculations economic contribution.

This breakdown is based on advertising industry sectors rather than ANZSIC industry sectors. While it is likely that advertising intensity contributes to innovation and growth in particular sectors, there are also likely to be flow- on effects through supply chains. For example, advertising by the retail sector will contribute to competitive forces that affect a range of supply chain industries such as and .

4. Based on an assumed 3% GDP growth rate.

5. Over the period from 2000 to 2015. 21 Advertising Pays NZ

2.2.2 Approach We supplement this framework by The key challenge in this analysis is to incorporating advertising as a driver of accurately isolate the contribution of economic efficiency. The augmented neo- advertising to GDP from other growth classical growth model specification can factors. As previously discussed, be found in Appendix A. This approach is advertising can boost economic growth also similar to techniques used by OECD by improving the efficiency of market (2013), Czernich et al. (2009), and Qu et al. interactions between business and (2016) to calculate the economic value of consumers, through the provision of digital technologies. information that in turn generates The data upon which this model is based competition. However, it is not compares paid advertising expenditure and uncommon for other growth factors, a range of macroeconomic variables for 35 such as the growth of internet usage, to developed countries from 1990 to 2015. cause simultaneous increases in GDP In addition to New Zealand, the sample and advertising expenditure, as shown included countries such as Australia, in Figure 2.2. For example, the internet Belgium, Canada, Denmark, France, Japan, has increased the marginal benefit South Korea, the Netherlands, Switzerland, and decreased the marginal cost of the United Kingdom, and the United advertising activities. States. The sample selection process In other words, though advertising excluded potential additional countries on expenditure and GDP are correlated, this the basis of major structural changes or is not sufficient evidence to conclude geopolitical factors that would be likely to that advertising causes higher economic bias the results. growth, given the presence of other economic factors driving the growth. Figure 2.2 Drivers of GDP growth Precise model specification and robust application of statistical techniques are necessary to account for various growth factors that are correlated with advertising Research and to ensure that the benefits of advertising Development are not overstated. Advertising Internet In this paper, we attempt to formalise the value of advertising by using a growth model commonly used to decompose the drivers of economic development.

Specifically, we diffuse the effects of advertising on economic growth using a neo-classical production function. The Population Trade growth GDP formal framework for this approach was first set out by Mankiw, et al. (1992) and later augmented by OECD (2001). The framework models economic growth using a set of inputs including labour, human capital and physical capital, as well Urbanisation as a measure of economic efficiency that Capital formation captures the influence of technological progress and market development, such as the level of urbanisation. Education

22 The Commercial Communications Council

The data was collected from a range of 2.2.4 Non-market sectors sources, including ZenithOptimedia, the The effect of advertising is pervasive World Bank, the OECD, and the UNESCO. across all parts of the economy. Measures of economic development such as GDP Our model uses advertising expenditure are often poor indicators of value among as a proportion of GDP as a measure the non-market sectors of the economy, of advertising intensity. However, this which include: is likely to underestimate advertising intensity. For example, digital advertising •• public sector administration and safety; can be less costly than more traditional •• education and training; and mediums to produce and distribute – so •• health care and social services. while the amount of advertising activity may be rising, expenditure levels may Advertising can increase the productivity not be growing as strongly. The model and efficiency of these sectors and improve cannot account for lower cost advertising non-market interactions such as the over time. awareness of government services and the way they are delivered to individuals, as 2.2.3 Consumer surplus discussed in more detail in Section 4.8. There are types of welfare which are not captured in GDP. The value of For example, in health care and social advertising derives from its ability to services, advertising delivers value by inform consumers, expand the range of raising awareness about health related goods and services that individuals are topics such as consumption of alcohol and knowledgeable of and able to locate, and smoking, whilst in public administration improve convenience. Some of these are and safety, advertising targets dangerous not readily captured in GDP, because they driving behaviours and domestic and family are not associated with revenue. violence. This goes beyond benefits at the individual level. Advertising of health and An alternative concept economists safety information has the potential to use to measure this value is ‘consumer change behaviour, and thereby significantly surplus’, which is defined as the difference reduce health and safety risks for the between what a consumer is willing to general public and the overall cost of pay for a product and the product’s providing health services. market price. Non-market benefits such as increased convenience and choices are Putting this in context, expenditure on captured by consumer surplus, so it gives health in New Zealand was estimated to be a broader measure of benefits arising 9.4% of GDP in 2015 (OECD, 2016). Health from advertising. care is also the second largest public expenditure category for the Government, As the best possible outcome for estimated to be around $15.6 billion in the consumers is to maximise their utility, 2015/16 National Budget. Thus, even small the ability of individuals to more health and safety behavioural changes efficiently consume goods, services, brought about by advertising can have and entertainment according to their a substantial impact on the economy. heterogeneous preferences is also of Although not quantified here, further inherent value, although not fully captured discussion of the benefits of government in revenue measures. advertising to promote behavioural change is presented in Section 4.8.

23 Advertising Pays NZ

2.3 Costs of advertising The paper measured consumer While advertising is a significant driver of sentiment and attitudes to marketing economic growth and creates value for and consumerism by surveying New consumers, it is important to recognise Zealanders in 1986 and 2001. It found that that it also imposes costs on consumers. consumerism and marketing issues in New For example, time spent watching, Zealand have become less problematic listening and reading advertisements over time, and consumers felt more represents a significant opportunity cost to positive towards marketing in 2001 than in the consumer. 1986. They hypothesise that this is because legislation and regulation has become There are instances where, given the more advanced over this period and so choice, consumers would prefer not to consumer issues are addressed more view advertising. As of May 2015, 200,000 effectively than before. New Zealanders were using ‘ad-blocking’ software to avoid viewing advertising on The empirical relationship between their computers (StopPress, 2015). Further, advertising and broader consumer welfare the New Zealand Marketing Association is somewhat mixed among academic keeps a ‘do not call’ and a ‘do not mail’ list literature and has been debated for a which consumers can elect to be a part of. long time. For example, Tremblay and Tremblay (1995) suggest that heavily Misleading or offensive advertisements advertised brands are more expensive can lead to erroneous perceptions for final consumers than less-advertised and dissatisfaction among consumers, goods within the same product class. inducing decisions that ultimately decrease This is consistent with the ‘pervasive’ individual or social welfare. In 2015, view of advertising, where firms can build there were some 707 advertising related artificial brand loyalties using advertising, complaints lodged with the Advertising and price their product at a premium. In Standards Authority, 299 of which were contrast, Steiner (1993) provides evidence about misleading adverts. Of these, 34% that advertising by manufacturers shifts were upheld (Advertising Standards power from retailers to manufacturers, Authority, 2015). reducing retail margin and overall price paid by consumers. It is also worth noting that in rare cases, advertisements could have significant Tellis and Amber (2007) summarise the costs through encouraging problematic situation when they conclude that, given behaviours. For example, literature has that advertising has conflicting effects on found that promotional activities for price, an overall relationship cannot be smoking were causally related to the onset deduced on theoretical grounds alone, of smoking in adolescents (Pierce et al. with the effect of advertising likely to be 1998). More recently, there have been dependent on a range of characteristics concerns about the promotion of alcohol, including product, brand, market, and gambling, and sometimes food. consumer preferences. These firm level effects of advertising are not the focus Advertising could also play a role in of this research, with our focus instead consumerism, the chronic consumption on the impact of advertising on overall of goods and services that are beyond economic efficiency. an individual’s true demand – which can have significant environmental and social Regulators and industry bodies play an consequences. However, a longitudinal important role in managing these costs and survey undertaken by Lysonski et al. (2003) impacts of advertising. Although the costs suggests that consumerism has become of advertising have not been quantified in less problematic over time. this analysis, it is considered unlikely that the costs of advertising would be sufficient to exceed the benefits delivered for the economy each year.

24 The Commercial Communications Council Employment impact of advertising

Around 12,400 directly in the advertising 44,000 jobs industry supported by the advertising industry including.... Around 5,300 in the advertising supply chain

Around 26,400 in the advertising supported industries/ occupations, including media & content.

25 Advertising Pays NZ

Employment impact of advertising

New Zealand businesses spent an –– It also supports employment in other •• Advertising-supported employment estimated $2.4 billion on advertising in businesses, where in-house staff can – a count of individuals who are 2015. This is a conservative figure, only work in roles which involve planning in occupations or sectors where including media advertising channels, and advertising, creating advertisements, advertising is a major source of revenue, not the cost of production, as discussed devising and coordinating campaigns, such as television broadcasters. in more detail in Chapter 2. This spending and incorporating advertisements –– Advertising agencies buy spaces supports employment in New Zealand into content. to advertise in, such as on radio, through three main channels: •• Indirect employment – a count television, or billboards. Further, of individuals who are employed •• Direct employment – a count of all they may purchase services to create in supplying inputs for the New Zealanders who work directly in content, such as film production or web advertising industry. the advertising industry or provide design. In some cases, particularly in advertising services in other industries. –– Direct spending on advertising the media industry, advertising is the (estimated at $2.4 billion) flows through primary source of revenue. As such, –– Direct spending by businesses and in part to other industries, because many of the jobs in these industries are government on advertising supports the advertising industry spends money supported by advertising. people to work in the advertising on inputs from other industries. industry, in businesses such as For example, agencies buy services advertising agencies, direct mail from companies and market advertising services, advertising research services. placement services, media agencies, and advertising space selling.

Figure 3.1 The employment impact of advertising

For every... =

people employed …one is employed in and four are employed in in advertising… the supply chain supported industries

Source: Deloitte Access Economics

26 The Commercial Communications Council

Figure 3.2 shows how these three elements 3.1 Direct advertising employment all contribute to an overall picture of how In total there were 12,412 full time advertising supports employment through equivalent jobs in the New Zealand the New Zealand economy. advertising industry in 2013. This figure is made up of two types of In 2013, there were 44,174 New advertising professionals: those Zealanders employed in jobs across who work in the advertising services these three categories. While this industry, and those who work in other component of the analysis does not industries but in occupations dedicated address the hypothetical scenario where all to advertising. In New Zealand’s case, advertising is removed from the economy, there were 5,436 people working in the the employment impacts of advertising advertising industry, and 6,976 employed are nevertheless pervasive throughout the as advertising professionals in other economy today. industries. This was calculated using 2013 census data from StatsNZ which broke down all New Zealand employment by industry and occupation.6 Our approach is described in more detail below.

Figure 3.2 Components of the employment impact of advertising

Industries that Advertising supply support advertising chain employment

Advertising Advertising Services Direct advertising occupations in (ANZSIC – 694) employment other industries

Media industries

Advertising supported employment

Content industries

6. The data included full time and part time employment, so final results were provided as a full time equivalent (FTE) figure. This was done by multiplying the ratio of FTE to total employment for the ‘Professional, scientific and technical services’ ANZSIC subdivision, which includes the advertising industry (StatsNZ, 2013). 27 Advertising Pays NZ

3.1.1 Advertising services industry •• Classified Advertising Clerks - Individuals employment who “receive and record advertising The first component of direct employment copy for publication and broadcasting” is those people who work directly in the (ANZSCO 561911). advertising industry. This was the number As Figure 3.3 shows, only 15% of those of jobs recorded under industry code employed in the advertising industry M694000 “Advertising Services”, which work in these core occupations as totalled in the 2013 census. 5,436 jobs advertising specialists. An additional 18% Within the advertising industry, there work as marketing and public relations are those who work in ‘core advertising’ specialists, and a further 18% work to occupations, and those who work in design and develop creative content supporting roles. The ‘core’ advertising (for example as graphic designers). The occupations we identified are based remaining 50% work in supporting roles on Deloitte Access Economics' 2016 such as specialist business managers and Advertising Pays Australian report: ancillary occupations (such as accounts clerks, finance managers, and personal •• Advertising Managers - Individuals assistants). who “plan, organise, direct, control and coordinate advertising activities within 3.1.2 Other industry employment an organisation” (ANZSCO 131113). There were 6,976 jobs in advertising positions in industries other than •• Copywriters - Individuals who “design advertising in 2013. Census data revealed and compose written material to that there were 973 professionals working advertise products and services” in the previously defined ‘core’ advertising (ANZSCO 212411). occupations in other industries through •• Advertising Specialists - Individuals the economy. However, it is important to who “devise and coordinate advertising recognise that in the same way that these campaigns which encourage consumers core occupations require support in the to purchase particular goods or advertising industry, there will be people services” (ANZSCO 225111). in roles outside those defined as core advertising occupations whose roles are dedicated to advertising in other industries.

Chart 3.1 Breakdown of advertising industry employment

15%

50% Advertising specialists 18% Marketing and PR specialists

Creative content designers and developers

Other

18%

Source: StatsNZ (2016)

28 The Commercial Communications Council

That is, a portion of people employed as specialist business managers and in ancillary roles in other industries are actually working in advertising, and these jobs also need to be included in the analysis.

Accordingly, we use the ratio of employment in core advertising occupations to other occupations within the advertising services sector to estimate the total direct employment of advertising in New Zealand (as shown in Figure 3.4 below).

Figure 3.3 Method for calculating total direct employment in advertising

Other Industries (e.g. Advertising Services newspaper publishing, Industry computer system design)

Core Other Core advertising Other Total direct occupations advertising occupations occupations employment + (85%) + occupations + (15%) =

Combining these four sources of employment, we find that there were 12,412 full time equivalent jobs directly resulting from advertising in 2013 (see Table 3.1).

Table 3.1 Total direct advertising employment

Profession Advertising Other Total industry industries

Core advertising professions 758 973 1,731

Other advertising professions 4,678 6,003 10,681

Total 5,436 6,976 12,412

Source: StatsNZ (2016)

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Chart 3.2 Direct advertising employment in core occupations, 2013

Advertising Services

Newspaper Publishing 27%

Other Specialised Design Services

Computer System Design and Related Services 44% Magazine and Other Periodical Publishing 3% Financial Asset Investing 3%

3% Management Advice and Related Consulting Services 3% Radio Broadcasting 4% 6% 6% Other

Source: StatsNZ (2016)

As Chart 3.5 demonstrates, the majority The current New Zealand input-output (56%) of core advertising jobs were in tables aggregate advertising, market industries other than advertising services. research, and management services under one industry, somewhat limiting the 3.2 Advertising supply chain (indirect) degree of precision. Nevertheless, given Advertising services rely on a range of the degree of similarity between these inputs from other industries to create three industries, the employment multiplier a final product. This primarily includes for these combined industries is likely to content development, but also involves reasonably reflect the advertising industry other business services such as travel, alone. We found that, in total, 5,341 FTE human resources and recruitment, employees are indirectly employed computer equipment, and legal and in New Zealand as a result of the accounting services. Thus, advertising advertising industry. That is, for every two expenditure leads to spending by the people directly employed in advertising, advertising industry, and this demand there is almost another one person has a flow-on benefit to employment in indirectly employed in the advertising other sectors. supply chain.

To quantify this employment, we use input- 3.3 Advertising-supported industries output analysis – a standard approach and occupations which uses analysis of economic linkages Many businesses – particularly those in between sectors – to determine how every the media industry – make a significant dollar spent on advertising flows through proportion of their revenue from selling to purchases in other sectors. Stats NZ advertisement space. This is particularly input-output tables were combined pronounced in services which are provided with employment figures from the 2013 to consumers for no cost, like free-to-air census to estimate a direct and indirect television and radio. The advertising employment multiplier for the New Zealand industry helps support employment in advertising industry. downstream industries, such as newspaper publishing and television broadcasting, by providing a consistent and ongoing source of revenue.

30 The Commercial Communications Council

We identified a range of key industries In total, we estimate that in 2013 there which rely heavily on advertising revenue were over 26,400 full-time equivalent based on Advertising Pays Australia employees who were supported, in (2016a). These included newspaper and some way, by the advertising industry, magazine publishing, television and as set out in Table 3.2. Individuals working radio broadcasting, search engines, and in the advertising occupations were cinemas, as well as content generation removed from this calculation to avoid such as motion picture production, double counting. As such, this is in addition software publishing (including mobile to the direct employment set out above. apps), and sportspeople.

Table 3.2 Employment in advertising supported industries and occupations

Advertising supported industry/ Total Industry Less: direct Total Industry Full-time occupation Employment employment employment equivalent less direct employment

Media

Television 2,781 151 2,630 2,383

Newspaper publishing 4,614 860 3,754 3,401

Search and directories 8,589 - 8,589 7,782

Classified

Display

Mobile

Radio broadcasting 1,830 344 1,486 1,346

Magazine publishing 1,914 473 1,441 1,306

Mail (addressed & unaddressed)** 48 - 48 43

Cinema 1,449 - 1,449 1,313

Total 21,225 1,828 19,397 17,575

Content

Motion picture & video production 3,615 108 3,507 3,178

Sports admin services 1,968 - 1,968 1,783

Sportspersons (occupation) 2,136 - 2,136 1,935

Music publishing and sound recording 264 - 264 239

Software publishing 327 - 327 296

Video post-production 1,368 - 1,368 1,240

Motion picture & video 192 - 192 174

Total 9,870 108 9,762 8,846

All industries and occupations 31,095 1,935 29,160 26,421

**Industry employment was calculated as Directory and Mailing List Publishing Source: StatsNZ (2016)

31 Advertising Pays NZ

However, not all of this employment can We then calculated the proportion of total be attributed to the advertising industry, revenue that comes from advertising for because the extent to which these each industry, as shown in Table 3.3 below. industries rely on advertising as a source of It is important to note that the industry revenue varies. categories provided below do not directly map to those in Table 3.2. As an indication, we have calculated the reliance of specific media industries 3.4 Summary of employment impacts on advertising. We use StatsNZ data to In 2013, 12,412 FTE individuals were determine the industry’s total revenue. directly employed by advertising in New Then, we determine the share of revenue Zealand. Using New Zealand input-output that comes from advertising using data tables, we estimate that a further 5,341 from the Advertising Standards Authority FTE employees are indirectly employed (2014). These figures include agency as part of the adverting industry’s supply commissions which accrue to advertising chain. Furthermore, 26,421 FTE individuals agencies, not each industry under were employed in occupations supported consideration. Commissions tend to be by advertising revenue. around 10% to 20% of the advertisement price (Everbrave, 2013). Since commissions In total, there were over 44,000 full time are not known, the revenue figures were equivalent jobs associated with the unadjusted and therefore could be slightly advertising industry in 2013. higher than they would otherwise be.

Table 3.3 Advertising-supported employment

Advertising supported Total Industry Advertising industry/ occupation industry revenue from share of revenue ($m) advertising industry ($m) revenue

Television 1,378 634 46.0%

Newspapers 886 494 55.8%

Interactive 650 471 72.5%

Radio 329 267 81.1%

Magazines 357 211 59.1%

Cinema 1,721 8 0.5%

Total 5,321 2,085

Source: StatsNZ (2016), Advertising Standards Authority (2014)

32 The Commercial Communications Council

33 Advertising Pays NZ

Advertising and business Advertising is an important component of a business’s corporate strategy, allowing businesses to engage with customers and spread their messages to a wide audience.

Clearly, organisations in New Zealand Many businesses see advertising as a way recognise the benefits of advertising. In of promoting products and brands or 2015, advertising expenditure was $2.4 boosting revenue. However, New Zealand billion – and this doesn’t include the costs has one of the most creative and effective of production, as discussed in Chapter 2. advertising industries in the world, as Indeed, many businesses invest in having discussed in detail in Section 4.6 below. an in-house advertising capability (most Indeed, in April 2016, three New Zealand commonly a marketing department), with agencies ranked in the top 25 agencies 6,976 advertising professionals employed globally by effectiveness (measured by the in industries outside of advertising number of Effie award winning campaigns, services, as detailed in Chapter 3. and the value of awards earned) (Effie, 2016). As such, this Chapter details some key insights around how investing in advertising can be an effective means of achieving broader business goals.

34 The Commercial Communications Council

4.1 Key insights Consultations with businesses throughout New Zealand have revealed seven key insights into the purpose and effectiveness of advertising. These insights are especially useful for business leaders making decisions about the use of advertising.

Advertising helps deliver business objectives

Advertising has a role to play in Advertising is corporate strategy an investment in brand Know your customer and the best channels to reach them

Creativity is critical for advertising Advertising is a driver for achieving Don’t overlook other broader social audiences objectives

35 Advertising Pays NZ

4.1.1 Advertising helps deliver 4.1.3 Advertising is an investment business objectives in brand Advertising, at its core, is about generating In a world with increasingly more choice revenue for businesses – whether it be available to consumers, brand can through driving sales or helping to grow be an essential ingredient for market market share. differentiation. It can be a business's most valuable asset, providing an effective way And it can be a very effective mechanism. to build market share and grow a business. The average return on investment (ROI) In 2012, New Zealand’s top 10 brands was $17 in sales for every $1 spent on were collectively estimated to be worth advertising amongst 2016 Effie winning $4.7 billion by Brand Finance based on advertising campaigns in New Zealand the value companies would be willing to (Nielsen & CAANZ, 2016). pay to licence their brands if they did not own them. Beyond revenue, advertising can support other business objectives – like improving As a highly visible and direct form of brand brand awareness or affecting behavioural communication, recognising advertising’s change. As such, the effectiveness and strategic role is critical in tailoring content success of advertising can be measured in and the planning of its delivery. Agencies a number of different ways. help businesses to convert their brand’s unique value proposition to real financial 4.1.2 Advertising has a role to play in outcomes for a business – by building corporate strategy customer awareness, shaping perceptions, As consumers have access to more encouraging first time use and supporting information about products and services, ongoing loyalty. and become increasingly sophisticated at contextualising information, it is more 4.1.4 Know your customers and the important than ever to ensure that those best channels to reach them products, services, and also customer Increasingly, the effectiveness of experiences deliver clear and consistent advertising is determined by how well it expressions of a firm’s brand. is targeted; content alone is no longer enough to ensure success. Digital Advertising agencies have broad market platforms and increasingly sophisticated knowledge, and their strong understanding capabilities in analytics have created of consumer needs and wants means valuable opportunities for business they are valuable at all stages of the to invest with great accuracy in online production line, from product design to advertising, and track translation to sales product promotion. It is well recognised with greater speed and reliability. that advertising agencies are very effective at crafting messages to sell products, but However, this should not disregard what is sometimes less well appreciated is the role for traditional channels, which that they can also provide value at earlier continue to be effective in building a stages. Collaborative leadership at the differentiated brand. There remains executive level and involving an advertising significant opportunity for generating agency at the product design phase allows higher reach through these forms of media. businesses to maximise the potential The right mix will vary according to the of advertising as an effective business strategic objectives of a business; agency strategy tool. expertise can help to ensure maximum impact. Rarely will a one-channel strategy – digital or otherwise – serve a brand’s best interests.

36 The Commercial Communications Council

4.1.5 Creativity is critical This can be from reducing costly for advertising behaviours such as gambling, to The success of a marketing campaign encouraging exports and investment (for depends not only on how well it is targeted example tourism). and the combination of channels selected, Public sector advertising is, at its best, but on the extent to which content conveys employed transparently in the pursuit an engaging message that audiences of outcomes for the public good, and retain. Creative advertising is more likely to considered as a bona fide tool in the connect with audiences on an emotional arsenal of policy making as part of level. Portraying the role of business a complementary, integrated suite through a ‘human’ lens remains important of measures. for communicating the values behind a brand, an area of increasing importance for 4.2 Advertising helps deliver business consumers when determining their loyalty objectives over the longer term. Advertising, at its core, is about generating New Zealand’s advertising agencies are revenue for businesses by helping to sell repeatedly recognised on the world stage and distribute the products they make. as being state of the art. Over the past Although advertising agencies can add decade agencies from New Zealand have value to businesses in many other ways, its won 150 ‘pencils’ (trophies awarded for central aim is to promote business sales, excellence in creativity and design) from awareness, and help grow market share. the prestigious D&AD organisation (2016a). And it can be very effective at achieving New Zealand businesses should ensure this goal. For example, the average they harness this creativity in designing return on investment (ROI) was $17 for their campaigns to ensure they are as every $1 spent for Effie winning advertising effective as they can be. campaigns in New Zealand in 2015 (Nielsen & CAANZ, 2016). 4.1.6 Don’t overlook other audiences Advertising that is focused on building Annabelle Fowler, General Manager of awareness of a brand’s greater purpose Market Development and Retail Sales at and meaning can not only strengthen Air New Zealand knows that advertising customer relationships, but can is essential in order to compete in the also positively impact on employee market. “Everyone is competing for engagement, talent attraction, supply chain customers. The challenge is to work out connections, and shareholders. how to use advertising to compete most effectively – how to attract attention, and to Data from various sources ascribes greater convert to sales.” success and momentum to organisations whose employees understand its purpose. Beyond direct sales, advertising can be Advertising that purpose within and very effective at achieving a range of other outside a business delivers broad benefits business objectives. Indeed it is often used over the longer term including the amplifier to achieve broader purposes – of the 99 effect of creating advocates across the finalists in the New Zealand 2016 Effies, ecosystem of a brand. nearly two thirds listed their primary goal as something other than improving sales. 4.1.7 Advertising can achieve broader social objectives Advertising can achieve a range of business objectives, from increasing market share, When used as an element of integrated improving brand engagement, to inspiring public awareness campaigns, government- behavioural change and even launching a sponsored advertising on public media new brand. is an established and proven powerful influencer of audience behaviour.

37 Advertising Pays NZ

Air New Zealand

Retail Advertising is firmly embedded in Air And Air New Zealand has first-hand New Zealand’s business. Instead of experience of how creative retail advertising a separate department, marketing functions can be more effective. Air New Zealand are embedded within each business unit. often utilises its sponsorship agreements to leverage retail sales and add some According to Annabelle Fowler, General differentiation into its creative. Manager of Market Development and Retail Sales, advertising is critical to retail Beyond creativity, advertising needs to success in the aviation industry. “Everyone is effectively deliver on the stated objectives. competing for customers. The challenge is to “Before every campaign, we consider work out how to use advertising to compete the level of investment required, and the most effectively – how to attract attention, estimated return, with a view to previous and to convert to sales.” campaigns,” says Fowler.

Air New Zealand’s ‘grabaseat’ The effectiveness of a campaign might be is one example, with more than 28,000 measured in terms of various metrics – like visitors daily. On its tenth birthday, the site the number of bookings, and revenue. advertised 1,000 domestic flight tickets for But Fowler notes that a ‘last-click’ model, $10. Within one hour of the birthday deals where a sale is attributed only to the last being placed on the site, 60,000 people had step in the process, can be problematic. “A visited – more than double the daily average. combination of media channels contribute to any given sale, so the last click may not be A customer-centric strategy is key to making representative. To overcome this we try to investment decisions about advertising. attribute sales to the various channels.” “You need to clearly define your objective and target market. What are the behaviours Fowler notes that traditional media of your customers? What are the barriers channels still have a powerful role to play. they face? Once you understand this, you “The trick is to design a channel mix which can design a creative campaign that strongly collectively maximises your investment, delivers to the need of your identified delivering on reach, engagement and market,” explains Fowler. ultimately conversion.”

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Depending on the objective of an Creatively designed advertising is one advertisement, different metrics can be of the ways in which firms can do this. used to measure its effectiveness. For Agencies can help businesses to identify example, advertisements which are aimed and design products that consumers want, at improving sales might be assessed by communicate their value proposition, and their impact on sales volumes, whereas deliver on business objectives. those which are aimed at improving brand awareness might be measured The activities of the marketing and through consumer surveys, or questions communications professionals within any to customers during the check-out business are both an input to corporate experience. Alternatively, businesses might strategy and a mechanism to achieve the use a range of interim measures – for objectives of that strategy, as shown in example, the level of foot traffic (in store) Figure 4.1. and online traffic (interest in the website) Understanding customers – their are often used as a way to gauge whether preferences, needs, and desires – is critical advertising has led to an increase in for business success. But these insights awareness and interest in the business. are not static; as customer preferences However, it can be difficult to measure change, so too must strategy and products. the exact impact of advertising, because Innovation and adaptability are critical for a range of other factors might influence business success. In fact, Deloitte Access these measures. For example, sales Economics has previously estimated that volumes might be affected by product businesses which are focused on innovation offerings, and brand awareness are 7% more likely to achieve above could be influenced by owned and average revenue growth (Deloitte Access 7 earned advertising, not just paid Economics, 2016b). media advertising. Figure 4.1 The role of marketing and communications in New Zealand advertising and media corporate strategy agencies are particularly effective at designing and running advertising Customer need campaigns, as is discussed further in Section 4.6.

As noted in the case study opposite, Air New Zealand has found that incorporating Marketing advertising into each business unit, rather Product/ than having a separate department, is the service use insight most effective way to ensure advertising delivers on business outcomes.

4.3 Advertising has a role to play in corporate strategy Communicate Corporate In a competitive market economy, to market strategy differentiation is key to business success. Firms seeking to build their market share – or even just preserve their existing position – must continually ensure that their products and services are fulfilling customer needs, whilst maintaining an Product/ service edge over their peers. development

Source: Deloitte Access Economics (2016a)

7. This result was achieved by analysing a sample of approximately 3000 firms from 2005-2011, monitoring which firms survive and grow over a five year period, and then comparing their attributes to those firms which failed.

39 Advertising Pays NZ

At the same time, it is critical for businesses Figure 4.2 Product lifecycle management to communicate with potential customers and provide information on how and why their product or service can meet their needs. This process is ongoing, as firms adapt to changes in the needs and Conceive preferences of consumers over time.

Advertising must therefore both inform and align with broader strategic objectives. Where this is not the case, the effectiveness of advertising can be limited, with the potential for detrimental impacts on brand. Service Design As shown earlier, over 1,000 professionals who are directly employed in the advertising industry are not only involved in advertising, but specialise in marketing and PR, which can provide a deeper understanding and insight into business strategy. Thus, there is a significant missed opportunity for Realise businesses who confine their engagement with advertising and media agencies to content and creative services only.

Advertising and media agencies can assist Source: Teresko (2004) with all phases of the product lifecycle (shown in Figure 4.2). The breadth of Further, advertising agencies need to agencies capabilities goes beyond pure be continuously involved through the advertising; it ranges from user experience process, not just at inception. Marnie design to data analytics, from packaging Samphier reflects that, “Reviewing our to e-commerce. Agencies can help advertising strategy and determining businesses during the conception phase what is working is essential. We meet to conceptualise products that will address with our agency monthly to talk about a real gap in the market, and assist with how we can maximise the effectiveness the design phase by offering insights into of our advertising, and staying relevant is the mind of the consumer and developing definitely a very dynamic process.” products that will sell. Advertising professionals know what will They are crucial to the realisation phase of work, and how best to achieve results. product management, as they develop a The following case study on Holden’s plan to market and distribute the product advertising strategy demonstrates how to maximise its appeal, and they can also early involvement and regular contact assist with the servicing phase, collecting enhance the effectiveness of advertising, data on sales patterns and adjusting and ultimately business performance. marketing strategy in response.

One example of advertising professionals being involved with strategic planning early Businesses that treat advertising on in the process is Holden NZ. According to Marnie Samphier, Chief Marketing agencies as trusted advisors will get Manager, “Our is an extension of our team, they are involved more value than those who only use from day one. This ensures that what they come up with is integrated with the rest of them for the marketing stage of the the business, and this benefits our staff as well as our customers.” design process.

40 The Commercial Communications Council

Holden

In a world where competition is However Samphier notes that “We do regular brand tracking fierce, brand eminence and strategy increasing digitalisation has led research as well as a monthly is key to standing out from the to Holden rationing their spend digital review and 24/7 social media crowd. For Holden NZ, advertising between TV and digital. “Five years listening. plays a central role in delivering ago Holden’s spend on digital was This gives us immediate feedback this. “We use advertising to drive around 15% of our advertising from campaign launches, changes sales, to grow our reputation, budget. Today it’s more like in market sentiment and changes and to strengthen our brand” 30%, which is all at the expense in brand equity. It’s a useful tool explains Marnie Samphier, Chief of television.” because it allows us to see if Marketing Manager of Holden NZ. Beyond traditional paid-for our advertising has delivered on “Advertising forms a big part of how advertising, Holden is using its intention.” we communicate what we offer and sponsorships to drive engagement who we are. Increasing sales is only Holden NZ works closely with and support brand. They provide a small part of this overall strategy.” their agency in all aspects of sponsorship to a variety of their advertising strategy. “Our With an increasing number of organisations and causes, including advertising agency is an extension channels – owned, paid, and earned golf, cycling, rallying, and of our team, they are involved from – through which to advertise, it can safety. “We want to engage with day one. This ensures that what be difficult to determine an optimal New Zealanders and participate they come up with is integrated mix. According to Samphier, “The in the things that they love”, says with the rest of the business, and mix of channels is a complicated Samphier, “It’s a strategic move this benefits our staff as well as decision. In the past we have that’s a win for all parties involved.” our customers.” Holden feel there arbitrarily allocated spend between For Holden, understanding the are real benefits to working solely various channels and waited and impact of advertising and how with agencies. Samphier notes hoped we had the right split and it delivers on its purpose is that, “I’ve never used in-house overall results were achieved.” crucial. It uses a range of metrics capabilities because I believe these Advertising channel decisions all and techniques to monitor this, are quite specialised skills that are boil down to one question for including data analytics. “Through best sourced from a great agency. Holden NZ, “What is the best way to website engagement and traffic I regard my team more as having carve up the advertising budget to navigation tools we can see a clear general skills, and expertise in make sure we get the best results?” correlation between an advertising automotive marketing. With the help of their agency, launch and market enquiries. Holden NZ have begun to employ Online, this is generally immediate econometric modelling to assist in but there is a two week lag for this decision making process. “It’s traffic in showrooms.” a pilot trial to see what the optimal But Holden does not focus solely model is for splitting the spend on monitoring how advertising between channels. You define impacts on sales. Holden NZ also the audience and budget and the uses data analytics to track their model calculates the split between brand and understand the impact television, digital and social. Then of their advertising. we sense check. It requires a lot of planning”.

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4.4 Advertising is an investment Figure 4.3 Benefits of effective brand management in brand Although advertising costs are treated as an operational expense for accounting purposes, it is important for business Ability to leaders to recognise that through its role command in the execution of corporate strategy, advertising is ultimately an investment higher prices & in brand. Generates margins advantages in Driving repeat The concepts of brand equity, or brand talent attraction business through value are well established. Firms began and employee brand loyalty to acknowledge the influence of brands engagement on financial performance in a period Offering that Interbrand calls the ‘Age of Value’, internal focus beginning in the late 1980s (Interbrand, and clarity 2017). It is now widely accepted Lending that brand differentiation can help More forgiving immediate organisations to demand higher prices, customers if support the strength and sustainability business makes credibility to of consumer demand for its products, mistake new products and facilitate employee engagement and Embodying a talent attraction. clear point of difference Under the international standard for monetary brand valuation, brand is defined as:

“A marketing-related In the changing economy, businesses intangible asset that rely on brand as a sustainable point of may include names, difference from their competitors; while the features of a product or service offering terms, and logos that can be replicated by others, brand is harder to imitate. The potential benefits are intended to identify that can be delivered by a strong brand are goods and create illustrated in Figure 4.3. distinctive images and The most successful businesses put their brand at the heart of their organisation. associations in the minds They do not tack on brand at the end of their corporate strategy as a tool in a sales of stakeholders, thereby and marketing strategy, or use it as a tag creating economic line. Instead they have a clear purpose as an organisation, a common vision central to benefits for the owner.” the firm and its employees. Brand is central to both internal and external discussions. ISO, 2010 Having a clear brand and a clear purpose helps businesses to align their external brand with their internal corporate brand.

42 The Commercial Communications Council

Brand Finance calculates brand value Nevertheless, this link is well established by determining what a company would in the literature. Studies have shown be willing to pay to license its brand that advertising reinforces the beliefs if it did not own it. Using this method, and attitudes of consumers in relation to Brand Finance valued New Zealand’s top brands and positively influences consumer 10 brands at a collective $4.7 billion in perceptions and brand buying behaviours 2012, 8 and the importance of brand goes (Shimp, 1997; Reynolds and Phillips, 2005). beyond business. The relative importance of advertising Brand is not only relevant to individual for brand value will vary by industry, companies. A strong national brand can and also fluctuate with the outcomes of help to establish a strong economy. Brand specific campaigns. Although the value Finance (2016) ranked New Zealand as of brands and the impact of advertising having the 6th strongest national brand on this can be hard to quantify financially, in the world, worth $237 billion, and it is vital that business leaders do not consistently ranks New Zealand in the top discount or disregard its potential 10 national brands. Brand Finance annually importance. For example, Kevin Bowler, rates each country’s national image (or former CEO of Tourism NZ states that brand) by assessing performance across “Our brand is our business, New Zealand’s three key pillars: goods and services, international reputation as a beautiful, investment, and society. These raw natural destination is how we get performance marks are then weighted people interested.” and aggregated up to give an overall brand strength index which is then used to value the brand. New Zealand’s national brand in 2016 was rated AAA, on par with the highest ranked national brands in the world.

Businesses in New Zealand are able to leverage off that strong international reputation, and it is clear that continuing to invest in that brand is beneficial for the New Zealand economy as a whole.

However, brand is an intangible asset. While there are methodologies and an international standard for quantifying brand value (ISO, 2010), it is difficult to isolate the contribution of advertising to brand amongst the broader range of operational factors that also influence customer experience and brand perceptions.

8. Deloitte Access Economics has not produced this estimate or reviewed the methodology underlying it.

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Tourism NZ

The $15 billion tourism industry in New We have strong with the Knowing who your target audience is, Zealand utilises advertising heavily. “Our for example. They can help us is also important. “We don’t focus on whole business is advertising. Our job is to understand why a booking wasn’t the unaware – the people who are not to be an ideas house; to plant the seeds followed through and we can react from interested in coming to New Zealand” of a dream of a trip to New Zealand, there. You need to follow up the path says Bowler. “The chance of converting and then to follow a visitor all the way to conversion, otherwise it won’t have this group is low and therefore wasted through,” explains Kevin Bowler, former any impact.” effort. Focusing on those who are CE of Tourism NZ. already open to travelling and who According to Bowler, advertising have the resources to do so is much Bowler notes the importance of need not be considered only through more effective.” understanding where each prospective traditional lenses which focus only on visitor is in their journey. “We see a medium. Tourism NZ has invested Bowler explained how technology three key stages – dreaming, planning heavily in unpaid advertising, which has had a huge impact in the world of and converting. Once we know what promotes New Zealand by driving advertising. “Digital has enabled us to stage a visitor is at, we can provide aspirations. “We recently had a engage our advertising efforts with our them with information which better Chinese superstar getting married in prospective visitors in more ways than suits their individual needs,” explains Queenstown. During this time, when we could imagine.” Analytics has been Bowler, “People respond well to a you walked down the street in China, key in identifying which advertising sequence of messages. For example, two out of three magazines had the efforts are effective for Tourism NZ you begin the advertising ‘campaign’ by bride and groom on the cover with and to what extent. “We can see that launching a beautiful video of NZ. The Queenstown as the backdrop.” there is a 65% difference in tourism next stage is to let the audience know between a group that has been The type of advertising Bowler is talking where this was taken. The final stage is advertised to and a group that hasn’t. about is PR advertising, a strategic showing them how easy is it for them We also know that people go to 17 type of advertising that builds mutually to go see it. Sequential messaging and websites on average before they make a beneficial relationships between retargeting are having massive impacts decision on their purchases.” organisations and the public. “This type on conversion”. of advertising is highly cost effective, But analytics has its limits due to the lag Critical to the initial stage of the but it takes a lot of effort to get right. It’s time between consideration and action. advertising process is brand. the pre-dreaming tier – building ideas Whilst this may make it harder to see According to Bowler, “Building our in people’s minds where they may not the immediate results of an advertising brand is essential our business, New have given much thought previously.” effort, Bowler said Tourism NZ’s use of Zealand’s international reputation as market trackers can help to counter this. To get the greatest return on advertising a beautiful destination is how we get “Market trackers are great because they investment, Bowler thinks that people interested.” provide insight into attitudes towards businesses need to move away from New Zealand and help us to determine This strategy has been successful for conversations about content and focus peoples’ intentions and abilities Tourism NZ, which has contributed to more on context. “We used to put all to travel.” year-on-year growth in international our effort into designing advertising visitor spending. However, it’s important which was captivating. However, by to be mindful of all stages of the making sure advertising is appropriately customer journey, rather than focusing targeted – that the right people are on a single part of the supply chain. seeing it at the right time in the right “We have key partnerships with medium for them – can be a more other businesses who will provide us cost effective way of delivering a more with insight into what’s working and powerful message.” what’s not.

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4.5 Know your customers and the best Web analytics can be used to monitor channel to reach them the online habits of consumers, and Digital technology has meant that advertising agencies can use this to more consumers are more exposed to accurately identify the target audience for information than ever before. They engage a product. Farahat and Bailey (2012) find more frequently with a broader range of that targeted advertising is more cost- channels then ever: effective than non-targeted advertising in terms of the number of brand related •• 3.2 million New Zealanders listen to searches the advertisement generates. radio every week (Nielsen, 2016); Similarly, search histories and online loyalty programs provide a rich data source not •• 3.5 million New Zealanders watch TV available in traditional mediums. This data every week, 69% via a television set can then be used to generate relevant (Nielsen, 2016); advertising content to better meet the •• almost three-quarters of adult New needs of consumers, and match them Zealanders own or have access to a more efficiently to products they are private laptop or notebook (Research interested in. New Zealand, 2015); and However, it is important to remember that •• 3.1 million New Zealanders (70%) own traditional advertising channels, including a smartphone (Research New Zealand, TV, radio, print, and outdoor placements, 2015), and the proportion of New still play a critical role in driving awareness Zealanders who accessed the internet and tell a compelling story through with their smartphone has grown a ‘human’ lens. This is important for rapidly, from 38% in 2013 to 56% in 2015 promoting a business’s purpose, as well as (Nielsen, 2016). driving long-term outcomes. To reach customers effectively in this Rather than a single solution, channel fragmented media market, it is critical to selection requires a tailored approach understand their needs and what they consistent with business strategy. Dave respond to, as well as organisational Elliott, General Manager of Marketing at objectives, before choosing a medium Mitre 10, emphasises that, “the right mix through which to advertise. of channels is essential. We use a range of Organisations are increasingly attracted to different media to advertise, the balance , particularly the use of is shifting all the time to keep up with what mobile and social platforms. Nearly nine consumers respond to.” out of ten online New Zealanders use Beyond this, the right advertising method social media (Nielsen, 2016). There is no is dependent on the phase of the sales doubt that this can be very cost-effective in cycle. Customers unfamiliar with a business both reaching specific customer segments and just starting to consider a purchase and translating awareness into sales. will be responsive to different advertising However, the expectation for relevant to a customer already loyal to a brand. content is higher online than in traditional For example, Tourism NZ use different advertising (Magnetic, 2015) which can advertising formats for potential tourists make it harder for businesses without depending on the stage of trip planning targeted advertising to be successful. they are in. According to the former CEO, Digital advancement has also paved the "We see three key stages – dreaming, way for increasingly sophisticated audience planning and converting. Once we know identification and targeting. what stage a visitor is at, we can provide them with information which better suits their individual needs.”

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This has important implications for the The importance of creativity in advertising “The great benefit of design of advertising campaigns because is not just abstract. Research shows that customers are more loyal to their need creative advertising is more effective at creativity is it drives this in the moment than they are to brands helping businesses achieve financial goals. ‘buzz’ around your brand. (Forbes, 2014). The implications of mobile and advanced data analytics for marketers The Institute of Practitioners in Advertising Creative ads are more is that they can address a real customer (2012) found a direct correlation between likely to be shared, passed need, respond to their customer’s intent creative advertising and campaign success and be more relevant than ever before. – and thus business performance. The on, and virally moved study used a meta-analysis to assess Similarly, ‘native advertising’ – advertising the effectiveness (ability to increase about. That is very strong content which is integrated into the display sales, profit, and loyalty) of almost 1,000 in terms of effectiveness of other published or broadcast content advertising campaigns over 30 years. – will be most effective where it matches It found that campaigns that were over slightly longer consumer preferences and interests. creatively awarded were 11 times more periods of time.” efficient at delivering business success The changing media landscape provides 9 (in terms of excess share of voice) , and the Field, quoted in Cameron (2013) greater opportunities for the value-add more creatively awarded the campaign, potential of advertising. As long as media the more effective it becomes (Field and continues to support interactivity and Binet, 2012). In the long-term, emotional, engagement between people, there will creative campaigns are most effective be a role for advertising, through the and successful. development of engaging creative content, to participate in the conversation between Additionally, a survey of over 300 businesses and consumers, across the consumers in the UK found that advertising different platforms. campaigns that are perceived to be original, creative and different are associated with Advertising and media agencies act greater brand awareness and positive as independent channel advisers for brand associations (Buil et al., 2011). businesses. They can offer an objective opinion as to which combination of Cadbury in 2007 launched a famously channels will be most effective for creative campaign, ‘Gorilla, Eyebrows, an individual advertising campaign. and Trucks’. The campaign focused on Advertising agencies can offer industry joy instead of persuasion; ‘Gorilla’ simply knowledge across the full range of channels featured a person in a gorilla costume available. Therefore, businesses using an playing the drums, with the only hint agency may benefit from campaigns which of the Cadbury brand being the purple are well-targeted and channel appropriate. backdrop for the gorilla, and the logo at the conclusion of the ad. It captured 4.6 Creativity is critical to advertising people’s attention, and resulted in The success of a marketing campaign an ROI of 4.88 to 1 (Warc, 2017). depends on the extent to which content conveys an engaging message that More recently, a New Zealand creative audiences retain. Creativity is crucial to agency designed an innovative campaign connecting with audiences and leaving to raise awareness of domestic violence, a strong impression. Portraying the particularly among higher income role of business through a ‘human’ lens households. The ‘It’s not OK’ magazine remains important for communicating campaign was awarded a D&AD yellow the values behind a brand, an area of pencil for outstanding creativity in 2016. increasing importance for consumers when determining their loyalty over the longer term.

9. The report measures business success as growing a business’s excess share of voice (ESOV). ESOV is a marketing term referring to the relative market share of a business and their ‘voice’ in the market (how well they are known). 46 The Commercial Communications Council

Figure 4.4 ‘It’s not OK’ magazine campaign

Source: Adweek (2015)

This creative campaign involved a The creative advertising industry in with one of New Zealand’s New Zealand is globally competitive. most well-known magazines, ‘Home’. It New Zealand is home to some of the played out as a feature showcasing a new most highly awarded and regarded designer home in an upmarket suburb, agencies, networks and campaigns. but each image had a subtle hint that Cannes Lions presents annual awards everything was ‘not OK’ in the home. Blood for outstanding creative work, ranking stains on a white table, a broken vase in the it on elements such as design, content, corner of the shot, an upturned barstool. and effectiveness. New Zealand creative It is not until the final page of the article work consistently performs highly in that the purpose of the ad is revealed: these award ceremonies. Indeed, in 2015 “Family violence can happen in any home… Auckland ranked fourth in the Cannes No matter what street you live on, family Lions Global Creativity Report as a highly violence is not OK.” creative city – ahead of hubs like Tokyo, Bangkok and Sydney. The advertisement started a conversation on a national scale; in one week, New Zealand’s advertising agencies are 1.1 million New Zealanders had seen repeatedly recognised on the world stage the advertisement, and the government as being state of the art. Over the past website dedicated to domestic violence decade agencies from New Zealand have saw a 15% increase in inquiries won 150 ‘pencils’ (trophies awarded for (D&AD, 2016b). excellence in creativity and design) from the prestigious D&AD organisation (2016a). New Zealand businesses should ensure they harness this creativity in designing their campaigns to ensure they are as effective as they can be.

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Figure 4.5 Creative cities around the world

2nd th 1st London 6

th Tokyo New York 20

Mumbai

rd 3 13th 4th

San Paulo Sydney Auckland

Source: Cannes Lions (2016)

4.7 Don’t overlook other audiences Interviews with business leaders reinforce The benefits of advertising do not stop that the benefits of advertising extend with customers. Building a strong brand to employees, shareholders and other can also help with employee engagement stakeholders, such as suppliers or and talent attraction by showcasing the franchise owners. Dave Elliott of Mitre 10 purpose and culture of the business. Our recognises that there is even a financial consultations with businesses emphasised benefit from advertising to staff, “When the importance of advertising messages we take our staff through e-learnings, that are authentic, linked to the culture and sales increase further, reaching up to 65% values of the business, and aligned with because staff are more equipped to help corporate strategy. our customers.”

Beyond this, a strong brand impacts Advertising to a business’s own employees positively on supply chain connections and might seem unnecessary, but consider shareholders. Chemmanur and Yan (2010) that almost one in ten employees in the found that “an IPO firm could increase its New Zealand economy are employed as offer price to gain a valuation premium of sales workers (StatsNZ, 2016). Informing 1.5% to 3% relative to its intrinsic value if it and engaging with customer-facing staff increases its advertising intensity by 1%.” can be an effective way of engaging and This finding was based on the dispersion communicating with customers. of analysts’ earnings forecasts and stock turnover in the IPO aftermath for IPO firms 1990-2000. Businesses that advertise their purpose within and outside the business reap the rewards of long term advocates of their brand across the supply chain.

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Mitre 10 Mitre 10 has adopted a brand-persona For Mitre 10, it is important not to forget “Our brand is about as a ‘helpful mate’, which it feels allows it internal audiences, like staff. “When we to connect with its audience on a whole take our staff through e-learnings, sales home improvement. new level. Dave Elliott, former General increase further, reaching up to 65% It’s about helping Kiwis, Manager of Marketing at Mitre 10, says because staff are more equipped to “Kiwi culture is something unique and help our customers.” whether they be trade special, and we’re proud to produce When it comes to choosing channels or retail customers, compelling and effective advertising that to advertise through, Mitre 10 knows speaks to that culture. It’s about being to feel good about that it is important to be responsive. relatable to your audience.” Elliott points out “Retail is a response to home improvement, For Mitre 10, its focus has been on culture; if advertising isn’t responsive, inspiring them to changing attitudes as well as behaviour. you become irrelevant”. Elliott explains, “Our brand is about get into DIY with Investing in advertising which can reach home improvement. It’s about helping and engage the right audiences with the right equipment Kiwis, whether they be trade or retail a lower cost can bring big business customers, to feel good about home and celebrate a job benefits. For Mitre 10, this has meant a improvement, inspiring them to get shift towards digital. “Digital is becoming well done.” into DIY with the right equipment and a lot cheaper now,” explains Elliott. celebrate a job well done.” Dave Elliott “Whereas it use to cost $10 per minute Former General Manager Mitre 10 has three key brand drivers: for a video, now you will only pay $2 Marketing, Mitre 10 Inspire, Inform, and Equip. For example, per minute.” The payoffs from this are Mitre 10’s “key communications are noteworthy. “Between 2011 and 2015, developed to align with one of our the ratio of Mitre 10’s percentage spend brand drivers. We want to inspire on advertising to their market share people to get stuck into DIY. To do dropped from 54% to 53%.” In simple this we help build peoples’ confidence terms, Mitre 10 was able to increase by teaching them how to do specific market share with a lower spend on activities. This is where the inform advertising – a win-win. part comes in and where our Easy As Owned advertising on digital media campaign has been such a success.” The platforms such as YouTube and Easy As program provides Kiwis with the Facebook is increasingly important to information, tools and materials they Mitre 10’s strategy. “We have shifted need to get stuck into DIY. our focus within channels to maximise Smart advertising has translated into engagement with DIYers” explains Elliott. a direct increase in sales, advertising But getting the content right is still is responsible for about one third of important. A recent experiment using Mitre 10’s business. “You can clearly the ‘live’ feature on Facebook reaffirms see the cause and effect – a couple of Mitre 10s stance on this. “Through this days after launching an ad we see sales platform we can engage with customers increase by 15%.” directly. It’s an instant communication channel that enriches the whole customer experience and reach. You just can’t get this type of engagement on traditional platforms.”

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4.8 Advertising can achieve broader In response to this, the Agency social objectives held focus groups which revealed that Advertising can also play a significant while young men understood the dangers role in achieving government objectives, of drink-driving, they still made bad particularly in public health and safety, decisions after drinking, and friends felt educating consumers about their rights uncomfortable speaking up to discourage and informing them of key social and them from driving home. Out of this, the environmental issues. In 2015, the New drink-driving campaign ‘Legend’ was born. Zealand Government spent $211 million The campaign focused on empowering on campaign advertising media (Nielsen, young men to speak up and tell friends not 2016). This expenditure was split across to drive after they had been drinking, it a range of channels, including TV, radio, broadened the responsibility of preventing press, magazines, digital, out-of-home, and drink-driving from just drivers to those cinema, with the largest spending public who could help stop it. It depicted a young sector departments and agencies being man internally debating whether to speak health, education, and transport (New up at a party when a friend is about to Zealand Treasury, 2016). drive home. He knows he should say However, the benefits of successful public something, but worries about the social health and safety advertising are realised implications for himself, and the risk of over the long term in behavioural changes “looking dumb”. When he does speak up, and ultimately improved health outcomes. the drunk friend agrees not to drive, and As such, it can be difficult to isolate and the party goes on as before. The aim of the quantify the impact of these campaigns. ad is to “externalise an internal battle”, and Despite these challenges there is strong labels those who tell a friend not to drive a evidence of the effectiveness of advertising “bloody legend” – a part of the solution, not campaigns alongside other public policy the problem. measures, for example the drink-driving campaign ‘Legend’, described below. Figure 4.6 ‘Legend’ drink-driving campaign

4.8.1 ‘Legend’ – New Zealand Transport Agency The New Zealand Transport Agency has been running drink-driving advertising campaigns for over 20 years, with great success. In the first 5 years that these ads were run, drink-driving related crashes fell by 40% (Ministry of Transport, 2015).

These campaigns typically focus on the consequences of drink-driving, depicting brutal crash scenes to discourage people from driving under the influence. However, these ads did not seem to resonate as strongly with young male drivers as with the rest of the population: they were Source: The Wireless (2014) the only demographic group without a decreasing road toll.

50 The Commercial Communications Council

The campaign ran for three years and was By the end of the campaign, there were highly successful: the number of young hundreds of Facebook pages, dozens of people caught over the limit halved, and YouTube mash ups, countless memes, number of young people involved in a hit song and music video, and T-shirts serious crashes on the roads every year and other merchandise dedicated to the fell from an average of 214 before the ad, ‘Legend’ campaign. This, along with the to 145 after the ad. Over the course of the 50% unprompted recall rate achieved, campaign the number of young drivers speaks to the strength of the campaign in killed also fell, with an estimated 64 lives reaching young drivers. saved over the three years following the launch of the campaign. This equates This is just one example of effective to a cost saving for society of roughly advertising helping to address a social $290 million (Clemenger, 2015),10 and, issue, there are multiple other areas where considering the total spend on the advertising can help to achieve broader campaign was $3.6 million, represents social objectives, such as highlighting the a significant pay-off. Other factors such dangers of smoking, speeding, depression, as changing social norms and improving and house fires. education rates likely also contributed Figure 4.7 The 'Legend' campaign to the falling road toll, but even as one of several factors, the ad campaign’s benefits are clear.

This success is partly attributable to the mediums used to launch the campaign. The ad was first played on television the night of the Rugby World Cup Final in 2011, a night where many people would be out drinking and watching the game with friends. Given the ad aims to change decision making $3.6m at the crucial moment when someone advertising spend picks up the keys to drive home, and get someone else to speak up, this was an ideal opportunity to launch the ad.

In addition to television, the ad was on billboards, radio channels, bar runners and coasters, and printed on packaging. Social media was not originally expected to play a large part in the campaign, but the ad was shared on social media quickly, its popularity creating momentum, reinforcing the message, and ultimately reaching far more people than would have otherwise been achieved.

$290m 50% social saving unprompted recall

10. This figure relies on the assumption made by the Ministry of Transport that the cost of a single life in a drink-driving crash is $4.54 million. 51 Advertising Pays NZ

52 The Commercial Communications Council

Conclusion

Advertising is important in the New Zealand economy. It drives economic growth through increased information provision, market competition, innovation, and ultimately productivity. More than that, it can drive positive behavioural change throughout a community.

New Zealand is internationally recognised Businesses should recognise that as a creative leader, advertising agencies advertising has a role to play in corporate are well regarded and are repeatedly strategy and is an investment in brand, and awarded on the world stage. Leveraging the therefore involving an advertising agency creativity in these agencies can pay large early in the design process is essential for dividends for businesses, government, and creating the best product. Targeting the the economy broadly. right audience in the right way is important to advertising’s success, and agencies Across the economy, we estimate the know the market, they can help businesses annual impact of advertising to be 2.4% of design advertisements likely to succeed. GDP, $6 billion. This is a significant value, roughly equivalent to what tourists spend Consultations also revealed the positive in New Zealand every six months. It is also impact that advertising to other a significant employer, with over 44,000 audiences such as suppliers and staff on jobs associated with advertising, including morale, engagement, and performance. over 12,000 people directly employed Finally, government objectives can be in advertising. aided by advertising. Advertising has a wide reach and can portray safety Consultations with business leaders messages effectively, as in the case of have revealed key insights for business the powerful and effective drink-driving as to how to maximise the effectiveness campaign ‘Legend’. of advertising.

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58 The Commercial Communications Council

Appendix A: Economic modelling

Approach In other words, the correlation between With the emergence of digital marketing advertising expenditure and GDP, as and online advertising capabilities there illustrated in the following chart, does has been a renewed interest in the role of not immediately indicate the extent to advertising in driving economic growth. which advertising causes higher economic While a number of empirical studies have growth, given the presence of other established a link between advertising economic factors that drive growth. To expenditure and economic activity, this account for this, we attempt to formalise analysis fills a gap in the evidence base by the value of advertising by using a growth quantifying the benefits in the context of model commonly used to decompose the the New Zealand economy. drivers of economic development.

The key challenge in this analysis is to Studies that focus on statistical-variance accurately isolate the contribution from models (e.g. Granger causality) that advertising to GDP from other growth estimate the ability of advertising factors. Advertising can boost economic to predict GDP growth fall short of growth by improving the efficiency of addressing the true causal relationship market interactions between business between these variables. These models and consumers, through the provision are statistical procedures that do not of information that in turn generates link back to the theories that underpin competition. While other factors, such as the role of advertising in the economy. the growth of internet usage, could lift both Rather, the focus of these approaches GDP and advertising expenditure due to is to identify whether one data series is increased marginal benefit and decreased useful in forecasting changes in another marginal cost. over time. This alone does not provide sufficient evidence to demonstrate a true causal relationship.

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Real GDP and advertising expenditure growth, 1980 - 2015 GDP per capita growth 2000-2015 vs. Advertising Expenditure Growth 2000-2015

90%

Estonia 80% Slovak Republic 70% Poland Korea 60%

50% Czech Republic Chile

40% Turkey Hungary Ireland Slovenia 30% New Zealand Australia Germany Sweden Japan 20% Israel United Kingdom Finaland Canada Netherlands United States Austria Spain France Belgium 10% Switzerland Denmark Portugal Norway Greece Mexico 0% Italy -10% -100% -50% 0% 50% 100% 150% 200%

Source: Deloitte Access Economics, derived from OECD and ZenithOptimedia

In line with a large body of economic Where Y,K,H and L are respectively output, development literature, we seek to physical capital, human capital, and labour, diffuse effects of advertising on economic α is the partial elasticity of output with growth using a neo-classical production respect to physical capital, β is the partial function. The formal framework for this elasticity of output with respect to human approach was first set out by Mankiw, et capital, and A(t) is the level of technological al. (1992) and later augmented by OECD and economic efficiency. (2001). We supplement this framework by incorporating advertising as a driver of Economic efficiency can include a range economic efficiency. This approach is also of ‘enabling services’, such as ICT and the similar to techniques used by OECD (2013) digital economy, trade, transport and and Czernich et al. (2009) to calculate the logistics, professional and support services, economic value of broadband. and innovation. These enabling services provide support to firms at all stages The standard neo-classical growth model of production. is derived from a constant returns to scale production function with two inputs We incorporate advertising expenditure as (capital and labour) that are paid their a driver of economic efficiency, alongside marginal products. Following closely to intensity, that presented in Bassanini et al. (2001), exposure to international trade, level of urbanisation, and internet usage (V ). production (output) at time t is given by: j

60 The Commercial Communications Council

It can be shown that steady-state value of the capital inputs can be expressed as functions of their respective investment rate. Substituting the steady-state expression back into the production function and adopting a formulation using steady-state human capital, h*, consistent with previous research (Qu, Simes, and O'Mahony, 2016), the functional form of our growth equation can be derived as:

The coefficient estimateϕ represents the Data convergence parameter, which underlines Following similar specifications in Qu, the speed with which countries converge to Simes, and O’Mahony (2016), we use their new steady-state output. The change a sample of 35 developed countries11 in human capital Δ lnϕh(t) captures short between 2000 and 2015. Where term dynamics in the model to help isolate appropriate, data is converted to constant the persistent impacts of advertising from 2010 US dollars using constant Purchasing country-specific short-run effects. This Power Parity, consistent with OECD augmentation is advantageous as it relaxes standards. The two tables below list the the assumption that countries are in their countries included in the data and the data steady-states and that deviations from sources used in the modelling. the steady-state are independent and identically distributed. Countries

While we believe this approach is the best Australia Greece Portugal available to estimate the causal impact of advertising expenditure on growth, we Austria Hungary Russia recognise that some or all of the effect of Belgium Iceland Slovak Republic advertising could be picking up the impact Canada Ireland Slovenia of other unobserved variables on economic growth. As such, the results here should be Chile Italy South Africa interpreted with an appropriate degree of China Japan Spain caution. Further research could potentially draw on other empirical techniques such Czech Republic Korea (South) Sweden as natural experiments, for instance Denmark Mexico Switzerland regulations that lead to differences in advertising over time, to further assess Estonia Netherlands Turkey the relationship between advertising and Finland New Zealand United Kingdom economic growth. France Norway United States

Germany Poland

11. Luxembourg and Israel are removed from the original sample of 37 countries due to inadequate observations for the advertising expenditure variable.

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Data sources for modelling inputs

Parameter Variable Source

y(t) Gross domestic product per capita OECD

h(t) Penn World Education Index UNDP

n(t) Total population growth OECD

Real private non-residential fixed capital s (t) OECD k formation (% of GDP)

Advertising Total advertising expenditure (% of GDP) ZenithOptimedia

Exports and Imports of goods and services Trade World Bank (% of GDP)

R&D Gross domestic expenditure on R&D (% of GDP) OECD

Urbanisation Urbanisation (% of population in urban areas) World Bank

Internet usage Percentage of individuals using the internet ITU

t Time trend -

Advertising expenditure data for Formally, conditional on the existence of each country was collected from convergence to a steady-state path, the ZenithOptimedia, with corresponding long-run homogeneity hypothesis permits macroeconomic data collected from the direct identification of the parameters publically available World Bank, OECD, and that affect the steady-state path of output UNESCO data sources. per capita.

Following Qu, Simes, and O’Mahony (2016), We note that the PMG approach has one we have adopted the pooled mean group serious limitation, namely the large number estimator (PMG12) that allows intercepts, of parameters to be estimated, causing the convergence parameter, short-run likely convergence issues in some model coefficients, and error variances to differ specifications. In practice, this means freely across countries, but imposes considering more than three policy and homogeneity on long-run coefficients. A institutional variables often proves to be common set of long-run coefficients for difficult. Furthermore, PMG estimates the countries in our sample (mostly OECD are often very sensitive to the changes countries) is a reasonable assumption given in model specification. Some studies that countries have access to common have noted that the coefficient of human technologies and have intensive intra-trade capital is dramatically reduced in some and foreign direct investment (all factors specifications (Bouis et al., 2011). Despite contributing to similar long-run production these limitations of PMG, it remains a function parameters). Under the superior approach for the purposes assumption of long-run slope homogeneity, of this study. the PMG estimator increases the efficiency of the estimates with respect to mean group estimators (Pesaran et al., 1999).

12. Estimates are obtained using the XTPMG package from STATA.

62 The Commercial Communications Council

Results The results of the modelling are summarised below.

Parameter Coef. Std. Err. z P>z [95% Confidence Interval]

Convergence

lnSk 0.318 0.020 15.860 0.000 0.279 0.358 ∆lnP -1.670 0.323 -5.170 0.000 -2.304 -1.037

lnh 0.722 0.208 3.470 0.001 0.314 1.129

trend 0.003 0.001 2.560 0.010 0.001 0.005

lnAdv 0.041 0.013 3.180 0.001 0.016 0.066

Internet usage 0.082 0.007 10.950 0.000 0.067 0.096

R&D 0.226 0.020 11.480 0.000 0.187 0.264

Urbanisation -0.095 0.016 -5.780 0.000 -0.127 -0.063

Trade -0.039 0.061 -0.640 0.520 -0.158 0.080

SR

Convergence -0.392 0.044 -8.910 0.000 -0.478 -0.306

Number of observations 525

Implied share of physical capital 24.2%

Source: Deloitte Access Economics It can be seen that the coefficients on Additionally, every extra dollar spent on both physical and human capital appear advertising in 2015 is expected to increase with the expected sign and are highly GDP by around 13 cents (in addition to the significant. The implied share of physical extra dollar spent) in the following year capital according to the growth equation is based on an assumed 3% GDP growth rate. broadly in line with national accounts and literature consensus (physical capital share Long-run contribution of production is about a third). Our model can also be used to estimate the long run contribution from advertising The coefficient on the advertising variable with respect to a counterfactual scenario is 0.041. On average, this implies that a of very low advertising expenditure (as a 1% increase in advertising to GDP ratio percentage of GDP). increases GDP per capita growth by around 0.04%. In the scenario under which advertising expenditure fell by around 95% from 13 In real monetary terms , advertising its existing value,14 it is estimated that expenditure in New Zealand has increased advertising’s long-run15 contribution to the by around $335 million over the period economy is around $6 billion, equivalent to from 2000 to 2015. According to our 2.4% of New Zealand’s GDP in 2015. estimation, this has contributed around $286 million to GDP (in addition to the increased expenditure of $335 million) compared to the counterfactual where advertising expenditure stays at its 2000 level.

13. Real growth value based on constant 2010 US dollars with constant Purchasing Power Parity; the final figures are converted back to NZ dollar at 2015 price. 14. The current share of advertising expenditure is close to 1% of NZ GDP. 15. For the period from 2000 to 2015.

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Limitation of our work General use restriction

This report is prepared solely for the use of the Commercial Communications Council. This report is not intended to and should not be used or relied upon by anyone else and we accept no duty of care to any other person or entity. The report has been prepared for the purpose of analysing the economic contribution of advertising in the economy. You should not refer to or use our name or the advice for any other purpose.

64 Meet the team

John O’Mahony Linda Meade Partner, Financial Advisory Partner, Financial Advisory [email protected] [email protected] +61 2 9322 7877 +64 44703788

Ric Simes Amanda Hillock Consultant, Financial Advisory Manager, Corporate Finance [email protected] [email protected] +61 2 9322 7772

Jessica Mizrahi Lucy Cole Client Manager, Financial Advisory Analyst, Corporate Finance [email protected] [email protected] +61 2 9322 3644

Xanthe Smith Graduate, Financial Advisory [email protected] +61 435 829 266 Contact us

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