How advertising can impact Romanian economy

Scope of this report

In 2014, Deloitte UK together with Advertising Association released a study in UK called “Advertising Pays”. It was the second edition of the study which investigates how advertising can unlock UK growth potential.

Among other conclusions, an analysis shows that 1£ spent by an SME is 8 times more efficient for them than the same amount spent by a larger business.

Romanian environment

Based on a survey, we have analysed the perception related to the advertising market in Romania.

During the past 4 months, we have conducted a series of interviews with key decision makers in medium sized to large companies in the following sectors:

FMCG, Telecom, Retail, Pharma, Financial Services, Media/ Advertising agencies, UtilitiesThe views of the main TV operators were also gathered through direct interviews.

Among others, competition and innovation are considered to be important drivers in advertising spend. Where competition is fierce, advertising budgets tend to increase in order to increase the visibility of the product.

Same way, when a new product is launched or a structural change occurs, companies allocate additional advertising budgets to promote the new product or brand (see Telekom rebranding, Orange TV, Vodafone M-pesa).

Companies views of advertising- overview

3

© 2014, for more information, contact Deloitte Romania

What are the first things you think of when you hear the word „advertising”?


4

ADVERTISING

The variety of answers proves the multiple roles that advertising plays in today’s economy and the importance that a company

attaches to it.

419

376

409427

451473

509538

581

617633

0

100

200

300

400

500

600

700

2008 2009 2010 2011 2012 2013 2014e 2015e 2016e 2017e 2018e

In U

S$ b

illio

n

Global Advertising & Marketing revenue

Advertising & Marketing–International Overview The global Advertising & Marketing revenue growth rate is estimated to increase at a CAGR of 6.0%

during 2013-2018 driven by growth in the digital advertising segment.

Source: IBIS 2013, Bloomberg (March 2013), Global Media Report, Mc Kinsey & Company, 2013

Global Media Sector - Overview5

CAGR 2.5% CAGR 6.0%

TV continues to be the most efficient type of advertising,

followed by Online/ Digital advertising and Radio.

6


35%

23%

10%

10%

5%

Interviewers explained that television advertisings can deliver massive audiences to the advertiser. TV stations were the first choice for large national brand names.

Unlike some traditional advertising, online advertising can deliver visitors immediately — through a simple click on your advertising — and provides measurable results.

Radio continues to be a powerful way for companies and brands to engage with consumers.

Newspapers and magazines have lost share since people get their news from so many sources these days.

Outdoor advertising is media that is everywhere and that cannot be turned off or put down. Consumers spend quite a lot of time out of home and as they move through their daily lives they take note of the advertisings they see.

18%With billions of people across the world on social media, it is a great way to reach tons of people at a relatively low cost.

Top 50 spenders by industry

When analyzing top 50 spenders on TV, FMCG industry appears to be dominant

57%

17%

13%

2% 12%FMCG

Pharma

Telecom

Financialservices

What factors influence the size of advertising budgets?

8

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Comparisons with other countries

Comparisons with other market players

The value of the marketing business plans

The opinion of the general manager

Changes in strategy and plan

Evolution of YTD profitability

Results of prior years' campaigns

8%

8%

36%

32%

44%

52%

16%

42%

12%

52%

60%

48%

36%

76%

46%

40%

12%

4%

8%

12%

8%

4%

36%

0%

4%

4%

High influence Influence Neutral No influence No influence at all

Based on the results of the survey, it shows that decisions are made based on short term profitability and strategy.

At the other end, comparisons with other countries and companies are least relevant.

Which investments contributes more in the success of a business


9

32%

36%

32%

48%

57%

54%

82%

57%

43%

46%

33%

36%

36%

18%

11%

18%

14%

11%

7%

11%

4%

7%

7%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Training and personnel recruitment

Infrastructure

Discount campaigns

Supply chain expansion

Advertising

Operational cost reduction

Quality of the products

Very important Important Neutral Not important

The results of the study showed that the success of a business is influenced the most by:- Quality of the products. Without a quality product or service, it is difficult to maintain

profitability.

- Reduction of operational costs.

- Advertising. The purpose of advertising is to convince customers that a company's services or products are the best.

Common general conclusions emerged across the board:

The strongest results are achieved when businesses use multiple advertising channels and develop a structured campaign

Better targeting brings better results

In Romania, is not a common practice to measure the effectiveness of marketing expenditure due to complexity of the process and lack of data& resources

Success factors in advertising strategy

An industry with an impact 100x its size

3% of Romanian management population impacts a 50bn EUR turnover consumer market, 33% of the GDP

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Sources: ARMA, BRAT, IAA, IPSOS, Deloitte calculations

3% of Managers

0.5bn EURMarketing & Communication

Budgets

50bn EURInternal consumption of BrandedConsumer Products and Services

Impact of TV advertising expense on turnover in

the last financial year (2013)

70%

% of companies that increased GRP

Source: Romanian Association for Audience Management, Amadeus

Financial Data from various sources (i.e. Amadeus, Ministry of Finance etc.)

Deloitte calculations

To cross check the findings, two case studies were performed on two advertising-

intensive industries.

61%

% of companies that increased turnover

The impact of TV exposure on the turnover was analysed for top 3 companies in FMCG industry over a 4-year period

(2010-2013).

Case study 1: significant impact of advertising in

FMCG industry

Company B:

Decrease in TV exposure

had no significant impact in

turnover. It was due to high

level of TV exposure

compared to the competition.

Company C:

Increase in TV exposure had

insignificant impact since the

company had a level of TV

exposure much lower

compared to the competition.

General remarks

TV exposure has a

significant impact on the

FMCG industry, should

expenditure exceed a certain

threshold.

In some cases the impact

becomes visible with a delay.

2010 2011 2012 2013

2010 2011 2012 2013

GRP

Turnover

Company A:

Increase in TV exposure has

driven an increase in

turnover.2010 2011 2012 2013

The impact of GRP on the turnover was analysed for top 3 companies in mass-market industry over a 4-year period

(2010-2013).

Case study 2: lower impact of advertising in a

mature mass-market industry

2010 2011 2012 2013

2010 2011 2012 2013

2010 2011 2012 2013

Company A:

Decrease of TV advertising

spending in 2011-2012 had

not resulted in a decrease in

the turnover of company.

Company B:

Minor changes in TV

exposure had no significant

impact on turnover, the latter

remaining relatively constant

Company C:

Slight increase in turnover

was not directly linked to

investment.

GRP

Turnover

General remarks

When brand awareness is

very high, small variations in

TV exposure are not

reflected in turnover .

554,500

94,909

18,567

What is the size of the workforce involved in

marketing& communication related activities?

Direct impact

Advertising, marketing

Indirect impact

Sales agents and client facing

employees

Significant influence

Total employees in retail and

wholesale trade and hospitality

industry (HoReCa)

Source: Romanian National Institute of Statistics, Deloitte calculations

Note: for each category, the numbers refer to incremental number of employees

Ipsos survey performed in Romania on perception of advertising revealed that :

• 61% of those interviewed perceive a positive impact of advertising on their lives,

both at personal and professional level.

• 36% of Romanians believe that advertising has a neutral impact on their lives,

• 3% believe that advertising has a negative impact on their lives

Positive impact of advertising on the

professional and people’s lives

61%

36%

3%

Positive

Neutral

Negative

Source: Ipsos

Note 1: total number of respondents is 1,000 (nationally representative sample)

How authorities can help


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The national strategy for competitiveness for 2014- 2020 states that the state’s vision is:

“The development of a competitive business ecosystem, based on a stable regulatory environment, focused on entrepreneurship, innovation and creativity, which should focus on trust, efficiency and excellence and place Romania among 10 European economies”

When investigating how authorities can help, a number of suggestions have emerged:

All legislative initiatives affecting the advertising & media market should be put up for debate with industry representatives, before being enforced

Industry representative bodies should become dialogue partners of the authorities in order to grant them the chance of a proactive approach

Greater stability and predictability of the entire business ecosystem

• Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/ro/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.

• © 2014, for more information, contact Deloitte Romania

How advertising can impact Romanian economy

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