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The CEO of the Interactive Advertising Bureau says most big marketers are screwed

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  • Big marketers are facing a crisis, according to Randall
    Rothenberg, president and CEO of the Interactive Advertising
  • Small and mid-sized brands, driven by data and digital
    marketing, are throttling growth for nearly every major
    consumer category.
  • Giants like Procter & Gamble and Unilever once had
    huge advantages in owning their own supply chains and shelf
    space in national retailers. Now those advantages are
  • These companies need to shift their models to
    direct-to-consumer businesses ASAP or risk being
  • Traditional media companies also need to adapt quickly
    to this new reality or they’ll get left behind.

Every industry is under attack from upstarts. Most big companies
aren’t prepared for a new tech and data-driven economy. Consumers
don’t care about big brands and are tuning out traditional

In a nutshell, traditional marketers are screwed. And traditional
media companies aren’t much better off. It’s all Warby Parker’s

These are just some of the stark takeaways being presented by
Randall Rothenberg, CEO and president of the Interactive
Advertising Bureau, which is hosting its annual
leadership event this week in Palm Springs, California.

Rothenberg plans to warn attendees that the marketing and media
industries are in the midst of tectonic change, the likes of
which has not been seen since the industrial revolution rocked
the US agriculture economy more than a century ago. Yes, the
situation is that dire, he said.

In fact, the IAB’s new research report, The Rise of the
21st Century Brand, opens with the cheery 
“Brand Growth in Crisis.”

The big takeaway from Rothenberg’s speech is that basically every
single condition and dynamic that traditional marketing companies
had been able to count on to protect their dominance over the
past several decades has been upended.

Take the much-celebrated Warby Parker.
It’s built a huge
business by cutting out expensive distribution and marketing
costs, and selling glasses directly to consumers for way cheaper
than they’ve been used to at incumbents like Lenscrafters.
Rothenberg’s point is that there are Warby Parker’s in every

Warby ParkerBusiness

There are Warby Parkers and Caspers everywhere

Indeed, this new breed of marketers don’t own their own supply
chains, or raw materials or shelf space. They don’t need to.

An out of nowhere cosmetics company (like
) or
frozen food maker
or specialized craftsman can make goods
without having to own a factories or trucking routes, or needing
to hire a giant ad agency and buy massive media campaigns. They
don’t have to get shelf space at Wal-mart either.

They can sell to people on Instagram for a fraction of what
marketing used to cost. And they can collect data on these
consumers, track what they buy, what they love and hate about the
experience, and market to them directly much more effectively.

It’s the direct consumer relationships, and the use of consumer
data, that is completely game-changing for the marketing world.
And most big marketers, such as Procter & Gamble and
Unilever, are not ready for this new reality, the IAB says.

Putting it all together

In a lot of ways, this sentiment won’t be a huge surprise to many
in the ad industry. They’ve seen ad conference darlings like
Casper and Warby Parker make inroads in their respective
industries. Their heads turned when consumer product giant
Unilever spent $1
billion in 2016 for Dollar Shave Club
, and when
an activist
investor took on Procter & Gamble
for moving too slowly –
in its eyes – to adjust to these new realities.

And of course, the ongoing retail Apocalypse – exemplified by
American brands like Sears
– is of top of mind for most

What the IAB is attempting with this report is to quantify these
changes, and put them in context. And what the trade group found
is that the upstart direct brands phenomenon is carving up nearly
every traditional ad category, and collectively is impacting the

“We pulled together a lot of
things that are staring everyone in the face, and we backed that
up with lots of data,” Rothenberg told Business Insider.

Randall Rothenberg headshot IAB
president/CEO Randall Rothenberg


For example, the IAB report shows that outside of health care and
technology, few Fortune 500 companies are growing. For example:

  • the 45 retailers in this category grew just 2.1% from 2014
    through 2016.
  • Apparel companies grew just .5% during that time period.
  • Household products companies actually contracted by .3%

Keep in mind, all this has been happening as the US economy has
been hitting its stride.

To help bolster the IAB’s research, the organization worked with
Dun & Bradstreet, which has compiled a massive database
of 290 million business
 from the majority of commercial entitles in
the US. The two groups have put together “IAB 250 Powered by
Dun & Bradstreet,” which is essentially a compilation of the
250 most important brands driving this change – everything from
Wal-mart’s Jet.com to the subscription pet brand BarkBox to the
luggage startup Away Travel.

This list is very much the opposite of the
Ad Age 200
, which traditionally compiles the list of biggest
spending advertisers, such as P&G, General Motors, Pepsi and

“We think we’re proving that the
center of growth is shifting permanently,” he said. “This is

asically as significant
as the change from the agrarian economy to

function you used to need to own you can get off shelf.”

Big brands are being nibbled to death

cosmetics brand Glossier built its name on


A perfect example of this point is Gillette

According to the IAB report,
Gillette’s share of the US men’s-razors business fell to 54% in
2016, from 70% in 2010. Dollar Shave Club and Harry’s combined US
share rose to 12.2%, from 7.2% in 2015.

Another good example is the pet
food category, which per the IAB is expected to grow 4.4% in
2018. Which isn’t bad. But upstarts like the subscription pet
product company The Farmers Dog is averaging 40-50% revenue
growth monthly, says the report.

This is happening everywhere,
said Rothenberg. 

recently as 1992, 96% of shopping happened in


9.4% was
happening on the web.

In 2016, small and medium-sized
consumer packaged goods manufacturers together represented 64% of
sales, up from 39% in 2015.

“Big brands are being nibbled to
death,” said Rothenberg.

like Procter & Gamble are being nibbled to


Rothenberg warned that too many
people in the marketing industry have treated companies like
Casper and Warby Parker as “really interesting curiosities,”
while not recognizing the collective impact these types of firms
have on industries. “

are representative of transcendent change for the consumer
economy itself,” he said. 

There’s only one thing big marketers can do

You might think that giant
marketers can easily strike back, given their deep pockets. But
many are actually strapped by their legacy businesses. For
example, owning stores, massive supply chains and logistics right
as people pull away from traditional in-store shopping is
actually a huge liability at the moment, Rothenberg

“There’s only strategy,” he said.
“Become direct.” Easier said that done. 38% of companies tracked
by the global intelligence firm International Data
Corporation are not selling direct to consumer at all, said the
IAB’s report.

Most are lagging,” said Rothenberg.

This has big implications for media companies. And it
could be bad news for TV

Given the massive changes hitting
consumer industries, selling attention – or loads of ad
impressions – matters a lot less than the old days of mass
marketing advertising. To help direct-to-consumer brands, media
companies that used to just sell ad space need to prove they can
help companies acquire customers.

That’s a big change.

Right now, driving customer acquisition is a strength for digital
media giants like Google and Facebook.
Not so much for network television
, which has long relied on
the biggest national advertisers, not the Glossiers or Caspers of
the world. A company like Dollar Shave Club built its name via a
cheap web
video ad
, not a slick TV commercial.

“You can’t rely on the top 250 brands anymore,” said Rothenberg.
“Media companies that do, they’re in trouble.”

like Dollar Shave Club rely less on traditional



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