Advertising Pays The impact of advertising on the Belgian Economy

December 2015
Advertising Pays
The impact of advertising
on the Belgian Economy
Raad voor de Reclame
Conseil de la Publicité
Report by Deloitte commissioned by Raad voor
de Reclame/Conseil de la Publicité
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CONTENTS
Foreword.................................................................................................................................................................. 4
Executive summary......................................................................................................................................... 6
1. Scope of this report................................................................................................................................ 7
2. Advertising fuels the economy...................................................................................................... 8
3. Advertising makes markets work..............................................................................................10
4. Advertising funds media and the creative industries.................................................13
5. Ad spend supports a wide range of employment........................................................15
6. Advertising supports exports.........................................................................................................17
7. Advertising enables the digital economy............................................................................ 18
8. Advertising’s contribution creates social and economic value.........................20
Bibliography........................................................................................................................................................ 21
4
FOREWORD
FOREWORD
GROWTH ENGINE
Like many other sectors, the advertising industry is going through a major
transformation. Only the players who will be able to adapt themselves rapidly
to the changing environment will survive. And this is a daily commitment and
effort.
So far, it was difficult to find hard figures and facts demonstrating the real
impact of advertising on our overall economy. Hence, the reason why the
Conseil de la Publicité/Raad voor de Reclame took the initiative to conduct
an independent study. The main findings are presented in this report. It is
an open look on the economic impact of advertising and the influence of
advertising on economic growth.
For the first time, the leverage effect of advertising on our country’s GDP was
calculated. The numbers are overwhelming. The message is clear: advertising
is an important growth engine for the Belgian economy. The advertising
industry is not only an important sector in itself, but provides oxygen to all
areas of the labor market and the overall economy.
This initiative has been possible thanks to the joint support of the UBA (Union
Belge des annonceurs / Unie van Belgische Adverteerders), ACC (Association of
Communication Companies) and the Belgian media companies represented
by their respective associations (ABMA / BVAM-The Ppress / Febelmag / Free
Press - Belgian News Media -AEA-UPP), all united in the Conseil de la Publicité/
Raad voor de Reclame. A sincere thank you.
For our policy makers and all stakeholders, the message is clear: advertising
is an important lever for our economic growth and prosperity for the coming
years. When we care about economic growth, we need to consider advertising
as an important lever for this. It is time to consider another way of looking at
advertising and to explore this report.
Fons Van Dyck, President Conseil de la Publicité/Raad voor de Reclame
Sandrine Sepul, Director Conseil de la Publicité/Raad voor de Reclame
5
2.2
BILLION
13
BILLION
ON AVERAGE, € 1 OF ADVERTISING
SPEND GENERATES € 5 FOR THE ECONOMY.
THAT MEANS THE € 2.2 BILLION SPENT
ON BELGIAN ADVERTISING IN 2014
GENERATED € 13 BILLION IN
THE BELGIAN ECONOMY.
6
more efficiently, allowing firms with new ideas
to succeed more quickly and differentiate
themselves through the quality of their offer to
consumers.
Annual advertising expenditures of € 2.21 billion
support the advertising and creative industries
and associated employment. However, the
effect of advertising on the economy is much
greater than that. We estimate that advertising
adds at least € 13 billion to Belgian GDP by
increasing the level of economic activity and
increasing the productivity of the economy.
Advertising can play a key role in accelerating
the growth of new businesses and ideas. The
internet provides a powerful example, as many
of the most popular websites are free at the
point of use. Funded by revenue they raise
through advertising, they provide valuable
services to consumers, including search, news,
entertainment and travel information. Such
sites make a tangible contribution to the
economy, supporting both online and highstreet sales and contributing over € 1,145 billion
to the Belgian economy.
The advertising industry is central to the creative
industries. It provides 26 % of TV revenues in the
North and 37 % of daily press revenues funding
in that way the so-called “media-plurality”; it
supports sectors from photography to film
production. We estimate that over 87,000 people
work in jobs that are funded by advertising
revenues, or involved in the commissioning,
creation and production of advertising across
the relevant supply chains.
This report analyses each of the above impacts,
providing a perspective on the different ways
in which advertising supports the Belgian
economy.
Moreover, successful advertising enables Belgian
brands to enjoy strong international recognition
and then reinvest in Belgium.
It also calculates the overall impact of advertising
on the economy based on a cross-country
statistical analysis covering 17 markets over
14 years.
However, the overall impact of advertising is
much broader. It has a critical role in making the
economy function. Advertising is at the centre of
a virtuous circle of competition, innovation and
market expansion, to the benefit of consumers
and businesses.
Analysis of academic literature on advertising
reveals a pattern: increases in advertising spend
boost competition, improving quality and
pricing for consumers.
This analysis shows how higher levels of
advertising spend increase GDP. Based on
current expenditure, advertising adds at least
€ 13 billion to Belgian GDP by raising the level of
economic activity and boosting productivity. On
average, € 1 of advertising spend generates € 5
for the economy.
Advertising enables businesses to deliver more
innovative and higher quality products and
services. It helps to match buyers and sellers
That means the € 2.2 billion spent on Belgian
advertising in 2014 generated € 13 billion in the
Belgian economy.
WARC, ‘Expenditure Report’, 2014, http://expenditurereport.warc.com/ Internet data is included but coverage is limited (Facebook and Google data are not included).
1
7
EXECUTIVE SUMMARY
EXECUTIVE SUMMARY
1. SCOPE OF THIS REPORT
ADVERTISING INFORMS, ENTERTAINS,
SEDUCES AND HELPS TO ENHANCE
THE PERCEPTION OF VALUE.
8
1. SCOPE OF THIS REPORT
Advertising informs, entertains, seduces and
helps to enhance the perception of value. Its
effects stretch across the economy, with roles
ranging from being an enabler of efficient
markets to being a supporter of the creative
industries.
Limitations on the availability of data are
such that the effects of related activity such
as sponsorship, sales promotions, events and
market research are beyond the scope of this
report. The overall approach of the report is to
look at the impact of advertising through:
Advertising’s contribution to the Belgian
economy is often lost on narrow debates about
the industry. To help address this imbalance,
the Raad voor de Reclame/Conseil de la
Publicité commissioned Deloitte to examine
the economic impact of advertising in Belgium.
In order to assess the economic contribution
of advertising activity, it is first necessary to
define advertising. This study adopts a historical
definition of advertising by Jeremy Bullmore
which states that: “Advertising is any paid-for
communication intended to inform and/or
influence one or more people”.
• An overall econometric analysis of the role of
advertising expenditure in explaining GDP.
• A series of case studies of the impact of
advertising on individual aspects of the
economy including its role as a stimulus to
competition, a supporter of exports and a
driver of innovation.
• An analysis of the employment provided by
advertising expenditure. This covers roles
related to the commissioning, creation and
production of advertising content and roles
that are indirectly funded by the revenues
from advertising.
While this report takes a broad approach to
considering the effects of advertising, it is an
economic impact report which focuses on the
economic consequences of factors that are
measurable, such as expenditure on paid-for
advertising recorded by the Warc2 expenditure
data (i.e. TV, radio, print, magazines, out-ofhome, cinema and internet). The costs provided
by the Warc database are calculated after the
deduction of negotiated discounts, but before
the deduction of agency commission. Using this
database allowed us to compare advertising
expenditure numbers across different countries.
2
Warc.com is an online service offering advertising best practice, evidence and insights from the world’s leading brands.
9
2. ADVERTISING FUELS THE ECONOMY
DELOITTE USED ECONOMETRIC MODELLING
TO EXAMINE HOW DIFFERENCES IN
ADVERTISING SPEND ACROSS COUNTRIES
AND YEARS CONTRIBUTE TO DIFFERENT
LEVELS OF GDP PER CAPITA.
10
The key findings from the model are as follows:
In 2014, Belgium spent € 2.2 billion on advertising3.
Deloitte concluded that a 1 % increase in
advertising spend leads to a 0.04 % increase
in GDP. This translates into a total contribution
of advertising to GDP of € 13 billion, or 4 %
of Belgian GDP. In other words, € 1 spent on
advertising generates an average of € 5 across
the economy.
There are many reasons to believe that advertising
has an impact on the wider economy, beyond,
for example, creating jobs. Advertising is central
to the functioning of any market economy. It
provides consumers with information, allowing
them to compare brands, products and prices.
Advertising helps businesses bring innovative
products and services to the market. Moreover,
it allows businesses to build brand identities,
allowing them to protect their innovations,
stimulate investments and build export markets.
Without advertising, markets as we know them
would cease to function.
RESEARCH ON THE EFFECT OF ADVERTISING
The effect of advertising has been a subject of
several professional and academic research over
the recent years (see Appendix A). Whilst these
studies often use different specifications, the
multiplier calculated by the econometric model
of Deloitte appears to fall in a reasonable range.
Advertising is so fundamental to every part of
the economy that it is challenging to measure
its impact. It is challenging for two reasons:
• GDP is a complex measure that is influenced
by many drivers. To understand the impact of
advertising spend on GDP we need to isolate
it from other factors.
The effect of advertising has also been much
debated in the academic literature. One aspect
of the debate centres on the extent to which
advertising informs consumers and allows them
to make better choices, or persuades them to
do something they would not otherwise have
done.
• The direction of causality may run in the
opposite direction: countries with higher
GDP tend to have more dynamic market
economies with more innovative businesses
and a greater market for advertising.
Therefore, the level of advertising spend may
be explained by the level of GDP.
Another argument focuses on whether
advertising raises consumer prices. Advertising
may lower prices by promoting competition,
or it may raise prices by increasing companies’
costs. The literature suggests that the effect
varies across product categories4. The overall
effect depends on consumer’s sensitivity to
price, economies of scale, and the company’s
unit costs5.
In order to isolate the impact of advertising and
determine the direction of causality, Deloitte
constructed a panel covering 14 EU countries
over 17 years (1998-2014 period). Deloitte used
econometric modelling to examine how
differences in advertising spend across countries
and years contribute to different levels of GDP
per capita. The methodology is explained in
detail in Appendix A of this report.
WARC, ‘Expenditure Report’, 2014, http://expenditurereport.warc.com/ - Internet data is included but coverage is limited (Facebook and Google data are not included).
- 4 Rauch, F. (2011), ‘Advertising expenditure and consumer prices’, CEP discussion paper 1073. - 5 Chamberlin, E (1933), The Theory of Monopolistic Competition,
Cambridge, MA: Harvard University Press (referred to in Bagwell, 2007).
3
11
2. ADVERTISING FUELS THE ECONOMY
2. ADVERTISING
FUELS THE ECONOMY
3. ADVERTISING MAKES MARKETS WORK
12
Advertising creates and sustains relationships
between consumers and businesses6. It informs
consumers about existing products and
innovations, helping the best ideas, products
and brands to succeed. Advertising increases
performance pressure amongst market players
resulting in higher production and value added
levels.
Moreover, an academic study demonstrated
that the sectors in which investment is above
average both in advertising and innovation, are
also those in which the growth of added value
is the highest8.
As the following examples illustrate, these
issues affect all markets from the most hightech to the most cost-conscious. Advertising
can support innovation to:
Advertising helps businesses communicate
about their prices and products, allowing
people to make informed choices about who
they buy from and at what price. Advertising is
at the centre of a virtuous circle of innovation,
competition and market expansion.
• Back new product launches: in almost every
sector, businesses create awareness of new
products through advertising. The automobile
sector, for example, is relying intensively on
advertising to promote its new products and
offerings.
Advertising speeds up the communication of
product designs and innovations, enabling
faster return on investment. It helps businesses
with the best ideas succeed and funds research
and development. It also offers businesses the
opportunity to differentiate their products to
consumers, increasing the range of available
choices and building trusted brands.
• Support differentiation through brand:
the yoghurt brand Activia, for example,
differentiates its product in terms of its
digestive benefits. Its advertising campaign
has won awards for its success in broadening
Activia’s appeal from a niche product into
a major mainstream brand9. [As described
in the case study below, the Belgian brand
Ice-Watch is also a nice example of brand
differentiation.]
3.1. PROMOTES INNOVATION AND
DIFFERENTIATION
Higher returns create incentives for businesses to
invest in innovation. Deloitte recently undertook
a comprehensive research project in Belgium
to identify, decode, qualify, and quantify the
management practices that contribute most to
sustained and superior corporate performance.
One of the finding of the study is that
differentiation is a primary driver of superior
long-term profitability7.
Businesses also use advertising to build
differentiation through their brand’s pricing
promises. Colruyt, for instance, has used media
advertising for many years to promote its ability
to propose highly competitive prices with
the slogan “Colruyt, gegarandeerd de laagste
prijzen/Colruyt, la garantie des meilleurs prix”.
W ‘Consumers’ can be individuals or businesses, depending on the form of advertising. - 7 Deloitte (2013), ‘Reinvent your business – Decoding the formula for
superior performance’, September 2013. - 8 Nayaradou M., ‘Publicité et croissance économique - Thèse de doctorat en sciences économiques : Synthèse et principales
conclusions rédigées par l’auteur’. Université Paris 9 – Dauphine - 2006. - 9 IPA (2009), ‘Danone Activia: How a little bit of T.L.C. made a market leader’.
6
13
2. ADVERTISING FUELS THE ECONOMY
3. ADVERTISING
MAKES MARKETS WORK
THE ROLE OF ADVERTISING IN
DRIVING COMPETITION BASED
ON PRICE CAN BE OBSERVED IN
PRACTICALLY EVERY MARKET.
In the airline industry,
advertising has traditionally
been used to support
differentiation between
providers in terms of service
quality and to convey a sense
of luxury travel compared
with other modes of
transport .
14
3.3. ENCOURAGES MARKET GROWTH
Advertising fuels competition through price
promotion,
product
differentiation
and
innovation, which in turn helps new entrants to
penetrate markets.
By communicating information about product
attributes, price and availability, advertising
helps to match buyers and sellers more
efficiently, and reduce costs16. This can expand
some existing markets and build new market
sectors.
This effect is recognized in the academic
literature. One study, for example, examined
the impact of the advertising of staple products
such as detergent, toothpaste and toothbrushes.
It found that increases in advertising led to
higher overall demand but that consumers
also became more price sensitive10. The role
of advertising is driving competition in many
markets, as in passenger flights for example.
An example is the telecom sector in Belgium
that used advertising to support the growth
of broadband and mobile internet in the last
10 years. Businesses (as Service Providers) have
competed intensively to attract new customers
and gain market share through new bundle
offerings, increased access speeds and massive
advertising. While telco companies are some of
the main advertisers in Belgium, the number of
fixed fast broadband users from 2009 to 2013
was multiplied by 10 and the mobile internet
volume increased by 15 times during the same
period17.
In the airline industry, advertising has traditionally
been used to support differentiation between
providers in terms of service quality and to
convey a sense of luxury travel compared with
other modes of transport11. However, competition
in the industry changed significantly with the
advent of budget airlines or Low Cost Carriers
(LCCs) with their very different strategy. Their
advertisements focused heavily on price rather
than quality, while their pricing structures also
differed markedly, with low initial offers used to
drive yield12.
The impact of such market expansion will vary
significantly according to the state of the market,
and may be more obviously present in some
markets than others. Advertising is likely to be
particularly important in helping to accelerate
the growth of markets where there is significant
technological, economic or social change18.
The entry of LCCs into existing routes, supported
by their advertising campaigns, has been shown
to increase competition and reduce prices for
both leisure and business passengers13. They
proved successful in attracting passengers and,
in 2012, nearly half of travellers used budget
airlines to their most recent trip14. For instance,
Ryanair has the ambition to overtake Brussels
Airlines as largest airline carrier in Belgium.
With a significant growth of their activities in
Charleroi and Brussels Airport, the largest LCC
in Europe predicts a passenger growth of 30 %
in 2015, aiming for 8 million passengers at the
heart of Europe15.
10
Erdem et al. (2008). - 11 Kraft, G. (1965), ‘The role of advertising costs in the airline industry’, in Transportation Economics, NBER. - 12 Pitfield, D.E. (2004), ‘Airline price
competition: a time series analysis of “low-cost” carriers’, August, ERSA Conference, paper no ersa04p680. - 13 Alderighi, M. et al. (2004),’The Entry of Low-Cost Airlines’,
Tinbergen Institute. - 14 Mintel, ‘Airlines’, July 2012. - 15 Belga (2015), ‘Ryanair prévoit une croissance de 30 % de son nombre de passagers en Belgique en 2015’, 15th
July. - 16 See for example Chamberlin (1933), who examined the role of advertising in supporting the development of economies of scale. - 17 Arthur D Little, ‘The Belgian
Telecom Landscape’, January 2015. - 18 Dr Simon Broadbent for Economics Committee, Advertising Association (1997), Does Advertising Affect Market Size?
15
2. ADVERTISING FUELS THE ECONOMY
3.2. DRIVES PRICE COMPETITION
4. ADVERTISING FUNDS . . .
4. ADVERTISING FUNDS MEDIA
AND THE CREATIVE INDUSTRIES
Belgium has prolific creative industries19 (4.8 %
of Belgian GDP20), internationally recognized.
However, without advertising many businesses
in these industries would simply cease to exist.
The revenue generated by advertising supports
the Belgium’s broadcasters, press and other
medias. It also contributes to the business
models and revenues of a wide range of other
creative sectors like publishing, performing
arts and the Belgian independent production
sector.
• In many cases, the launch of additional
channels, the extension of broadcast time or
the digital transition of public service were
facilitated by advertising revenues. Counter
proof, some channels disappeared recently
as well of our media landscape due to a lack
of advertising revenues.
• In turn these broadcasters sustain Belgian
industries such as the independent
production sector. In 2012, the Flemish
broadcasters invested € 135 million in this
sector24.
The media landscape in Belgium is divided
between North and South with 62 % of advertising
spend going to the North.
Without advertising, the daily press would have
to double its price in order to remain profitable.
This would considerably decrease the number
of readers and would therefore limit the
democratic debate25. In the South, advertising
contributes to 37 % of the revenue of the daily
press26 and between 28 % to 40 % for the press
groups in the North27.
• In the North, advertising spend contributes
to 26 % of all TV revenues, the other principal
sources of funding being Government funding
and commercial subscriptions to distributors
like Telenet and Proximus21.
• Advertising spend represents an important
part of public broadcasters’ revenues, with
21.2 % for RTBF and 13 % for VRT22.
Advertising also supports local communities
by funding local radio and printed media, as
well as independent cinemas. Advertising is
contributing to 16.3 % of the revenue of local
broadcasters in the South28. A number of free
titles, such as Metro (a concise newspaper that
targets all social layers and distributed in public
transport stations) relies entirely on advertising
in order to sustain a free-for-all distribution29.
•These revenues fund major channels,
contributing to a diverse range of quality
programming. Advertising funds the socalled ‘media plurality’ by increasing the
program’s offering and allowing for a more
diverse public debate. It allows the (partially)
ad funded media to play a leading role in the
community and enrich social bonding23.
Creative industries are those included in the definition of Cultural & Creative Industries (CCIs) by the European Commission: Books, Newspapers & magazines, Music,
Performing arts, TV, Film, Radio, Video games, Visual arts, Architecture and Advertising. - 20 Pr. Lazarro E. and Lowies J.-L., ‘Le poids économique des Industries culturelles
et créatives en Wallonie et à Bruxelles’, 2014. - 21 Wellens G., Neels L., Wauters D., Caudron J. (2014), ‘Het Nieuwe TV-kijken, Een positieve kijk op televisie in Vlaanderen’.
- 22 CSA (2013), ‘Bilan TV 2013’. - 23 Raad voor de Reclame, ‘De economische rol van de reclame/ Le rôle économique de la publicité : La publicité, moteur de la pluralité
des médias’, intervention de Tacheny F., Journée de la publicité 2006. - 24 Wellens G., Neels L., Wauters D., Caudron J. (2014), ‘Het Nieuwe TV-kijken, Een positieve kijk op
televisie in Vlaanderen’. - 25 Raad voor de Reclame, ‘De economische rol van de reclame/ Le rôle économique de la publicité : La publicité, moteur de la pluralité des
médias’, intervention de Tacheny F., Journée de la publicité 2006. - 26 Prof. Antoine F. and Prof. Heinderyckx F. (mars 2011), ‘Etat des lieux des medias de l’information
francophone’, 2011. - 27 Universiteit Antwerpen, ‘De toekomst van Vlaamse kranten in het digitale tijdperk’, Academie jaar 2011-2012. - 28 CSA (2013), ‘Bilan TV 2013’.
- 29 Raad voor de Reclame, ‘De economische rol van de reclame/ Le rôle économique de la publicité : La publicité, moteur de la pluralité des médias’, intervention de
Tacheny F., Journée de la publicité 2006. - 30 Field P. (2010), ‘The link between creativity and effectiveness – New findings from the Gunn report and the IPA Databank’.
- 31 Gunn Report (2015), ‘The most awarded Countries & Agencies in the World’, http://www.gunnreport.com/.
19
16
4. ADVERTISING FUNDS . . .
Public broadcasters’ reven
Media landscape in Belgium
38 % South
62 % North
13
21.2
VRT
RTBF
%
Public broadcasters’ revenues
Total spend TV revenues
Media landscape in Belgium
26 %
Public broadcasters’ revenues
advertising
spend in Belgium
Media landscape
38 % South
38 % South
62 % North
62 % North
21.2
13
%
%
13
21.2
VRT
RTBF
%
VRT
%
RTBF
Total spend TV revenues
Total spend TV revenues
spend
26 %
advertising spend
Moreover, creativity is also an important aspect of the advertising world in itself. It has been
shown that award-winning advertising is more efficient in terms of business impact. Advertisers
that propose highly creative advertising will be more impactful in terms of communication
towards market and consumers. Deductively, advertising drives market share and business
results positively30. Belgian creative agencies are often rewarded at award ceremonies like Lions
in Cannes or Effie awards and is ranked n°19 in the World rank by Ad Market size by Gunn Report
(Top 25 most awarded countries for more than 6 years)31.
17
%
5. AD SPEND SUPPORTS...
5. AD SPEND
SUPPORTS A WIDE RANGE
OF EMPLOYMENT
Advertising creates and supports a wide range
of employment in the media and creative
industries, as well as the wider economy.
We estimate that the total employment
supported directly or indirectly by the € 3.8
billion (this represents the Gross Advertising
spend”, including agency commission and
before the deduction of negotiated discounts)
of advertising spend in Belgium is in excess of
87,000 jobs. This is comprised of:
In 2013, RVDR/Deloitte32 estimated that a total
of 1,409 people were employed in advertising
agencies; with further 427 people in the jobs
involving the sale and purchase of advertising
space, adding to a total of 1,936 jobs in design and
production of advertising. However, advertising
activities such as commissioning, selling and
distributing advertisement undertaken by other
non-agency companies were not included in
these numbers. It was estimated by the UBA
that around 11,000 persons were employed by
advertisers in jobs related to non-agency inhouse commissioning33.
•1,942 jobs in design and production of
advertising, As estimated by RVDR/Deloitte;
• 11,000 persons estimated by UBA that are
employed by advertisers in jobs related to
non- agency in-house commissioning;
•15,942 jobs including those supported
by the revenue from other companies
who commission, design, and produce
advertisement34. For example, it includes a
share of people employed in organisations
such as bpost as a result of its direct
marketing distribution and those employed
in a radio station that produce commercial
advertisement on radio airtime;
There is additional employment generated
in the broader supply chains that support
these activities. The advertising revenue that
a magazine generates, for example, will help
to pay the wages of its staff and contribute to
the revenues of the suppliers of printing and
distributing the magazine. Further economic
activity and employment will be supported as
the magazines’ and distributors’ staffs spend
their wages.
•further 58,177 jobs supported across the
supply chains of the creative industries and
throughout the wider economy resulting
from creative industries employees spending
their wages.
Table 1 summarise the results of the analysis >>
Raad voor de Reclame/ Deloitte (2013), “Analysis of the economic impact of the advertising industry in Belgium”, August, 2013. - 33 UBA, “Annual Report 2014”, p. 8, 2014.
In practice, there may be a degree of overlap between this estimate and the number of agency jobs estimated in the RVDR/Deloitte report. Any overlap is not
expected to be significant in the context of the total number of jobs. Please see Appendix B.
32
34
18
5. AD SPEND SUPPORTS...
Table 1: Summary of employment estimates
Source: RVDR, UBA, Deloitte analysis. ^Note: Numbers may not add up due to rounding. There may be a degree of
overlap between the number of agency jobs estimated by RVDR and the number of jobs by media sectors estimated
by Deloitte, however, the impact is not expected to be significant in the context of the total number of jobs.
Source of
estimate
RVDR
Media sector/
Channel
Production
Creation
Logistic
Estimated direct
employment (Jobs)
1.936
4.022
11.000
UBA
Total employment
(Jobs)
5.958
22.854
33.854
31.301
47.244
Client-side/
In-house
commisionning
15.942
Deloitte
Indirect & induced
employment (Jobs)
Advertising
revenue
by media
sectors
OVERALL
28.878
58.177
87.054
x 1.000
These results relate to the jobs created directly or indirectly by the activities of advertising services. A
much larger number of jobs are also created as a result of advertising’s € 13 billion role as an enabler of
markets, although these do not form part of this analysis. A more detailed description of the approach
is provided in Appendix B.
19
6. ADVERTISING SUPPORTS EXPORTS
6. ADVERTISING
SUPPORTS EXPORTS
The role of advertising in supporting exports has been extensively
studied in the academic literature.
Key findings include the following35: greater brand recognition
in overseas markets supports market entry and helps to build
larger market shares. This has been demonstrated in a 2003
study which found a strong positive link between the level of
brand recognition and financial performance of that brand in
export markets36.
The most recent statistics from the World Trade Organization
confirm that Belgium is among the world’s top exporters,
holding 13th place in the ranking in 2014. The food industry is
one of those which continues to benefit from export, especially
to distant destinations such as Brazil, China and the US. Thanks
to their strong position and their brands recognition, a number
of Belgian companies have tried to expand their market abroad
with success.
See, for example, Cavusgil, S.T. and Zou, S. (1994), ‘Marketing strategy-performance relationship: an investigation of the empirical link in export market ventures’,
Journal of Marketing, Vol. 58, No.1, pp. 1–21. - 36 Zou, S. and Zhao, S. (2003), ‘The effect of export marketing capabilities on export performance: an investigation of
Chinese exporters’, Journal of International Marketing, Vol. 11,No. 4, pp. 32–55. - 37 Effie award (2013), ‘T-Man’ - 38 Lotus Bakeries, ‘Annual report 2014’.
35
20
6. ADVERTISING SUPPORTS EXPORTS
RAFFINERIE
TIRLEMONTOISE/
TIENSE SUIKER,
for example, is well recognized in Belgium,
its home market. In the RepTrak® survey,
conducted by the independent external
communication bureau Akkanto, which
classifies Belgian companies based on their
reputation, Raffinerie Tirlemontoise/Tiense
Suiker was ranked 1st in 2014. Next to a very
successful advertising in Belgium to recover
some market share37,
Raffinerie Tirlemontoise/Tiense Suiker is
developing a position in overseas markets
like the USA for example. This allowed the
company already to make a substantial
investment in production facility.
LOTUS BAKERIES
is another successful example of Belgian
exportation. In 2014, most of its growth
came from international sales of its original
caramelized biscuits. The strategy of
international expansion has been consistently
pursued with several countries leading the
pack like the UK, France, the Netherlands
and Israel. Appropriate commercial efforts
adjusted to the specificities of each local
market contributed to a huge success and
customer appreciation of both original
caramelized biscuits and spreads. These
efforts included an active PR programme in
the UK and television campaigns in France
and the Netherlands. In Israel, the growth was
achieved by close cooperation between their
own sales team and a distribution partner,
relying strongly on television campaigns
and social media. In China, after 10 years of
presence through a local distribution partner
Lotus Bakeries started its own sales office.
This marks the next step in its long-term
strategy, aimed at further growth and market
penetration38.
21
7. ADVERTISING ENABLES THE DIGITAL ECONOMY
22
Advertising plays a crucial role in the development of the
internet by providing funding for online search activities, social
media, instant messaging and the majority of websites. In turn,
these services provide globally about € 150 billion a year in value
to consumers39.
Advertising and traditional media is also heavily used by pure
digital brands to promote their products and services. Digital
and traditional media work synergetic together.
Whilst Belgium still lags behind in terms of digital maturity
compared to other neighbouring countries, the national
internet-economy represented in 2013 € 2 Billion (3.5 % of GDP),
and is predicted to rise to almost € 20 Billion in 2015 (5 % of
GDP)40. Digital advertising is contributing to this growing sector
as well and will still grow in the coming years.
39
40
McKinsey&Company (2011), ‘The Web’s € 100 billion surplus’, http://www.mckinsey.com/insights/media_entertainment/the_webs__and_8364100_billion_surplus.
Google, ‘The state of digital in Belgium’, 2014.
23
7. ADVERTISING ENABLES THE DIGITAL ECONOMY
7. ADVERTISING ENABLES
THE DIGITAL ECONOMY
7. ADVERTISING ENABLES THE DIGITAL ECONOMY
ADVERTISING FUNDS E-COMMERCE
GROWTH
ONLINE ADVERTISING INFLUENCES HIGH
STREET SALES
The growth of the digital economy has also
changed the way people search products and
make purchases. The e-commerce industry in
Belgium represented more than € 4 billion in
201441 , with 5 % coming from social commerce42.
Some sectors are less relying on e-commerce for
their sales. Online sales for FMCG companies, for
instance, represents only 2 % of their revenue in
201445. However, the internet plays an important
role in the sales for these sectors too, acting as
a critical medium for retailers to advertise their
products to the consumers.
Digital brands, as CoolBlue or Zalando, also used
heavily traditional media like TV and radio to
advertise their products and attract consumers
on their websites.
Companies invested € 554 million in online
advertising in Belgium in 201446, from which
around 60 % are funded by foreign companies,
as Amazon or Cool Blue for instance47. However, a
large proportion of online advertising represents
a shift away from traditional channels, with
around 35 % of online advertising spend thought
to represent an increase in overall advertising
expenditure48.
75 % of Belgian e-consumers made a purchase
online during the last three months after
first having searched online. Moreover, 93 %
of shoppers’ buying decisions are influenced
by social media such as Facebook which are
sites that rely on advertising as an important
source of revenue43. Overall, internet search and
referrals account for around 80 % of all visits
to e-commerce sites by Belgian consumers, or
€ 3,2 billion in sales. We estimate that 35 % of
sales are incremental and not substitute from
other channels44, therefore estimating the net
economic benefits from search/referrals to
exceed € 1 billion.
While some consumers may choose to purchase
the advertised products online, the spend in
online advertising is estimated to generate an
economic benefit equivalent to € 145.4 million
through its effect on high street sales49.
Taking these factors together and excluding
those sales that would have occurred without
the internet, the incremental benefit is
estimated as € 1,145 billion per year. These sales generate a total economic valueadd for the Belgian economy, which captures
factors such as profits for Belgian businesses,
wages to Belgian employees and tax paid to the
Government.
McKinsey&Company (2011), ‘The Web’s € 100 billion surplus’, http://www.mckinsey.com/insights/media_entertainment/the_webs__and_8364100_billion_surplus.
Google, ‘The state of digital in Belgium’, 2014. - 41 Google, ‘The state of digital in Belgium’, 2014. - 42 Dentsu Aegis Network, ‘Media key facts, 2014’. - 43 Dentsu Aegis
Network, ‘Media key facts, 2014’. - 44 Comeos, ‘E-Commerce Belgium 2014’. - 45 UBA-GFK, ‘Mind the gap, Business barometer E-commerce 2014’. - 46 IAB Europe, “Europe
Ad EX benchmark 2014”. - 47 Google, ‘The state of digital in Belgium’, 2014. - 48 Derived from Zentner, A. (2010), ‘The effect of the internet on advertising expenditures:
An empirical analysis using a panel of countries’, SSRN. - 49 Based on Nielsen estimate of online ROI of 2.18. Nielsen (2009), ‘Is your marketing investment delivering
expected returns?’, October. In order to avoid double counting of e-commerce sales, the estimated effect is scaled down by the proportion of total sales that occur
online, approximately 14 %, based on figures quoted in ‘https://www.about-payments.com/newsroom/news/belgium-e-commerce-market-update---first-quarter-2015.
Sales are converted to economic benefit using multipliers and revenue/value-add ratios.
39
40
24
7. ADVERTISING ENABLES THE DIGITAL ECONOMY
ADVERTISING FINANCE
SOCIAL MEDIA AND
DIGITAL MEDIA.
25
8. ADVERTISING’S CONTRIBUTION CREATES SOCIAL AND ECONOMIC VALUE.
26
Advertising is used extensively by the government, the
not-for-profit sector and private sector corporations to
encourage positive behavioural change, resulting in
substantial social benefits, creating in turn real economic
value. Campaigns are often starting with the traditional
media and then are going viral through the different new
channels.
recruit and train 30 new volunteers. The experience
and the call to find new volunteer candidates were
included in all major media and on social networks.
In total, 585 people presented themselves as
candidate volunteers. The communication target of
250 candidates was exceeded by 134 %. In the end,
64 active volunteers have joined the team, so that
the business purpose (30 volunteers) was exceeded
by 110 %51. A scientific study showed that new
volunteers trained in Zelfmoordlijn 1813 can answer
more than 9000 additional calls and avoid about
203 attempted suicides and 33 suicides in Flanders52.
• In 2010, CAP 48, a Belgian charity that supports the
disabled people, launched an advertising campaign
based on a 1994 Wonderbra campaign. A simple
portrait picture where the disabled person was put
in a register where we least expect it: the beauty,
glamor and seduction. The aim was to raise additional
funds as well as more awareness amongst the public
and change their perception on the subject: “See the
person, not the disability”. The campaign went viral.
The budget of the campaign was less than € 100k
and the ad was published in 1 newspaper only, le
Soir. In total, the campaign received 43 minutes of
television or radio and visibility and more than 30
pages in print or online news, through 43 different
sources. Thanks to this advertising, the association
was able to raise over 4M € of funds for the first
time. This meant an increase of 11,7 % compared
to the previous year. Interesting enough is that the
numbers of donators did not increase as much as
the average donation (+12 % per person), suggesting
a higher degree of public awareness triggered a
higher individual contribution. Additionally, the
appreciation rate of the campaign exceeded 75 %50.
• Tobacco is the single largest cause of avoidable
death in the European Union (EU) accounting
for almost 700,000 deaths each year. One in four
(26 %) of all deaths from cancer in the EU is caused
by smoking, and smoking is responsible for 85 %
of lung cancer deaths across the EU. A campaign
was put together targeted to the 25-34 age group,
with the goal to support long-run motivation to
get rid of the addiction. The campaign philosophy
- “Ex-smokers are unstoppable” is an advertising
campaign, commissioned by the Directorate
General for Health and Food Safety (European
Commission). The campaign has been one of the
most successful European initiatives in terms of large
scale cooperation with entities outside of politics.
The campaign was communicated via different
channels: print, audio-visual and online. Total media
impressions rendered a reach of 19,354,142 in the
target 25 – 34 age group. The total reach across all
27 EU countries was 347,255,73053. By the end of
2013 there were more than 400,000 ex-smokers
registered on the iCoach platform, effectively
constituting the largest database of (soon to be)
ex-smokers in the world54. Lung cancer economic
weight in Europe is estimated to € 106.4 billion and
indirect costs of health spending due to respiratory
diseases attributable to tobacco are € 27.4 billion55.
• In 2013, the Flemish Centre for Suicide Prevention
(CPZ) had 80 volunteers working at the Zelfmoordlijn 1813, the suicide prevention telephone line
intervention in Flanders. These volunteers responded
to about 11.000 calls a year. However, thousands
of calls went unanswered because of a lack of
staff. In order to help more people, an ambitious
recruitment campaign was launched to be able to
Effie awards Belgium (2011), ‘CAP 48 Droit dans les yeux’. - 51 Effie awards Belgium (2015), ‘Would you answer this suicide call?’ - 52 Pil L., Pauwels K., Muijzers E., Portzky
G., Annemans L. (2013), ‘Cost-effectiveness of a helpline for suicide prevention’, Journal of Telemedicine and Telecare 2013. - 53 http://www.weforum.org/best-practices/
creative-good/ex-smokers-are-unstoppable-pan-europe - 54 Euro Effie award (2012), ‘Ex-smokers are unstoppable’. - 54 European Lung Foundation (ELF) & European
Respiratory Society (ERS), ‘La santé respiratoire en Europe, Faits et chiffres’, 2013. - 55 European Lung Foundation (ELF) & European Respiratory Society (ERS), ‘La santé
respiratoire en Europe, Faits et chiffres’, 2013.
50
27
8. ADVERTISING’S CONTRIBUTION CREATES SOCIAL AND ECONOMIC VALUE.
8. ADVERTISING’S CONTRIBUTION
CREATES SOCIAL AND
ECONOMIC VALUE.
BIBLIOGRAPHY
BIBLIOGRAPHY
28
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McKinsey&Company (2011), ‘The Web’s € 100 billion surplus’,
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July 2012.
Belga (2015), ‘Ryanair prévoit une croissance de 30 % de son
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Broadbent, S. (1997), Does Advertising Affect Market Size?,
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Cavusgil, S.T. and Zou, S. (1994), ‘Marketing strategyperformance relationship: an investigation of the empirical
link in export market ventures’, Journal of Marketing, Vol. 58,
No.1, pp. 1–21.
Nielsen (2009), ‘Is your marketing investment delivering
expected returns?’, October.
Chamberlin, E. (1933), The Theory of Monopolistic
Competition, Cambridge, MA: Harvard University, referred
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Pil L., Pauwels K., Muijzers E., Portzky G., Annemans L. (2013),
‘Cost-effectiveness of a helpline for suicide prevention’,
Journal of Telemedicine and Telecare 2013.
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be/menu.asp?id=11809&lng=nl.
CSA, ‘Bilan TV 2013’, http://www.csa.be/documents/2201.
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Deloitte, ‘Reinvent your business – Decoding the formula for
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Prof. Antoine F. and Prof. Heinderyckx F. (mars 2011), ‘Etat
des lieux des medias de l’information francophone’.
Dentsu Aegis Network, Media key facts 2014, http://insights.
mediaspecs.be/dossier/dentsu-aegis-network-key-facts.
Pr. Lazarro E. and Lowies J.-L., ‘Le poids économique des
Industries culturelles et créatives en Wallonie et à Bruxelles’,
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Effie awards Belgium (2011), ‘CAP 48 Droit dans les yeux’,
http://www.effiebelgium.be/fr/case_2011_cap48.html.
Raad voor de Reclame/ Deloitte (2013), “Analysis of the
economic impact of the advertising industry in Belgium”,
August, 2013.
Effie awards Belgium (2015), ‘Centrum ter preventie van
ZelfdodingZelfWould you answer this suicide call?’, http://
www.effiebelgium.be/fr/case_2015-zelfmoordlijn.html.
Raad voor de Reclame, ‘De economische rol van de reclame/
Le rôle économique de la publicité : La publicité, moteur de
la pluralité des médias’, intervention de Tacheny F., Journée
de la publicité 2006.
Effie award (2013), ‘Raffinerie Tirlemontoise/Tiense Suiker
– T-Man’, http://www.effiebelgium.be/fr/case_2013_tiensesuiker.html.
Rauch, F. (2011), ‘Advertising expenditure and consumer
prices’, CEP discussion paper 1073.
Erdem, T. et al. (2008), ‘The impact of advertising on
consumer price sensitivity in experience goods markets’.
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UBA-GFK, ‘Mind the gap, Business barometer E-commerce
2014’, http://www.ubabelgium.be/uba/view/nl/knowledge_
center/business_barometer_e-commerce_2014_uba-gfk.
Euro Effie award (2012), ‘Dictorate General Health and
consumers – Ex-smokers are unstoppable’.
European Lung Foundation (ELF) & European Respiratory
Society (ERS), ‘La santé respiratoire en Europe, Faits et
chiffres’, 2013.
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uba/view/fr/actualites/presentation_du_rapport_annuel_
uba_2014?year=2015, p.8.
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in het digitale tijdperk’, Academie jaar 2011-2012.
Google, The state of digital in Belgium, 2014.
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in the World’, http://www.gunnreport.com/.
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TV-kijken, Een positieve kijk op televisie in Vlaanderen’.
IAB Europe, “Europe Ad EX benchmark 2014”, http://www.
iab-community.be/iab-europe-adex-benchmark-europeanonline-advertising-market-records-new-high-e27-3bn/.
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warc.com/.
Institute of Practitioners of Advertising, Effectiveness Awards
(2009), ‘Danone Activia: How a little bit of T.L.C. made a
market leader’ http://www.ipaeffectivenessawards.co.uk/
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Zentner, A. (2010), ‘The effect of the internet on advertising
expenditures: An empirical analysis using a panel of
countries’, SSRN.
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industry’, in Transportation Economics, NBER. http://www.
nber.org/chapters/c7053.pdfLotus Bakeries, annual report
2014.
Zou, S. and Zhao, S. (2003), ‘The effect of export marketing
capabilities on export performance: an investigation of
Chinese exporters’, Journal of International Marketing, Vol.
11,No. 4, pp. 32–55.
29
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Alderighi, M. et al. (2004), The Entry of Low-Cost
Airlines, Tinbergen Institute, http://www.tinbergen.nl/
discussionpapers/04074.pdf.
BIJLAGE A
APPENDIX A
This appendix presents the details of the econometric estimation carried out
in order to assess the impact of advertising on GDP.
30
Bank’s World Development Indicators57, and
supplemented by data from the International
Labour Organization (LABORSTA). Table 1
outlines the data.
The objective of this section of the analysis is to
assess the aggregate impact of advertising on
GDP.
The panel covers 14 EU countries, including
Belgium, and spans a 17-year period from 1998
to 2014. The sample comprises on EU countries
which are members of the OECD and use the
Euro. By focusing on a relatively homogenous
sample of countries, the impact of unobserved
heterogeneity in minimised.58
THE DATASET EMPLOYED
The analysis uses panel data to estimate the
relationship between GDP and advertising.
GDP is measured as GDP per capita to control
for the effect of population size across different
countries. The main explanatory variable of
interest is advertising expenditure, measured
as total annual spending on advertising. Other
variables determining GDP per capita (e.g. capital
investment, level of government spending and
international trade) are controlled for.
Countries
Austria, Belgium, Estonia, Finland, France, Germany,
Greece, Ireland, Italy, Netherlands, Portugal,
Slovak Republic, Slovenia, Spain
Data on advertising expenditure was collected
from WARC. 56 Data on GDP per capita and other
control variables were collated from the World
Table 2: List of countries included in the analysis of
advertising and GDP
Variables
Description
Source
GDP per capita
Real GDP per capita
(2005 constant price)
World Bank World
Development Indicators
Trade/GDP
Annual trade volume as
a share of GDP
World Bank World
Development Indicators
Investment/GDP
Annual share of aggregate investment
(measured by gross capital formation) to GDP
World Bank World
Development Indicators
GovExp/GDP
Annual government consumption expenditure
for goods and services as a share of GDP
World Bank World
Development Indicators
Advertising Expenditure
Annual advertising expenditure
WARC
Total hours worked
Annual average hours worked multiplied by
the total labour force in the economy
ILO/KILM/LABORSTA and
World Bank World Development
Indicators
Table 1: Data Description
Available from http://www.warc.com/. cannot be measured.
56
57
Available from: http://data.worldbank.org/indicator. -
31
58
Unobserved heterogeneity refers to variation across countries that
BIJLAGE A
ADVERTISING AND ECONOMIC GROWTH
APPENDIX A
THE MODEL
The model adopted in this study is based on
work carried out by Aiginger and Falk (2015).59
The authors investigated determinants of
economic growth using an OECD data over the
period 1960-2002. The panel used in the present
analysis focuses on 14 EU countries that are in
the OECD, thus displaying some overlap with
the panel used by Aiginger and Falk’s paper. The
final specification used in this study is broadly
similar to that used by Aiginger and Falk, with
some variations due to data availability or
correlation between explanatory variables.
The Aiginger and Falk paper was supplemented
by advanced literature from the mobile
Information and Communication Technologies
sector, such as those of Andrianaivo and Kpodar
(2011)60 and Lee, Levendis and Gutierrez (2009).61
These papers adopt a standard economic
growth model using a sample of 44 African
countries over the periods 1988-2007 and 19752006, respectively. The approach to testing
and quantifying the impact on of advertising
builds directly on this literature by including
advertising as an additional potential driver of
economic growth.
The model specification adopted takes the following form:
log GDP per capitai,t = β0 + β1 log GDP per capitai,t-1 + β2 log AdvExpi,t + χ’i,t0 + ytYeart + αt + εt + λεi,t-1
Where x’i,t represents explanatory variables derived from existing literature:
Log TotalHoursWorkedi,t
GovExp
Log
Log
Log
GDPi,t
Trade
GDPi,t
Investment
GDPi,t
ytYeart represents yearly dummy variables in the dataset (excluding the base year), subscript
i indicates country while subscript t denotes year. The error term αt and εt are assumed to be
independently and identically distributed over i and t .
Aiginger, K. and Falk, M. (2005), ‘Explaining differences in economic growth among OECD countries’, Empirica Vol.32, pp.19-43 - 60 Andrianaivo, M. and Kpodar,
K. (2011), ‘ICT, financial inclusion, and growth: Evidence from African countries’, IMF Working Papers, 11/73, pp.1-45 - 61 Lee, S.H., Levendis, J. and Gutierrez. L (2009),
‘Telecommunications and economic growth: An empirical analysis of sub-Saharan Africa.’ Available from SSRN: http://ssrn.com/abstract=1567703
59
32
APPENDIX A
The dependent variable on the left-hand
side of the estimation equation is GDP per
capita, deflated at constant 2005 prices. It is
expressed as a function of one period lag of
real GDP per capita. Note that an alternative
specification to the form used here would have
been to estimate the model in growth rates.
However, the postulated impact of advertising
is transformational and gradual. The dynamic
panel data specification used here better
reflects the nature of the effect advertising is
thought to have.
Including time-dummy variables addresses
these factors and mitigates the potential for
inconsistent estimates that would result from
omitted variable bias. Whilst it would not be
possible to identify the impacts of separate
time-varying variables together with the timefixed dummy variables, this is certainly not the
case for variables that are country-specific, such
as those currently included in the model. Hence,
including time dummies leads to consistent
estimates in the case of common omitted
variables.
The
right-hand-side
variables
comprise
advertising expenditure and a set of
determinants of growth. These include: total
hours worked, government expenditure as a
share of GDP, trade volumes as a share of GDP,
aggregate investment and one-period lag of
aggregate investment as a share of GDP. All
variables are in natural logs and the model
allows for first-order moving average serial
correlation in the errors.
In addition, the trended nature of key variables
was controlled for by making the following
adjustments:
• The data used for the analysis is inflation-free.
Real GDP per capita figures were used and
Purchasing Power Parity adjusted constant
dollar advertising expenditure are used;
• Natural logarithm is applied to all variables in
the event of outliers which GDP per capita is
known to be prone to.
Time-dummy variables are included in the
model in order to capture the possibility that
the model excludes variables that vary over
time (but not by country), world trade being
an example. If one or more of these variables
are correlated with the included regressors,
the parameter estimates will be inconsistent
(i.e. the regressors will then be endogenous).
The analysis was approached using generalto-specific modelling. This involved first
running a specification including all possible
explanatory variables and then testing down to
a parsimonious model by removing insignificant
explanatory variables.
62
The model follows a ‘reduced form’ approach instead of building a macroeconomic system of equations to understand the impact of advertising on particular
variables. The model draws on the literature on economic growth to explain GDP as a function of a number of variables and investigates whether the advertising
variable is a useful additional explanatory factor in the model. - 63 Arellano, M. and Bover, O.(1995), ‘Another look at the instrumental variables estimation of errorcomponents models’, Journal of Econometrics, Vol.68, No.1, pp. 29-51. Blundell, R. and Bond, S. (1998), ‘Initial conditions and moment restrictions in dynamic panel data
models’, Journal of Econometrics, 87(1), pp. 115-43. - 64 Baum, Christopher, F. (2013), ‘Dynamic Panel Data Estimators’. Available at: http://fmwww.bc.edu/EC-C/S2013/823/
EC823.S2013.nn05.slides.pdf.
33
APPENDIX A
rather than across individual units’ errors is
assumed.64
The impact of advertising on GDP per capita is
complicated by the likely existence of reverse
causality: higher levels of advertising are
expected to lead to higher GDP per capita; at
the same time, countries with higher GDP tend
to have more dynamic market economies with
more innovative firms and a greater market
for advertising. Higher GDP per capita may be
expected to be associated with firms increasing
advertising expenditure in order to capture a
share of the larger market.
The estimator used was the system Generalised
Method of Moments estimator, developed by
Arellano-Bover/Blundell-Bond. In order to carry
out the analysis, some assumptions are imposed
on the dependent and explanatory variables. GDP
per capita is assumed to be contemporaneously
endogenous, that is, correlated with current and
past realisations of the error term. This implies that
E (GDP per capitai,t, εi,t) = 0 only for s > t. Advertising
expenditure and trade are assumed to be
pre-determined, that is, correlated with past
realisations of the error term but uncorrelated
with contemporaneous and future realisations of
the error term: E ( χ’i,t, εi,t) = 0 only for s ≥ t.
The issue of reverse causality between advertising
expenditure increases and economic growth
is addressed by specifying a dynamic panel
data model and estimating the parameters
using the Generalized Method of Moments
(GMM) techniques developed by Arellano and
Bover (1995) and Blundell and Bond (1998). This
technique uses instruments to provide consistent
estimates of the model parameters and allows
for the inclusion of a lagged dependent variable
to accommodate the decay-effects of increased
levels of advertising on future economic growth
(GDP). Standard panel data estimators such as
the fixed or random effects methods will be
inconsistent if advertising is endogenous. This
will be further compounded due to the lagged
dependent variable which is correlated with
the country-specific effect by construction. The
system GMM methods allow for these issues.
This approach is an estimator designed for
situations with: ‘small T, large N’ panels where
heteroskedasticity and autocorrelation within
34
APPENDIX A
THE RESULTS
Log(GDP per capita)i,t
Coefficiënt
Standaard Deviation
log(GDP per capita)i,t-1
.7775446***
.0707077
log(AdvExp)i,t
.0382075*
.022434
log(GovExp/GDP)i,t
-.3321803***
.107
log(Investment/GDP)i,t
.129797***
.017917
log(Investment/GDP)i,t-1
-.0751842**
.0374164
log(Trade/GDP)i,t
.1551706***
.0383328
* p < 0,10; ** p < 0,05; *** p < 0,01
log(TotalHoursWorked)i,t
Table 3: Arellano-Bond
estimation
.0662549
Table 3 summarises the results from the
Year dummies
included
Arellano-Bond
estimation. It shows that a 1 %
N=277
increase in advertising expenditure leads to an
approximately 0.04 % increase in GDP per capita
in the same year. The inclusion of the lagged
dependent variable allows for dynamics. Thus,
it is possible to postulate that an increase in
advertising expenditure in a given year supports
a higher GDP in future periods.
.0812875
This increase in GDP per capita in the current
period will result in higher GDP -per capita in the
following and subsequent periods as the lagged
dependent variable is shown to be significant
at 1 %. Theoretically, this effect takes place over
a large number of years. However, due to the
various other variables that could affect GDP per
capita, this study has estimated a 10-year impact
in the interests of prudence. The 10-year effect
of a 1 % increase in advertising expenditure is a
0.161 % increase in the long-run level of GDP.65
65
As with any econometric estimation, the model measures the economic impact of marginal changes in the amount of advertising, across the countries and time
periods in the dataset. The magnitude of the economic impact could be different with large changes in the amount of advertising within a country, such as sustained
increases in advertising over time that raise advertising intensity significantly beyond the levels observed within the dataset. - 66 Economic performance and
government size’, Working Paper Series No.1399, November 2011, European Central Bank – http://www.ecb.int/pub/pdf/acpwpa/ecbwp1399.pdf.
35
APPENDIX A
The Arellano-Bond test for serial correlation of
the error term , reported below shows that it is
not possible to reject the null hypothesis of no
serial correlation of both order 1 and order 2 in
the errors at 1 % significance level, implying that
the error term is not serially correlated.
With the exception of the log of hours worked,
the remaining variables are significant. The
negative coefficient of natural log of government
spending as a percentage of GDP is supported
by a variety of economic literature, in line with
the view that larger government spending
might crowd out private investment which
arguably allocates resources more efficiently.
Thus, a larger government is viewed to have a
negative impact on GDP per capita, including
a recent finding by the European Central Bank:
‘The model results show a significant negative
effect of the size of government on growth.66
Arellano Bond test for serial correlation
Arellano-Bond test for zero autocorrelation
in first-differenced errors
The positive coefficients on investment as a
share of GDP and trade as a share of GDP are
in line with economic theory, suggesting that
higher investment and higher trade openness
result in higher GDP in the immediate term.
The negative coefficient on the lagged value
of investment of GDP could be explained by
variation of business cycle.
Order
z
Prob>z
1
-2.23
0.026
2
-1.19
0.233
H0: No autocorrelation
Table 5: Arellano Bond test for serial correlation
Finally, in order to test the robustness of the
advertising coefficient, the regression was run
on a variation of specifications and subsets of
the data, with robust standard errors implied.
The coefficient remained within the range of
0.03 to 0.08 across these specifications and
samples, signifying a very small variation. The
subsets included:
DIAGNOSTIC TESTS
Details of the post-estimation diagnostic tests
supporting the choice of the instrumental
variables employed in the estimation are
summarised in this section.
• Testing on all OECD countries;
The first test (Table 4) determines whether the
instruments are valid by investigating whether
the moment conditions differ significantly
from zero. This assumption is necessary for
the estimator to be consistent. The test is not
rejected at the 1 % significance level, suggesting
that the instruments are valid.
• Testing on various subsets of years – excluding
years at the top end and bottom end of the
dataset, and various combinations;
• Testing on different specifications
instrumental variables used.
Sargan test of over-identifying restrictions
Ho: over-identifying restrictions are valid
Chi2(36)=52.33
Prob > chi2 = 0.038
Table 4: Sargan test of over-identifying restrictions
66
Economic performance and government size’, Working Paper Series No.1399, November 2011, European Central Bank – http://www.ecb.int/pub/pdf/acpwpa/
ecbwp1399.pdf.
36
of
APPENDIX A
OTHER FINDINGS
Deloitte have compared this result with other
findings in the literature.
• A 2011 Deloitte study found that £1 spend on
advertising in the UK generated £6 across the
economy;
• A 2012 McKinsy study focusing on difital
advertising found that digital adveritsing
contributed 10 % to economic growth in the
G20 countries from 2008 to 2010;
• Kopf, Torres and Enomoto (2011) find that a
100 % increase in the advertising to GDP
ratio is associated with 5.6 % increase in GDP
growth;
• Molinari and Turino (2009) find that a 100 %
increase in per capita adspend is associated
with 0.5 % increase in GDP per capita.
Note that because these studies use different
specifications, these examples do not constitute
like-for-like comparisons. Nevertheless, it
would appear that a multiplier of € 1 to € 5 is
reasonable.
37
APPENDIX B
APPENDIX B
38
• employed in the advertising agencies; and
Additionally, thanks to the linkage of the supplychain between industries, the revenues generated
in the advertising industry can ripple through the
economy and support additional jobs.
• Employed in the media centres that provide
advertising space on various channels;
In addition to these jobs, the economic impact
analysis estimate the number of employees
involved in the commissioning of advertisements,
and the number of jobs that are supported by
the revenues from the sale of advertisement, for
2.1 CALCULATING THE EMPLOYMENT SUPPORTED BY ADVERTISING REVENUE
CHANNELS / MEDIA
SECTORS
Cinema
Television
Press
Out of home
Radio
Internet
Source: Deloitte analysis.
Divide
Total advertising
revenues by sector
Revenue figures
received from RVDR
/
Estimates labour
productivity
=
Estimated average
revenues per
employee by sector
Figure 2: General approach on direct employment effect
39
Direct
employment
effects
Total number of jobs
directly supported by
the advertising
revenues
APPENDIX B
example, the persons employed to distribute
the direct mailshots or those employed by addependent local newspapers.
Existing estimates from RVDR/Deloitte report
captures the total number of persons who are:
APPENDIX B
Direct employment impact is estimated from
the advertising revenue and average labour
productivity by channel. The advertising revenue
by sector is taken from the RVDR expenditure
report.67 The average labour productivity is
measured in terms of the average revenues
generated per employee in the media sector. It
is estimated by using Eurostat data, total output
divided by total employment by sector. Dividing
the total advertising revenues by average revenues
per employee gives the estimated number of jobs
required to generate the amount of revenues in
the sector.
Media sector/ Channel
Total Advertising
Expenditure in Belgium 2014
(€ ’000)
Estimated direct
employment
(Jobs)
Cinema
€ 37.833
165
Internet
€ 237.341
1.064
Out of Home
€ 324.642
649
Press
€ 1.192.225
4.951
Radio
€ 521.960
2.277
Television
€ 1.450.342
6.836
Overall
€ 3.764.344
15.942
Source: Eurostat, RVDR, Deloitte analysis. Note: Numbers may not add up due to rounding.
Table 3: Employment from advertising expenditure 2014
67
De WARC-databank geeft ook de gegevens over de reclame-uitgaven per sector en die cijfers lagen grotendeels in de lijn van de cijfers van de RVDR.
40
The main determinants of the size of the indirect
and induced impacts are the:
The next step of the employment estimate is the
indirect and induced impact, which considers
how the advertising revenue above generates
wider employment across the economy.
• Strength of supply chain of the economy:
The stronger the supply chain, the more
the inputs sourced from other parts of the
economy, which leads to greater recycling of
the initial spend and therefore to a stronger
amplification of the direct economic impact.
The Eurostat Input-Output (I-O) tables trace
the interdependences between industries and
the rest of the economy. It is possible to drive
from the I-O tables multipliers that summarise
the relationship between employment in
a specific industry and wider employment
across the economy as a result of the industry
interdependences.
• Households’ marginal propensity to consume:
The more the household consumption, the
higher the consumption channelled to the
economy, which leads to higher induced and
indirect effects.
The Indirect impact is the economic effect
generated in the supply-chain for the
businesses which supply goods and services to
the advertisers.
• Leakages of economic activity out of the
economy: The more businesses’ profits and
consumer consumption exiting the national
economy each time when funds are re-spent,
the lower the income that is recycled in the
local economy
Induced impact is the economic impact
which arises from expenditure by the persons
who works in the advertising agencies or the
suppliers in the supply-chain. This impact is
created through wages paid to employees by
businesses, i.e. advertisers and their suppliers
being spent in the economy.
The indirect and induced impacts are estimated
by multiplying the direct economic impact by a
factor, the “multiplier”, to reflect how the initial
spending ripples through the economy and by
applying value added ratios.68
68
Multipliers of Belgian economies are derived using standard I-O analysis approach, with data extracted from Eurostat.
41
APPENDIX B
2.2 CALCULATING THE EMPLOYMENT THROUGH SUPPLY CHAIN AND EMPLOYEE
CONSUMPTIONS
APPENDIX B
Media sector/
Channel
Estimated
direct
employment
(Jobs)
Estimated
Indirect and
Induced
employment
(Jobs)
Total
employment
(Jobs)
Indirect and
Induced
Multiplier
(Type II)
Cinema
165
318
483
2,93
Internet
1.064
2.174
3.238
3,04
Out of home
649
1.621
2.270
3,50
Press
4.951
10.801
15.752
3,18
Radio
2.277
4.392
6.669
2,93
Televison
6.836
11.995
18.831
2,75
Overall
15.942
31.301
47.244
Source: Eurostat, RVDR, Deloitte analysis. ^Note: Numbers may not add up due to rounding.
Table 2: Wider employment supported through indirect and induced effects
2.3 POTENTIAL OVERLAP OF EMPLOYMENT ESTIMATE
The analysis on the jobs supported by advertising revenues has been designed to complement the existing estimates by RVDR and UBA.
However, the data on advertising spend has included the advertising agencies commissions,
so there may be a degree of double counting
of the jobs in the advertising agencies. As estimated by RVDR, the number of agency jobs is
around 1,400, which is not considered significant in the context of total number of jobs.
42
43
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