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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. [ © ] - [ Update on the Single Market ] - [ Free Movement of People & Individual Rights ] [ Free Movement of Goods ] - [ Services & Establishment ] - [ Financial Services ] [ Company Law, Accounting & Auditing ] - [ Public Procurement ] - [ Media, Information Society & Data Protection ] - [ Intellectual & Industrial Property ] - [ Economic & Monetary Union ] - [ Infringements ] - [ STUDIES ]