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The Single Market Review Series
Subseries II - Impact on Services
ADVERTISING
Summary
By: Universita' Commerciale Luigi Bocconi & ESADE
The objective of this research was to carry out a quantitative and qualitative
assessment of the impact of Internal Market integration on the organisation and
performance of the advertising services sector.
Figure 1.1 summarises the general framework of the research. The European
Union (EU) measures taken to complete the Internal Market have had a
significant impact on the advertising agency business. Two types of measure
have been identified:
a. The direct measures include all measures with a direct impact on the
advertising sector in general, and those affecting advertising for
particular products or services. For example, the effects of the Directive
on misleading advertising and the Television Without Frontiers (TVWF)
Directive have been analysed, for their effect on the advertising sector in
general, and on the provision of advertising services for specific products
in particular.
b. The indirect measures include all the measures which have widened
companies' markets by reducing the barriers to the free movement of
goods and the free provision of services across borders in the European
Union. As advertising is usually an essential tool for the penetration of
new markets, these measures have indirectly increased the demand for
the cross border provision of advertising services.
With regard to the direct measures it was found that these improve the
convenience of pan-European marketing. In particular, users of advertising
services perceive that the reduction in the cost of running cross border
advertising campaigns as a result of EU measures is particularly related to the
liberalisation of broadcasting services, as a result of the Television Without
Frontiers Directive. Companies and agencies are also aware of the fact that
some advertisements are not possible any more because they have been
prohibited by certain Directives (e.g. tobacco, spirits, etc.).
The main impact on the advertising sector is a result of indirect measures,
which resulted in the elimination of obstacles to the free movements of goods
and the free provision of services in the European Union, allowing the users of
advertising services to adopt a genuine pan-European approach, thus creating a
demand for cross-border advertising services. Our field research showed that
the establishment of the Internal Market had led to cost reductions.
The major changes in the strategic and operational activities of the advertising
agencies are thus a consequence of the way the creation of the Internal Market
has influenced both the marketing and communication strategies of clients, and
the organisation and performance of the carriers of advertising services, such as
the broadcasting industry.
The behaviour of the users of advertising services shows a continuous trend
towards a greater standardisation of marketing policies, particularly in those
sectors in which there is the greatest evidence of convergence in the behaviour
of consumers (such as Youth and Luxury).
According to the companies, the thrust towards advertising standardisation is
due to three factors: the convergence of consumer behaviours, the
internationalisation of the media system which allows for the realisation of
transnational campaigns, and the harmonisation process derived from Internal
Market integration. They are also of the opinion that these three factors will
have an even greater importance in the next five years than they did in the last
ten.
The benefits from standardisation are particularly relevant to the opportunity to
exploit the same brand image across Europe and the possibility of obtaining
economies of scales in campaign productions. These benefits are regarded as
being of greatest importance by both investors and advertising agencies.
The major obstacles to standardisation result from the continued existence of
cultural differences between European countries which particularly influence
the effectiveness of copy strategy. The greatest benefit of an adaptation
strategy both for companies and advertising agencies, lies in the increased
effectiveness of the copy strategy.
With respect to different communication activities, advertising activities in the
strict sense are showing a greater tendency towards standardisation. The
definition of objectives, targeting and campaign production tend to be more
standardised, while media planning and buying tend to be more adapted to
local markets.
Many of the companies interviewed have noted that further acceleration
towards standardisation may be the consequence of greater harmonisation of
the legislative framework.
The development of a transnational advertising campaign strategy calls for a
media system that is equally transnational. The companies which plan a panEuropean advertising approach experience notable difficulties in media
strategy planning and buying.
The results of the field research clearly show that the differences in the national
media provider sectors and the continuing fragmentation of the media system
are the major obstacles to the development of a pan-European advertising
campaign. For these reasons the development of a more harmonised European
media system is seen as one of the most important factors which would allow
for the development of more standardised advertising strategies. As a
consequence of the fact that advertising strategies increasingly incline towards
pan-European standardisation, the advertising sector has become increasingly
international in orientation.
In the last ten years intra Eur-12 trade advertising credits and debits has grown
more intensely than extra Eur-12 trade, and M&As and the other forms of
affiliations and ad-hoc co-operations in the advertising sector have grown
equally. The result is that the advertising sector has, in recent years, even
though it was already strongly international, strengthened this orientation. This
is confirmed in the field research: 84% of the advertising agencies hold that the
international orientation of the sector has increased, and 82% hold that
international integration is greater than in the past.
Of the factors which lead to the greater international integration of the
advertising sector, the most important is the increasing internationalisation of
advertisers, who increasingly demand that agencies handle their campaign in
more than one country.
This evolution in the user approach has forced many advertising agencies,
particularly medium and large ones, to create international networks and to
increase their competitiveness, in order to fulfil the needs of the large panEuropean advertisers.
The search for synergies of scope and scale has also increased the move
towards greater international integration, as has the increasing harmonisation of
advertising rules at the European level. Scale and scope effects resulting from
the increased possibilities of standardisation influence the whole advertising
services value chain.
Transnational campaigns benefit from economies of scale and scope,
particularly in strategic and creative activities. The standardisation of creativity
necessarily follows a strategic choice of standardisation. The strategic choice of
standardisation is the result of convergence of consumer behaviour,
development of a pan-European media system and harmonisation of the
legislative framework. Therefore, advertising campaigns developed by
companies which perceive the importance of these factors can obtain
economies of scale and scope at the strategic and creative level.
Cost savings can be further obtained in the areas of accounts and production. In
the first case there has been the growth of European account departments,
while as far as advertising production is concerned, the local adaptation of a
transnational campaign certainly costs less than the development of separate
campaigns in each country. Cost savings can be obtained in media planning by
the centralisation of the functions. Nevertheless, the scarcity of pan-European
media and the limited availability of research at the European level do not
allow for such savings. The activities of media buying also tend to be
developed at national level and the cost advantages related to them are little
influenced by the international dimension.
Over the last 15 years, and particularly during the 90's, there was a notable
increase in advertising investments in the EU, particularly with regard to
television, thanks to the growth of commercial channels.
The penetration of different media varies from country to country. Newspapers
have maintained leadership in central and northern countries (Sweden, Finland,
Denmark and Germany, etc.), while television is the leader in advertising
investments in Mediterranean countries (Italy, Greece, France, Spain, and
Portugal).
In the early years of the 1990's competition in the agency sector increased
greatly throughout Europe, principally due to two factors:
a. many businesses reduced their communication investments, particularly
advertising, because of the recession;
b. greater European integration caused increased competition between
international networks, and between local agencies and international
networks.
These two factors have had the following results: a general increase in the level
of sectoral concentration (even if there are still significant differences in C5
between different countries as much at the level of advertising agencies as at
the level of advertising investors). The polarisation between small/local
agencies and large international networks has also increased, and so has price
competition which has further contributed to the decline of agency commission
and this has led to the increasing adoption of alternative systems of
remuneration and the use of incentive schemes.
On the other side increased competition has sustained the increase in internal
reorganisation aimed at increasing productivity, particularly through
externalisation processes (free-lancers). Internal productivity has also been
improved with the adoption of new technologies which have concerned
creative departments, media planning and agency administrational
management. Another response to increased competition is improvements in
quality of advertising agencies' methods and outputs which, according to
advertisers, was generally improved for the period 1990-1995 than for the five
years previously.
In terms of business strategy the responses of the advertising agencies have
centred on internal and external reorganisation. The former are oriented to
greater flexibility of structure and costs and greater efficiency and effectiveness
in internal operations. The latter are external reorganisation in the sense that
joint ventures and strategic alliances have been developed in the logic of
network development both inside the advertising agency sector and in dealings
with other operators in communication activities (media buying agencies, sales
promotion, direct marketing, etc.).
In conclusion, we can state that the effects of the Internal Market on the
advertising sector have been mainly indirect. The Internal Market determined
to a great extent the free movement of goods and services. As a consequence
more and more companies perceive that a pan European marketing and
communication strategy is convenient , allowing advertising users to obtain
exploitation of the same brand image across Europe and economies of scale in
campaign production.
This factor, together with greater harmonisation of advertising rules and the
predicted future development of a pan-European media system, is causing
changes in the advertising agency sector. Competition between agencies has
increased which have, in consequence, been led to search for synergies of
scope and scale over the whole advertising service value chain and to
reorganise internally and externally.
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