Nielsen report: Advertisers aren’t spending enough money

Nielsen has released its first annual global report, which has found that marketers are underspending when it comes to their media plans.

Its key insight emerged as the “50-50-50 gap”. According to Nielsen, 50% of planned media channel investments are too low by a median of 50%, and return on investment could be improved by 50% with the ideal budget.

Media channels in this instance include digital video, display, social and linear television.

The channel that demonstrated the biggest lack of investment was digital video, with 66% of plans being underinvested; by increasing investment to its optimal zone, ROI could increase by 51%.

Television was the least underinvested, with 31% of plans below the optimal zone of investment.

These conclusions were based on Nielsen’s global database of 150,000 observations of marketing ROI and database of client-supplied media plans.

Its report also found that media spend needed to be between 1% and 9% of revenue to stay competitive. Most brands reinvest between 1.4% and 9.2% of revenue in media, with the median brand investing 3.8% of revenue.

Speaking to Campaign, Imran Hirani, vice-president, media and advertiser analytics at Nielsen, said there were several reasons a brand might be underspending.

“There is a perpetual cycle that a brand might fall into if they're not spending enough. They're going to make a measurement of ROI that is not favourable because when spending is too low, a brand may not be spending enough to break through and drive impact.

“If you observe that ROI is low for your brand, it may invite you to spend even less on advertising, so there may be a little bit of a self-fulfilling prophecy in that regard.”

He also added that certain brands start with zero-based budgeting, and will judge their media spend based on their brand’s previous years rather than asserting what will make an impact.

Despite Nielsen’s research, brands may be wary of investing more and testing uncharted waters during the cost of living crisis.

Hirani added: “Spending doesn't have to be risky when you use research. When you’re talking about emerging channels where it’s a little bit more challenging, there’s lots of different ways that we can use research to understand the impact of spend with very small levels of spend.”

Nielsen investigated new and emerging media channels, conducting 1,000 studies into podcast advertising, branded content and influencer marketing.

In terms of aided brand recall, podcast ads delivered 71% positive results, influencer marketing delivered 80% and branded content 82%.

Globally, the average brand reinvests 3.8% of its revenue into advertising. Brands in Europe invest, on average, 3.7% of brand revenue in advertising, whereas North America invests slightly more, at 4.1%.

But while Europe receives 25% less ROI than the global average, North America receives 55% more.

Overall, three reports were produced by Nielsen: one for agencies, one for marketers and one for media sellers. The report sought to inform marketers of the gaps in their budgets, channels and media strategies.