Digital Advertising in Thailand: 5 Key Takeaways from the DAAT Mid-Year Report 2020
The Digital Advertising Association of Thailand (DAAT) recently published the mid-year 2020 edition of its Thailand Digital Advertising Spend Report.
The report, which is a joint publication between DAAT and market research firm Kantar, aggregates spending data from 42 of Thailand’s leading advertising agencies & combines it with analysis from senior industry leaders.
The mid-year 2020 edition is of particular interest because it provides the first data-driven assessment of the impact the COVID-19 pandemic on the Thai advertising industry.
That was reason enough for me to give the report particular attention and share my personal analysis in this post.
Keep reading for:
- 5 key takeaways from the mid-year report
- Rallying cry why the digital advertising sector will lead and facilitate Thailand’s economic recovery in 2021 & beyond
All screenshots shared in this article are taken from the free version.
5 Key Takeaways
#1: “Zero” growth year demonstrates the resilience of digital advertising despite historic GDP decline
The last report published at the end of 2019 projected digital ad spend to grow by 13% year-on-year in 2020. The mid-2020 edition of the report adjusts this forecast to a marginal growth of 0.3% due to the impact of the COVID-19 pandemic.
Thailand is entering a recession — Q2 GDP declined by 12.2% year-on-year and 9.7% quarter-on-quarter — which has obvious trickle-down effects on advertising budgets.
Given the historic magnitude of the economic downturn — the 12.2% dip is the steepest GDP decline since the Asian Financial Crisis in 1998 — it seems surprising that there is still modest growth expected for advertising spend in 2020.
Why is it that the digital advertising sector is relatively resilient compared to the overall economy?
Two reasons come to mind.
Reason 1: Industries are impacted in different ways with some increasing digital ad spend to capture opportunity and others decreasing digital ad spend to cut costs
The pandemic impacted industries in different ways, which also reflects in the digital advertising spend data & forecast of the DAAT report:
- Demand slowdown: Some industries suffer from a demand slowdown due to changes in consumer behavior, leading to a corresponding decrease in advertising spending
- Demand increase: Some industries experience a demand increase due to the pandemic, leading to an increase in ad spending
- Change of business model: Some industries need to rethink their business model as their offline distribution channels became unavailable or less popular, spearheading the overall digitalization of their business and leading to an corresponding increase in digital ad spending
In sum, industries that increased their digital spending to capture increased demand or shift their business model are major growth drivers of digital ad spend while industries that decrease their ad spend due to a demand slowdown were major growth draggers of digital ad spend.
The major growth draggers are 4 of the 10 largest digital spenders (motor vehicles, banks, insurance, real estate) who heavily reduced their digital ad spend due to the impact of the pandemic on their business (more on that in key takeaway #2). These 4 industries that make up a joint 23% of the total 2020 forecasted digital ad spend are expected to collectively decrease their ad spend in 2020 by THB 771 million year-on-year vs. 2019.
Major growth drivers in terms of year-on-year growth are non-alcoholic beverages (+29%), dairy (+39%), snack foods (+13%) & communications (+10%) — all of which benefit from an increase in demand due to changes in consumer lifestyles that include more time spend at home and a greater focus on essentials, among others.
Surprisingly, even retail is a growth driver (+5%), as retailers are forced to digitize their business model and increase their focus on e-commerce due to changing consumer preferences & the lockdown period.
Reason 2: Budgets are shifted from offline to online channels as digital spend is growing 0.3% while overall media spend drops by 20.9%
Another major factor that holds true across industries and significantly helps to stabilize digital ad spend by acting as a growth driver is the shifting of ad budgets from offline to online channels.
As consumers spend more time at home & companies become increasingly cost conscious, the focus shifts more and more towards digital advertising.
Data published by Media Intelligence in the Bangkok Post provides evidence for this claim: Whereas DAAT predicts modest 0.3% growth for digital spend, overall media spend is expected to decrease by 20.9% year-on-year with TV and out-of-home spend plummeting by 24% and 23% respectively.
Both reasons together help to explain the relative resilience of digital advertising spend despite overall economic decline.
#2 Consumers prioritize short-term essentials over long-term commitments or benefits, which is reflected in ad spend industry trends
Common sense dictates the following:
Economic situation influences consumer behavior, which leads to in- or decreasing demand for specific products & services. Companies respond to these changes in demand by adjusting their digital ad spend up- or downwards to capture opportunity or decrease costs.
If the above holds true then digital ad spend data from the mid-year report should help to explain how consumer behavior & demand changed due to the pandemic.
One consistent pattern that emerges from the data is the decline in ad spend for industries whose products/services involve long-term commitments or benefits:
- Motor vehicles (-8% year-on-year forecast), loans and credit cards (e.g. banking, -30%), and real estate (-10%) require long-term commitment
- Insurance (-9%) requires upfront payment of often high premiums for long-term benefits
As economic uncertainty still looms and unemployment is at twice the usual rate and at the highest level since 2009, many Thais are likely to remain concerned about financial stability and as consequence hesitate to make long-term commitments for big ticket purchases, such as buying a car, which often also entails taking on large and long-term debt.
On the flipside, digital ad spend is increasing in industries whose products can be considered essentials and provide immediate benefits:
- Communications (+10%) is becoming more essential as people reduce travel and work-home arrangements become more common
- Non-alcoholic beverages (+29%), dairy products (+39%), snack foods (+13%) are all essential staples of daily life that become even more important as people spend more time at home
These ad spend trends are in-line with user behavior insights shared by Kantar during a webinar on “Social Distancing: Understanding the Impact of COVID-19 to Branding, Media, and Commerce”:
These ad spend trends also reflect overall industry performance of the respective industry as the following examples illustrate:
- Automotive: Car sales in July were down for a 14th consecutive month with a year-on-year sales drop of 24.8% vs. July 2019. The Thai government is actively working on a trade-in coupon scheme that aims to stimulate demand, with a particular eye on the approximately 3 million registered cars that are older than 15 years
- Real Estate: According to CBRE, fewer than 10,000 condominium units were launched in Bangkok in the first half of 2020, compared to 60,000 per year in the previous three years. The amount & creativity of promotions by developers suggest that it is difficult to find buyers in current market conditions. Another potential bombshell that could rock send shockwaves through the industry is the concern about the over 140,000 condominium units waiting to be transferred within the next two years & the possibility that buyers could back out-and not transfer their units, further flooding the volatile market with inventory.
- Communications: Thai Telco AIS reported a 4.1% year-on-year drop in revenue in Q2. While its telecom businesses declined due to the absence of tourists and the shutdown of its stores, the company witnessed an uptake in demand for its home broadband services due to the pandemic. Also, the company is heavily advertising its upcoming 5G launch with a massive marketing campaign.
As a side note, there are definitely other factors that contribute to the increase or decline of ad spend in individual industries but there is clearly an overall pattern that shows growth for short-term essentials & decline for long-term commitments.
#3: Banking is the category with the largest spending decline which also helps to at least partially explain the decline in real estate & automotive ad spending
Here are some excerpts from a Bangkok Post article about the impact of the pandemic on Thailand’s banking sector:
- Banks in Thailand must shore up capital buffers to prepare themselves for an increase in non-performing loans (NPLs) due to the pandemic
- Banks are expected to further tighten loan approval amid falling profit margins and rising bad loans
- The managing director of SET-listed developer Property Perfect Plc, said a stricter mortgage loan rule has been one of the key concerns among property developers since last year: the mortgage loan rejection rate of customers has risen by double to 30–35% from 15–20% earlier
Given this context, it makes absolute sense that banks decrease their digital ad spending as they focus on preserving liquidity & avoid further exposure to bad debt.
Furthermore, the tightening of loan approval has trickle down effects on sectors where purchases are largely financed by debt. The Property Perfect Plc example illustrates that the tightening of loan approval is likely to also be partially responsible for the decline of ad spend on motor vehicles (-8%) and real estate (-10%).
#4 Companies adjust their digital strategies & focus their digital spend on disciplines that generate short-term returns
As companies get increasingly cost-conscious & focus on generating returns they are “cutting away the fat” by focussing their spending on disciplines that are most effective & cheapest at driving conversion.
As a consequence, spending on display fell by 30% whereas search and social, which are more effective at driving conversion, increased by 26% and 32% respectively.
#5: The new kid(s) on the block: TikTok
The “Other” category of disciplines in the DAAT report grew by 53% year-on-year, mostly due to the emergence of TikTok. During the lockdown period, TikTok was omnipresent with platform’s daily active users in Thailand increasing by 45% from January to April, according to TikTok Thailand.
It comes as no surprise that the TikTok hype, particularly with younger audiences, also attracted more and more advertisers onto the platform. As the TikTok is relatively young and its advertising solutions are less developed compared to the incumbent platform it can be expected that, with increasing maturity of TikTok’s advertising solutions, the platform will continue to attract more advertising spend. Unless the hype dies down, it seems certain that TikTok will outgrow the “Others” category in the next DAAT report.
Looking towards 2021: Digital advertising will lead Thailand’s economic recovery
The DAAT mid-year 2020 report provides proof: In comparison to the overall economy, the digital advertising sector has proven its resilience and fared relatively well through the pandemic to date.
Looking towards economic recovery, I firmly believe that the digital advertising sector is uniquely positioned to be one of the sectors that leads & facilitates the economic recovery of the country for three main reasons:
Reason 1: Consumer behavior changes will become permanent
The DAAT report mentions that 63% of Thai consumers are planning to stick to the behaviors they adopted during lockdown, indicating that many consumer behavior changes will become the norm. As a consequence, companies will have to adapt to new consumer preferences. Some of these behaviors like online shopping, increased online media consumption, and more time spent working from home will fuel the growth of digital ad spend as the need for and potency of digital advertisement will surge.
Reason 2: Companies will get used to the measurability & effectiveness of digital advertisement
As mentioned previously, digital ad spend is forecasted to moderately grow this year whereas overall media spend is set to decline by 20.9%. This means that the share of digital as percentage of overall media and marketing spend will increase. With an increased share of digital, companies will benefit from increased measurability of their returns on ad spend compared to other traditional media, such as TV or billboards. It does not seem too far-fetched to assume that brands will get used to the measurability of digital and over time marketing managers will use demonstrated ROI to lobby for more digital budget. All in all, the push towards digital unleashed by COVID-19 looks irreversible and it seems likely that this momentum will enable digital ad spend to overtake TV ad spend within the next 5 years.
Reason 3: It will be a long and painful road towards recovery & cost-consciousness will prevail
Given the magnitude of economic impact of the pandemic and lingering uncertainty, it seems likely that companies will not return to “normal” anytime soon & relative austerity vs. pre-pandemic behavior will prevail. With companies remaining cost-conscious, the measurability of returns generated by digital advertising will be a strong selling point to convince businesses to further scale their investment into digital channels.
From 2013 to 2019, digital ad spend steadily grew as percentage of overall media spending. Proving its resilience in 2020 while media overall media spending declined, digital advertising now looks set to continue on its growth trajectory & become the dominant contributor to Thai media spending over the following years.