The CEO of digital advertising's biggest trade group says most big marketers are screwed unless they completely change their business models
- Big marketers are facing a crisis, according to Randall Rothenberg, president and CEO of the Interactive Advertising Bureau.
- Small and mid-sized brands, driven by data and digital marketing, are throttling growth for nearly every major consumer category.
- Giants like Procter & Gamble and Unilever once had huge advantages in owning their own supply chains and shelf space in national retailers. Now those advantages are liabilities.
- These companies need to shift their models to direct-to-consumer businesses ASAP or risk being disrupted.
- Traditional media companies also need to adapt quickly to this new reality or they'll get left behind.
Every industry is under attack from upstarts. Most big companies aren't prepared for a new tech and data-driven economy. Consumers don't care about big brands and are tuning out traditional advertising.
In a nutshell, traditional marketers are screwed. And traditional media companies aren't much better off. It's all Warby Parker's fault.
These are just some of the stark takeaways being presented by Randall Rothenberg, CEO and president of the Interactive Advertising Bureau, which is hosting its annual leadership event this week in Palm Springs, California.
Rothenberg plans to warn attendees that the marketing and media industries are in the midst of tectonic change, the likes of which has not been seen since the industrial revolution rocked the US agriculture economy more than a century ago. Yes, the situation is that dire, he said.
In fact, the IAB's new research report, The Rise of the 21st Century Brand, opens with the cheery subject: "Brand Growth in Crisis."
The big takeaway from Rothenberg's speech is that basically every single condition and dynamic that traditional marketing companies had been able to count on to protect their dominance over the past several decades has been upended.
Take the much-celebrated Warby Parker. It's built a huge business by cutting out expensive distribution and marketing costs, and selling glasses directly to consumers for way cheaper than they've been used to at incumbents like Lenscrafters. Rothenberg's point is that there are Warby Parker's in every industry.
There are Warby Parkers and Caspers everywhere
Indeed, this new breed of marketers don't own their own supply chains, or raw materials or shelf space. They don't need to.
An out of nowhere cosmetics company (like Glossier) or frozen food maker or specialized craftsman can make goods without having to own a factories or trucking routes, or needing to hire a giant ad agency and buy massive media campaigns. They don't have to get shelf space at Wal-mart either.
They can sell to people on Instagram for a fraction of what marketing used to cost. And they can collect data on these consumers, track what they buy, what they love and hate about the experience, and market to them directly much more effectively.
It's the direct consumer relationships, and the use of consumer data, that is completely game-changing for the marketing world. And most big marketers, such as Procter & Gamble and Unilever, are not ready for this new reality, the IAB says.
Putting it all together
In a lot of ways, this sentiment won't be a huge surprise to many in the ad industry. They've seen ad conference darlings like Casper and Warby Parker make inroads in their respective industries. Their heads turned when consumer product giant Unilever spent $1 billion in 2016 for Dollar Shave Club, and when an activist investor took on Procter & Gamble for moving too slowly - in its eyes - to adjust to these new realities.
And of course, the ongoing retail Apocalypse - exemplified by classic American brands like Sears - is of top of mind for most marketers.
What the IAB is attempting with this report is to quantify these changes, and put them in context. And what the trade group found is that the upstart direct brands phenomenon is carving up nearly every traditional ad category, and collectively is impacting the economy.
"We pulled together a lot of things that are staring everyone in the face, and we backed that up with lots of data," Rothenberg told Business Insider.
- the 45 retailers in this category grew just 2.1% from 2014 through 2016.
- Apparel companies grew just .5% during that time period.
- Household products companies actually contracted by .3%
Keep in mind, all this has been happening as the US economy has been hitting its stride.
To help bolster the IAB's research, the organization worked with Dun & Bradstreet, which has compiled a massive database of 290 million business records from the majority of commercial entitles in the US. The two groups have put together "IAB 250 Powered by Dun & Bradstreet," which is essentially a compilation of the 250 most important brands driving this change - everything from Wal-mart's Jet.com to the subscription pet brand BarkBox to the luggage startup Away Travel.
This list is very much the opposite of the Ad Age 200, which traditionally compiles the list of biggest spending advertisers, such as P&G, General Motors, Pepsi and McDonald's.
"We think we're proving that the center of growth is shifting permanently," he said. "This is basically as significant as the change from the agrarian economy to industrial. Every function you used to need to own you can get off shelf."
Big brands are being nibbled to death
IABThe cosmetics brand Glossier built its name on Instagram
A perfect example of this point is Gillette
According to the IAB report, Gillette's share of the US men's-razors business fell to 54% in 2016, from 70% in 2010. Dollar Shave Club and Harry's combined US share rose to 12.2%, from 7.2% in 2015.
Another good example is the pet food category, which per the IAB is expected to grow 4.4% in 2018. Which isn't bad. But upstarts like the subscription pet product company The Farmers Dog is averaging 40-50% revenue growth monthly, says the report.
This is happening everywhere, said Rothenberg. As recently as 1992, 96% of shopping happened in stores. By 2015 9.4% was happening on the web.
In 2016, small and medium-sized consumer packaged goods manufacturers together represented 64% of sales, up from 39% in 2015.
"Big brands are being nibbled to death," said Rothenberg.
IABMarketers like Procter & Gamble are being nibbled to death
Rothenberg warned that too many people in the marketing industry have treated companies like Casper and Warby Parker as "really interesting curiosities," while not recognizing the collective impact these types of firms have on industries. "They are representative of transcendent change for the consumer economy itself," he said.
There's only one thing big marketers can do
You might think that giant marketers can easily strike back, given their deep pockets. But many are actually strapped by their legacy businesses. For example, owning stores, massive supply chains and logistics right as people pull away from traditional in-store shopping is actually a huge liability at the moment, Rothenberg argued.
"There's only strategy," he said. "Become direct." Easier said that done. 38% of companies tracked by the global intelligence firm International Data Corporation are not selling direct to consumer at all, said the IAB's report. "Most are lagging," said Rothenberg.
This has big implications for media companies. And it could be bad news for TV
Given the massive changes hitting consumer industries, selling attention - or loads of ad impressions - matters a lot less than the old days of mass marketing advertising. To help direct-to-consumer brands, media companies that used to just sell ad space need to prove they can help companies acquire customers.
That's a big change.
Right now, driving customer acquisition is a strength for digital media giants like Google and Facebook. Not so much for network television, which has long relied on the biggest national advertisers, not the Glossiers or Caspers of the world. A company like Dollar Shave Club built its name via a cheap web video ad, not a slick TV commercial.
"You can't rely on the top 250 brands anymore," said Rothenberg. "Media companies that do, they're in trouble."
