Brands leaving £32 billion of profit growth behind

• New study uncovers 11% of potential profit growth waiting to be unlocked through advertising.
• Over-reliance on “performance” media like social and search partly to blame.

Brands could double their current investment in advertising and still generate a profitable return. On average, brands are leaving behind 11% of profit growth with current advertising spending – some £32 billion in profit.*

These are key findings from a new study by WPP Media, commissioned by Thinkbox. “The Growth Gap” is built on the immense econometric database behind award-winning advertising effectiveness study Profit Ability 2, encompassing 141 brands and £1.8 billion of media spend across 10 different media channels.

It comes amid ongoing economic uncertainty and with advertising budgets yet to recover from pre-pandemic levels. Its recommendations, if adopted, could trigger significant growth for UK businesses and UK plc.

£32 billion profit left on the table

The study analysed 624 brands and over 7,400 different campaign scenarios. It found that many businesses stop investing in advertising long before that investment ceases to be profitable. Current average brand annual media investment level is £15 million, but saturation point (when each £1 invested starts generating less than £1 in profit return) is at £30 million.

The study found that the average brand could double their advertising investment and still keep every pound profitable, unlocking 11% headline profit growth.

This varies by sector however. Travel brands could increase advertising investment by 275%, Retail by 131%, and Automotive by 67% and still see profitable returns. In contrast, proving the value of additional media investment for Telecoms, Finance, and FMCG brands is more complex. It requires factoring in customer lifecycle or assessing advertising’s impact on other metrics, such as price elasticity and distribution.

Performance anxiety

With so much recent economic uncertainty, advertising investment has drifted towards prioritising so-called ‘performance’ channels – those, like social media and online search, that are considered good at delivering short-term results as over 50% of their total return is generated in the first week.

The new analysis challenges this thinking by proving that investing in brand also delivers in the first year, if advertisers deploy their investment at the right time and in the right media.

Comparing how advertising investment is currently deployed with econometric evidence of what would deliver the most returns, the study found that the optimal media plan for the best results in the first year would dramatically change:

As well as right-sizing investment levels in to different media, the study also makes recommendations about how to structure media investment across the first year to maximise payback, including spend more budget earlier to maximise adstock and front-weighting channels that have longer-term effects (like TV, print and out-of-home) while flattening channels that are shorter term (such as social, search and online display).

Dominic Charles, Head of Applied Analytics, WPP Media UK: “Short-term optimised isn’t necessarily long-term compromised. Short-termism isn't the problem. Badly executed short-termism - one that conflates the need to show a return to the business quickly with a narrow set of “performance” channels - is the problem. We hope this new analysis will challenge brands to explore their own profitable ceilings and get the very best return possible for their spend. ”

Anthony Jones, Head of Research at Thinkbox: “While it is entirely understandable why brands are cautious to commit more budget to advertising, the evidence of the immense opportunity being missed is clear. Those who can act on it, can grab significant competitive advantage, generating more profit and growing their businesses.”