Risky business: the risks of risk aversion

Marketing consultant and effectiveness expert, Peter Field, explores how risk aversion can affect brand behaviour and why in uncertain times, advertisers must continue to invest.

Risk aversion is a well documented and perfectly understandable behaviour – especially in uncertain times like now. People prefer to make investments with more certain outcomes - even if those outcomes are poorer than could potentially be achieved with a less certain investment. They see this choice as less risky, but human perceptions of risk are notoriously fallible. Bigger investments are judged to be more risky than smaller ones, even if the facts contradict this.

So, a common behaviour in times of uncertainty is to make many smaller plays rather than one big one. If the risks associated with those smaller investments were indeed genuinely smaller, then this might be a prudent strategy, giving you time to reflect on initial investments before making further ones. But in the world of media choices things are not that straightforward

The current desire to parcel up video adspend into smaller packages is disturbing the balance; driving advertisers away from TV and pushing them to the world of online video, both social and non-social. We see this in the comparative resilience of ad revenues of major tech platforms relative to TV companies (notwithstanding the Facebook boycott amongst some more content-concerned advertisers). We know that a combination of TV and online video is most effective, so there is an inherent risk of loss of effectiveness in this shift.  But is this move to online video really likely to reduce the broader risk of the overall advertising investment?

The Facebook boycott aside, objective researchers have serious and growing concerns about online video advertising and its accountability.

Advertisers often believe that the weaknesses of the digital marketplace are costed into advertising rates, but this is a huge and risky assumption when the data is so unreliable.

The 2020 ISBA report into the comparatively wholesome world of non-fraudulent digital advertising supply chains found that, where it was possible to trace, only 51% of advertisers’ spend found its way to the content publishers it was intended for. An army of ‘intermediaries’ spirited away 49% of the budget: 15% disappeared into completely untraceable black holes. From a risk perspective, the report noted that despite the best efforts of the PwC technical team, only 12% of the bought advertising impressions could be traced, due to the poor quality of the data available to advertisers. This study didn’t even examine digital adfraud, but already the move to online video is starting to look less safe than many imagine.

And of course, it gets much worse when you do take adfraud into account. Video advertising expert Dr Karen Nelson-Field observed that “the scale of fraud that sits behind the digital marketplace is unbelievable”, something she believes is being ignored by the marketing world. Adfraud expert, Dr Augustine Fou, estimates that around 70% of digital adspend is misappropriated fraudulently using an astonishing arsenal of criminal tools from bots to ‘cookie stuffing’.

Fraudsters don’t only fake views of advertising, they have even learnt how to fake purchases supposedly made after viewing advertising. Facebook’s announcement that it was removing 6.6 billion fake accounts reveals the scale of the problem, especially when by their own estimate the cull reduced the number of such accounts by just 27%. A criminal industry that can create perhaps 25 billion fake Facebook accounts is unlikely to be defeated by a machine learning tool that took Facebook two years to develop.  "Adversaries move fast," said Facebook’s data science manager, "their adaptation cycle is fierce, and it's getting more sophisticated." Small wonder that the US Media Rating Council has had to develop standards for monitoring fraud with alarming names such as ‘General Invalid Traffic’ and ‘Sophisticated Invalid Traffic’. 

To me, this is starting to look like a rather risky investment, not a safe one. As Dr Fou observed, “The murkiness of (programmatic) supply chains… means you are getting far less efficiency than you think”.

Dr Fou’s analysis also concluded that much of the non-fraudulent digital advertising spend was “useless” due to low viewability. Dr Nelson-Field, the acknowledged expert in this area, has revealed some worrying findings about the weaknesses of much online video advertising. Her ingenious research has shown the inadequacy of initial viewability standards: if viewers only watch the first two seconds of the ad, with only 50% of the pixels in view (and probably with the sound off as well), then the likely effectiveness of the commercial is dramatically impaired compared to full viewing, especially on Facebook. Her work is driving a much-needed tightening of viewability standards and a focus on attention.

Eye-tracking research by Lumen of real-world viewing by human viewers, showed that only 9% of online video ad impressions were viewed for more than one second, so there is clearly a great deal of “low viewability” advertising.

Put these two pieces of research together and you can at least partly explain why, in Nelson-Field’s research, online video platforms deliver much lower sales effects than TV, where full viewing is much more likely. So shifting extra money into the world of online video should not be seen as a low risk move, especially if you cannot guarantee that consumers will want to view your ads.

And the move makes even less sense when highly transparent alternatives, such as Broadcaster VOD and linear TV, have been experiencing bumper audiences (TV viewing over the last quarter is up around 13% year-on-year). Even OOH audiences have returned to around 60% of ‘normal’.

So why are advertisers apparently increasing their risk even as they say they are trying to reduce it?

Partly this behaviour is driven by the gap between perception and reality: as Ebiquity observed “advertisers perceive paid social media and online video to deliver ROI because they are relatively cheap, can reach defined audiences and provide a measurable response. But Ebiquity’s ROI data does not rate them so highly.”

Advertisers often believe that the weaknesses of the digital marketplace are costed into advertising rates, but this is a huge and risky assumption when the data is so unreliable.

Dr Nelson-Field’s work shows that pricing of the major platforms does not adequately reflect these weaknesses even when looking only at short-term sales effects – the timescale over which online video performs better. In fact, she observes sales effect decay rates for the major platforms of around three times that of TV – so their more limited effects are also more short-lived.

The other major explanation for the shift to digital in this recession (as in the last one) is the reassurance of seeing immediate attributable results of advertising (if we trust the data). Under intense pressure from CFOs to be able to justify adspend with quick results, marketers cannot resist the knee-jerk response to go short-term, despite the overwhelming evidence suggesting that the big opportunity for advertisers during a recession is to take advantage of lower media costs to invest in long-term brand advertising that will drive strength in recovery. 

Going short-term inevitably means shifting money into digital media, because of their strengths in this area. But this does no-one any favours, because chasing diminished short-term sales with increased short-term advertising is a risky strategy.

By contrast, brand advertising carried out in recession tends to deliver even greater growth (later in recovery) than it does in the good times. So the rewards of using proven brand-building media such as TV are even more certain in recession – and the risks are in fact lower than alternative video media. That’s why most of the celebrated IPA success stories of the last recession were driven by brand-building TV campaigns, such as Virgin Atlantic, Cadbury and Hovis. 

So my advice to any advertiser genuinely wanting to reduce risk in recession would be to look closely at the facts and step back from the knee-jerk responses. Online video can be a risky business, while TV is a proven recession choice – stick with the balance of both.

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