Advertising Pays

How advertising fuels

the UK economy

Advertising Pays
How advertising fuels
the UK economy
Report by Deloitte LLP commissioned by the Advertising Association
Published by the Advertising Association, 7th Floor North, Artillery House, 11-19 Artillery Row, London SW1P 1RT

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Foreword

Contents
Foreword by Gavin Patterson, CEO, BT Retail and
President, Advertising Association

05

Executive Summary

08

1 Scope of this report

10

2 Advertising transforms our economy

12

3 Advertising makes markets work

3.1 Promotes innovation and differentiation
3.2 Drives price competition
3.3 Encourages market growth

16
18
20
23

4 Advertising funds media and the creative industries

26

5 Advertising spend supports a wide range of employment

28

6 Advertising supports exports

30

7 Advertising enables the digital economy

32

8 Advertisings social contribution has an economic value

34

Bibliography 36

by Gavin Patterson, CEO BT Retail and

President, Advertising Association
Instinctively, when you work in advertising you
understand its effects. Advertisers see at first hand
how it promotes competition, spurs innovation and
most importantly of all, in the current climate
connects businesses with their customers.

The reports scope is impressive and could not have

been embarked upon without the backing of industry.
Id like to thank the AAs membership for its support
and, in particular, the Front Foot group, without whom
this report would not have been possible.

But until now, those instincts have not been

backed up with facts and consequently, I believe,
advertisings potential to support growth is often
overlooked. This report was commissioned to
fill that void with an authority that goes way
beyond the instincts of ad-land it is founded
on independent analysis from one of the worlds
leading consultancy firms.

The implications for policy-makers are powerful

and compelling. If the task of government is to
seek out policies that can encourage and sustain
growth, then the time has come to look more
closely at advertising.

Deloittes conclusions are startling. Advertising

to quote the reports title is economic fuel. We
might think of it as oxygen in the economy not
just a successful industry in its own right but a
vital element in flourishing UK markets and our
successful media and creative sectors.

Appendices 39

04

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05

ADVERTISING PAYS

How advertising fuels the UK economy

#adpays
Sources: AA/Warc Expenditure Report; Deloitte

06

ADVERTISING PAYS How advertising fuels the UK economy

07

Executive Summary

On average, 1 of
advertising spend
generates 6 for the
economy. That means
the 16 billion spent on
UK advertising in 2011
generated 100 billion
in the UK economy.

Key findings
Annual advertising expenditures of 16 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 100 billion to UK GDP by
increasing the level of economic activity and increasing
the productivity of the economy.
The UK advertising industry has a strong international
reputation and since 2002 has won more awards
for its creativity than that of any other country, with
the exception of the US.1 Thanks to its international
reputation, UK advertising helps to export over
2 billion in advertising services each year. In addition,
successful advertising enables UK brands to enjoy
strong international recognition, enabling the UK to
export a much wider range of goods and services.
The advertising industry is central to the creative
industries.2 It provides a third of all TV revenues
and two-thirds of newspaper revenues; it supports
sectors from photography to film production. We
estimate that over 550,000 people work in jobs that
are funded by advertising revenues, or involved in the

08

commissioning, creation and production of advertising

across the relevant supply chains.
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.
Advertising enables businesses to deliver more
innovative and higher quality products and services.
It helps to match buyers and sellers more efficiently,
allowing firms with new ideas to succeed more quickly
and differentiate themselves through the quality of their
offer to consumers.
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 UKs
most popular websites are free at the point of use.

The UK would exceed the US if these figures were GDP weighted. Source: Advertising Association analysis of Gunn Report data.

Creative industries is used in this study as defined by DCMS in the Creative Industries Mapping Document 2001.

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 high-street sales
and contributing over 7 billion to the UK economy.
This report analyses each of the above impacts,
providing a perspective on the different ways in which
advertising supports the UK economy.
It also calculates the overall impact of advertising
on the economy based on a cross-country statistical
analysis covering 17 markets over 14 years.
This analysis shows how higher levels of advertising
spend increase GDP. Based on current expenditure,
advertising adds at least 100 billion to UK GDP
by raising the level of economic activity and
boosting productivity.
On average, 1 of advertising spend generates 6
for the economy. That means the 16 billion spent
on UK advertising in 2011 generated 100 billion in
the UK economy.

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09

Advertising informs,
entertains, persuades,
dissuades and helps to
enhance the perception
of value.

Scope of THIS report

Advertising informs, entertains, persuades,
dissuades and helps to enhance the perception of
value. Its effects stretch across the economy, with
roles ranging from an enabler of efficient markets to
a supporter of the creative industries.

Advertising is any paid-for

communication intended to
inform and/or influence one
or more people.3

Advertisings contribution to the UK economy is

often lost among narrower debates about the
industry. To help address this imbalance, the
Advertising Association commissioned Deloitte
to examine the economic impact of advertising
in the UK.

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 AA/Warc
expenditure data.4

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:

10

J.J.D. Bullmore in Bullmore, J.J.D. and Waterson, M.J. (eds) (1983), Advertising Association Handbook

[Link]

Limitations on the availability of data mean that

effects of related activity such as sponsorship
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:
a
 n 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
a
 n analysis of the employment provided by
expenditure on advertising. This covers roles
related to the commissioning, creation and
production of advertising content and roles that are
indirectly funded by the revenue from advertising.

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11

Advertising transforms our economy

Advertising fuels the economy
Advertising plays a central role in a market
economy. It provides vital information to consumers
on products and prices and makes it easier to bring
new innovations to market.

Information

Innovation and branding

Advertising helps consumers

compare products and prices

Advertising helps firms bring innovative

products and services to the market

It connects companies
and consumers

Through its role in building brands it helps

protect those innovations, stimulate
investment and build export markets

It informs choices

Market
expansion

Investment and
innovation

Competition

Unless a brand quickly achieves

adequate market share and this
is only possible through rigorous
promotion there is no way the
programme of innovation could
be afforded or financed. And, in
consequence, no way in which the
consumer could reap the benefits
of that innovation.
Sir Michael Perry
Former chairman of Unilever.5

Without advertising, markets as we know them

would cease to function. There would be less
innovation. Products and services we take for
granted would become more difficult to find and
more expensive to consume.
Advertising is so fundamental to every part of our
economy that it is very challenging to measure
its impact. One way to approach this question
is to look at how differences in the level of
advertising across countries contribute to
different levels of GDP.
In order to study this, Deloitte constructed a
model of 17 countries covering 14 years, ranging
from the G76 through to developing economies.
The model is designed to identify the main drivers
of GDP differences between countries and isolate
the role of advertising.

The 100 billion impact

12

Quoted in Boyfield, K. (2002), The Effects of Advertising on Innovation, Quality and Consumer Choice, The Advertising Association.

G7 countries are Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.
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13

Without advertising,
markets as we know
them would cease
to function.

Appendix A7 describes the statistical methodology

followed to address an important issue around
the direction of causality. That is, even if we find a
correlation between advertising and GDP, is this
because higher levels of advertising drive higher
economic growth, or do faster-growing economies
generate higher levels of advertising?
The key findings from the model are as follows:
Increases in advertising expenditures lead to a
beneficial impact on GDP that begins to be felt
almost immediately, with the effect rising over
time as the impacts feed through the economy.

7
8

14

Academic research on the effects

of advertising

W
 e estimate that 1 spent on advertising
generates on average 6 across the economy.8
To put this number into context, for most
industries the economic impact of 1 is likely
to be in the range of 2 to 4.9 The higher
return estimated here arises from the ability of
advertising to increase the flow of money around
the economy and to improve productivity by
driving up competition and innovation.

The impact of advertising has been extensively

debated in the academic literature. The sometimes
controversial debate often rests on the extent
to which advertising acts as a medium to inform
consumers, leading to better decisions, or whether
it persuades them to do something they would not
otherwise have wished to do.10

O
 n this basis, we estimate the total contribution
of advertising to be at least 7% of total UK GDP,
or 100 billion in 2011.

Please see Appendix A enclosed with this report, or visit [Link]/appendices

 his may be derived from the econometric results that show that an average 1% increase in advertising expenditure generates 0.07% higher GDP per capital within one year, rising
T
to 0.6% within 10 years.
 his can be observed from ONS I-O tables and other similar sources. The comparison is for illustrative purposes, as economic multipliers are not directly comparable with the 1:6
T
ratio derived from the econometric analysis. The economic multipliers referred to tend to reflect the impact of spend on output.

Advertising restrictions have the potential to

increase consumer prices

The impact of advertising on consumer prices is also

a topic that has been much debated, partly because
of the different effects that are observed across
markets. A recent study on Austrian advertising
taxation found that the tax increased overall
consumer prices but with very different effects across
markets the reduction in advertising expenditure
as a result of the tax led to increased prices for food
products but falls for others.11

The literature suggests these differences arise

because the overall effect of advertising on prices will
depend on the net effect on economies of scale, the
firms unit costs and consumers sensitivity to price.12
Increased advertising tends to lower prices

Advertising has been shown to increase consumer

price sensitivity,13 which other things being equal
should reduce prices. Similarly prices can be
expected to fall to the extent that advertising helps
firms generate economies of scale.
On the other hand, advertising, like product research
and development, adds to selling costs, which increases
the firms unit costs. When advertising increases
the price sensitivity of demand, as it might when it
contains price information, it works to reduce prices.
In contrast, advertising creates higher intrinsic value
for brands because it helps promote differentiation and
innovation, which in turn drives customer demand.14

10

Bagwell, K. (2007), The economic analysis of advertising, Handbook of Industrial Organization, Volume 3.

11

Rauch, F. (2011), Advertising expenditure and consumer prices, CEP discussion paper 1073.

12

Chamberlin, E (1933), The Theory of Monopolistic Competition, Cambridge, MA: Harvard University Press (referred to in Bagwell, 2007).

13

Erdem, T. et al. (2008), The impact of advertising on consumer price sensitivity in experience goods markets, Journal of Quantitative Marketing and Economics, 6.

14

See Chamberlin (1933).

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Advertising makes markets work

Advertising creates and sustains relationships
between consumers and companies.15 It informs
consumers about existing products and
innovations, helping the best ideas, products
and brands to succeed.
Advertising helps companies communicate 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.
Advertising speeds up the communication of
product designs and innovations, enabling faster
return on investment. It helps companies with
the best ideas succeed and funds research and
development. It also offers firms the opportunity to
differentiate their products to consumers, increasing
the range of choice available and establishing
brands through which manufacturers are made
accountable and which people can therefore trust.

15

16

Advertising is at the
centre of a virtuous
circle of innovation,
competition and
market expansion.

Drives innovation
and new product
launches by informing
consumers about the
latest developments

s
panie t
Com
es
the b
with of price
ce
balan quality
and
ed
succe

Stimu
lates
price
comp
ariso
n

Consumers benefit
from increased
choice and more
affordable products

Consumers can be individuals or businesses, depending on the form of advertising.

ADVERTISING PAYS How advertising fuels the UK economy

17

.1

Promotes innovation
and differentiation
Higher returns create incentives for firms to invest
in innovation. A 2009 study, for example, found that
firms which were able to differentiate their products
increased the return on their innovations, particularly
where those innovations were pioneering.16
As the following examples illustrate, these issues
affect all markets from the most high-tech to the
most cost-conscious. Advertising can support
innovation to:

Firms also use advertising to build differentiation

through their brands pricing model. The hotel
chain Travelodge, for example, has used its
marketing material to promote its ability to offer
highly competitive prices by removing unnecessary
products, services and costs from its core offering.
The companys website reports that it offers
everything you need and nothing you dont.18

Case Study
Cinema box office revenues would be
reduced by 300 million without advertising
Film studios create awareness of new movies
through advertising on television and other
promotion, such as trailers, posters, film-specific
websites and social media. Advertising provides
timely information to consumers about the
release of new films, prompting consumers to
decide what to see. It also helps generate the
level of interest required to secure space for
screenings from exhibitors.

B
 ack new product launches: As described on
the following page, the markets for films and video
games exemplify the role that advertising can play
in supporting investment in new products.
Support differentiation through brand:
Activia, for example, differentiates its product
in terms of its digestive benefits. Its advertising
campaign has won awards for its success in
broadening Activias appeal from a niche product
into a major mainstream brand.17

18

16

Srinivasan, S. et al. (2009), Product innovations, advertising and stock returns, Journal of Marketing (January).

17

IPA (2009), Danone Activia: How a little bit of T.L.C. made a market leader.

18

[Link]

By publicising the planned release of a new film,

advertising helps to reach the specific audience
and generate cinema attendances quickly. Movie
production requires a large capital outlay long
before revenue is realised. Advertising helps to
reduce the risk of this investment by increasing
awareness of, and demand for, the film ahead of its
release. The theatrical release typically only lasts

four to six weeks but generates one quarter of a

films revenues. Advertising will continue to be used
to drive awareness of the film during the home
entertainment window.
Without advertising, it is likely that this market
would look very different. It would be harder for
producers to innovate with formats, technologies
or new actors. The result would be a lower level of
production with less risk-taking.
We estimate that box office revenues would have
been 27% lower in 2010 without advertising in
that year,19 equivalent to almost 300 million in
revenues.20 This could be expected to have a
significant impact on the overall market size, with
a knock-on effect on the number and variety of
films that could be financed.

19

 his is based on a film advertising elasticity estimate in Advertising Effectiveness in UK Film Distribution (Tony Robertson, September 2003), a report commissioned by the UK
T
Film Council. The report estimates that a 1% change in TV advertising expenditure leads to a 0.11% change in box office revenues and a 1% change in press advertising leads to a
0.16% change in box office revenues. Assuming a 100% decrease in advertising expenditure implies an estimated 27% decrease in box office revenues.

20

 otal box office revenues in 2010 estimated at 1,076 million by the UK Film Council. The decrease in advertising revenues is estimated by multiplying box office revenues by 27%
T
(see previous footnote).
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19

.2

Drives price competition

Advertising facilitates competition through
price promotion, product differentiation and
innovation, which in turn helps new entrants
to penetrate markets.
This effect is recognised 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 sensitive.21
The role of advertising in driving competition based
on price can be observed in practically every
market; prominent examples include flights, mobile
phones and retail services.

20

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.22 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 yield.23
The entry of LCCs into existing routes, supported
by their advertising campaigns, has been shown
to increase competition and reduce prices for both

21

Erdem et al. (2008).

22

Kraft, G. (1965), The role of advertising costs in the airline industry, in Transportation Economics, NBER.

23

Pitfield, D.E. (2004), Airline price competition: a time series analysis of low-cost carriers, August, ERSA Conference, paper no ersa04p680.

leisure and business passengers.24 They proved

successful in attracting passengers and, in 2012,
nearly half of travellers used budget airlines for their
most recent trip.25
In the mobile phone market, increased levels of
advertising expenditure by the leading players26
has contributed to substantial changes in the
market structure. This is part of a global increase in
mobile competition which, over the last ten years,
has contributed to a doubling in the numbers of
customers striking out for a superior deal.27

The role of advertising

in driving competition
based on price can be
observed in practically
every market.

24

Alderighi, M. et al. (2004), The Entry of Low-Cost Airlines, Tinbergen Institute.

25

Mintel, Airlines, July 2012.

26

 or example, O2 increased its advertising expenditure by 50% in the last five years, Three by nearly one-third and Vodafone by 14%: Mintel, Mobile Network Providers UK,
F
March 2012.

27

Strategy Analytics (2012), Global mobile customer loyalty reaches all-time low.
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Case Study
Competition in the schoolwear market helped
to reduce prices by 21%
Prices of schoolwear fell considerably
between 2004 and 2010, due in part to intense
price competition between supermarkets
communicated through advertising.
Asda and Tesco instigated fierce price wars to
increase their market shares, with Asda advertising
a 100-day money-back guarantee on its schoolwear

if customers could find cheaper products elsewhere.

Sainsburys expansion in the sector also saw
it commit to significant marketing, launching its
largest back-to-school range in 2010. Through
a combination of range expansion, pricing and
advertising, Sainsburys reported a 25% increase in
12-month sales in that year.

Schoolwear market shares, 20062010

ASDA

SAINSBURYS

TESCO

.3

Encourages
market growth

M&S

0%

By communicating information about product

attributes, price and availability, advertising helps
to match buyers and sellers more efficiently, and
reduce costs.30 This can expand some existing
markets and build new market sectors.

2%
4%
6%

An example is Apples advertising campaign ahead

of the launch of the original iPhone:

8%
10%
12%
14%
2006

2010

16%
Source: Mintel, Deloitte analysis

The supermarkets doubled their share of the

schoolwear market between 2006 and 2010.
Intense competition contributed to a decline in

average prices by 21% over a similar period.28

We estimate this saved parents in the order of
200 million in 2010.29

200 million: the amount saved on schoolwear

by parents in 2010, thanks to supermarkets
advertising their intense price wars in the sector.
22

Apple Inc.s campaign to build

excitement about its iPhone may
be the most successful marketing
effort ever, surpassing the drive
to promote Ford Motor Co.s 1964
Mustang and Microsoft Corp.s
Windows 95. [...] The combination
of mobile phone and music player
has generated more pre-sale media
coverage than any other product.31

Apple has subsequently used the advertising-fuelled

success of the iPhone to help create new market
segments, the most prominent being in the tablet
market with the iPad.32 The iPad is now in its fourth
generation, with three million iPad minis selling in
the first three days of release.33
Advertising has also powered the growth of the
sportswear market, through campaigns such as
Nikes Just do it, which the US Center for Applied
Research assessed as being instrumental in
increasing Nikes worldwide sales from $877 million
in 1988 to $9.2 billion in 1998.34
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 change.35

30

See for example Chamberlin (1933), who examined the role of advertising in supporting the development of economies of scale.

31

Heiskanen, V. (2007), Bloomberg: Apple iPhone may be most successful marketing effort ever; surpassing Mustang, Windows 95, 28 June. Cited in [Link]

32

BBC (2010), Apples iPad to kickstart tablet market, 28 January.

33

Apple (2012), Apple sells three million iPads in three days, 5 November.

28

Research by Verdict: [Link]

34

Center for Applied Research, Mini-case study: Nikes Just Do It advertising campaign, [Link]

29

Estimate based on analysis of IPSOS assessment of schoolwear purchasing behaviour reported in Mintel, Schoolwear, November 2010.

35

Dr Simon Broadbent for Economics Committee, Advertising Association (1997), Does Advertising Affect Market Size?
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Case Study
Advertising has played a key role in supporting
the growth of broadband in the UK.

By communicating
information about
product attributes,
price and availability,
advertising helps to
match buyers and
sellers more efficiently.

Firms have competed intensely to attract new

customers and gain market share through attractive
pricing and increased access speeds.
Average monthly cost of a residential broadband connection
(excluding line rental)

25.00

18.00
21.84

20.00

Attractive pricing

Brand competition

15.00

16.00
18.77

14.00

18.10
16.13

14.24

14.02

4.00
2.00

and

0.00

0.00
2005 2006 2007 2008 2009 2010

broadband

Product differentiation

10.00
6.00

5.00

phone

12.00
8.00

10.00

Home

Average headline speed (Mbit/s)

2005

2006

2007

2008

2009

2010

Source: Ofcom

Product innovation

Advertising has driven increased competition and

market expansion.

We estimate that without advertising, 36% of

current broadband households would not yet have
broadband access.36
36

24

 his is based on broadband advertising elasticity of 0.4, sourced from John Nankervis, Advertising and Price Elasticities of ADSL Access, University of Essex, February 2004. The
T
elasticity is applied to the annual increase in broadband connections, to estimate the reduction in new connections without advertising.
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25

Advertising funds media and the

creative industries
The UKs creative industries are rightly worldrenowned, but without advertising many firms in
these industries would simply cease to exist. The
revenue generated by selling advertising supports
the UKs commercial broadcasters, print media
and other channels. It also contributes to the
business models and revenues of a wide range of
other creative sectors identified by the Department
of Culture, Media and Sport (DCMS), including
software, publishing, the performing arts and the UK
independent production sector.37
A
 dvertising spend contributes 29% of all UK
TV revenues, the other principal sources
of funding being the BBC licence fee and
commercial subscriptions.38
T
 hese revenues fund major free-to-air and
subscription channels, contributing to a diverse
range of quality programming.

26

37

DCMS (2011), Creative industries economic estimates.

38

Ofcom Communications Report, 2012.

39

PACT financial census and survey, 2012.

In turn these broadcasters (alongside the BBC)

sustain UK industries such as the independent
production sector. In 2011 this sector generated
2.4 billion, with nearly 300 million revenues in
exports of UK programmes and formats.39
As with the television sector, UK magazine
and newspaper businesses would also be
unrecognisable without advertising. We estimate
that two-thirds of newspaper revenues come from
advertising, enabling a daily and diverse supply of
news and comment.
Advertising supports local communities by funding
local radio and printed media, notably over 500
local commercial and community radio stations40
and 1,100 regional and local newspapers read by
33 million people a week. Advertising also supports
independent cinemas.41

40

Ofcom [Link] and [Link]

41

The Newspaper Society: [Link]

Revenue from advertising helps to pay for a wide

range of other amenities including 50,000 bus
shelters and other street furniture;42 and is an
essential part of leading online services as described
in Section 7.

The UKs creative

industries are rightly
world-renowned, but
without advertising
many firms in these
industries would simply
cease to exist.

42

Figure provided by the Outdoor Media Centre.

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27

Ad spend supports
a wide range
of employment
Advertising creates and supports jobs in the media
and creative industries, as well as the wider economy.
In 2011, DCMS estimated that a total of 268,000 people
were employed in roles such as the commissioning,
design and production of advertising. However, this
does not capture all employment associated with the
sector, as it does not include all jobs involving the
sale and purchase of advertising space.
Additional employment is 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 costs of printing and distributing the
magazine. Further economic activity and employment
will be supported as the magazines and distributors
staff spend their wages.
We estimate that the total employment supported
directly or indirectly by the 16 billion of advertising
spend in the UK is in excess of 550,000 jobs. This is
comprised of:

1
 53,000 people estimated by DCMS to be in
associated jobs such as those employed in-house
(client-side) by firms commissioning advertising
a
 n additional 83,000 jobs that lie outside the
DCMS estimate, but which are supported by the
revenue from advertising space.43 For example,
it includes a share of people employed in
organisations such as the Royal Mail as a result
of its direct marketing distribution.44
a
 further 200,000 jobs supported across the
supply chains of the creative industries and
throughout the wider economy from creative
industries employees spending their wages.
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 advertisings 100 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.45

1
 15,000 jobs in advertising and creative/media
agencies and placement of advertisements, as
estimated by DCMS

28

43

Some online intermediaries are also associated with the purchase of advertising space.

44

In practice there may be a degree of double counting between this estimate and the existing DCMS estimates. Any double counting is not expected to be significant. Please see
Appendix B enclosed with this report, or visit [Link]/appendices

45

Please see Appendix B enclosed with this report, or visit [Link]/appendices

550,000
UK jobs depend on advertising.

Employment supported by advertising and advertising revenue:

268,000
agencies and client-side
(DCMS, 2011)

83,000

supported by revenue
from advertising

200,000
across wider
economy

ADVERTISING PAYS How advertising fuels the UK economy

29

Advertising
supports exports
The UK marketing industry is
viewed as one of the worlds
centres of excellence for
creating effective integrated
communication campaigns by
Chief Marketing Officers at the
planets biggest brands.46

The role of advertising in supporting exports has

been extensively studied in the academic literature.
Key findings include the following:47
G
 reater brand recognition in overseas markets
supports market entry and helps to build larger
market shares.
A
 2003 study found a strong positive link between
the level of brand recognition and financial
performance of that brand in export markets.48
The practical impact can be illustrated by fashion
brand Burberry, which in 2009 invested heavily in an
online campaign to attract consumers well beyond
the UK. The Financial Times reported that Burberry
spent millions on creating its first TV advert, but
chose a targeted launch to 60 million viewers on
YouTube in Russia, Hong Kong and India ahead of
more traditional television outlets.49

30

46

 arketing Week (2012), UK marketing rated centre of excellence, 14 March. Based on a survey of marketing executives from 65 major companies: [Link]
M
[Link]/news/uk-marketing-rated-centre-of-excellence/[Link]).

47

 ee, 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
S
Marketing, Vol. 58, No.1, pp. 121.

48

 ou, 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,
Z
No. 4, pp. 3255.

49

Financial Times (2011), Burberry in step with digital age, 31 August.

Burberry also launched a number of high-profile

campaigns including an expensively packaged free
sample to followers on Facebook. This strategy has
contributed to Burberrys advance from the bottom
of Interbrands rank of leading or trending global
brands to fourth place overall, behind only Apple,
Amazon and Google.50
The evidence on the quantitative impact of
advertising on exports is much more limited. The
Office for National Statistics (ONS) has estimated
that the export of advertising services exceeds
2 billion per year. This estimate captures only the
export of government-defined advertising services
and not the broader role that advertising plays in
supporting the export of other products.

50

Greater brand
recognition in overseas
markets supports market
entry and helps to build
larger market shares.

Enders Analysis (2012), Burberrys digital activism, 7 August.

ADVERTISING PAYS How advertising fuels the UK economy

31

Advertising contributes
to 76 billion in total
sales to the UK economy.
The incremental benefit
is estimated as 7
billion per year.

The economic contribution of advertising through the internet:

Access free online content,

funded by advertising

Internet

Advertising enables
the digital economy
Advertising plays a crucial role in the development
of the internet by providing funding for free search
activities, social media, instant messaging and the
majority of websites. In turn, these services provide
5 billion in value to consumers.51

TripAdvisor are increasingly important drivers of

purchase decisions. We estimate 33 billion in highstreet sales are supported in this way. In addition,
online advertising directly stimulates an estimated
9 billion in retail sales per year.54

The growth of the digital economy has also

changed the way that people research products
and make purchases.

Taking these factors together, advertising

contributes to 76 billion in total sales to the UK
economy. Excluding those sales that would have
occurred without the internet, the incremental
benefit is estimated as 7 billion per year.55

Online search is estimated to account for 43% of

total visits to e-commerce sites. A further 8% comes
via social media such as Facebook sites that rely
on advertising as an important source of revenue.52
Such referrals we estimate to result in 35 billion in
online sales.53
These benefits are not limited to the digital
economy, as advertising-funded sites also drive
value for the high street. Websites such as

Value
consumers
place on free
online content

Source: BCG

bn5

Advertising supports online

consumer research

Online advertising drives

high-street sales

Advertising-funded sites
support e-commerce

Advertising-funded sites help

consumers research products
before purchasing them.

Analysis of ROI data shows

online advertising is a significant
driver of high-street sales.

Referrals from search and social

media are a major source of
online sales.

Source: Deloitte.

Source: Deloitte.

Source: Deloitte.

33bn

9bn

35bn

Some of the above spend will be diverted away from other channels. Not all of the value of that spend will
be retained in the UK economy and GDP measures only include certain elements of the purchase value.
Controlling for these factors, we estimate the increase in economic benefit from advertising-supported
internet activity:

32

51

A willingness-to-pay estimate of the value of online services by BCG (2010), The Connected Kingdom. Please see Appendix C enclosed with this report,
or visit [Link]/appendices

52

Experian (2012), Experian Hitwise reveals latest UK search engine and social analysis, January. Enders (2011), UK consumer e-commerce trends, July.

53

Please see Appendix C.

54

 dvertising impact on high-street sales estimated using Nielsen advertising ROI data. Research online, purchase offline estimate based on analysis of online behaviour by Ofcom
A
and BCG. Please see Appendix C.

55

Please see Appendix C.

7bn
Source: Deloitte.

ADVERTISING PAYS How advertising fuels the UK economy

33

Government campaign
Dont advertise
your stuff to thieves
reduced the cost of
crime by 189 million.

Advertisings social contribution

has an economic value
Advertising is used extensively by the government,
the voluntary sector and private sector corporations
to encourage positive behavioural change, resulting
in substantial social benefits. Such benefits can
often be shown to have real economic value.
A
 study in Northern Ireland found a 35%
reduction in deaths from drink-driving between
1995 and 2006 as a result of a campaign run by
the Department of the Environment.56 The UK
government calculates the value of a life in the
UK as 1.7 million.
In 2009 a stroke-awareness campaign increased
the volume of stroke-related calls by over 55% in
the first four months of the campaign. Moreover,
it is estimated that 9,864 additional stroke
sufferers got to hospital more quickly in that year
because they called 999 promptly as a result
of the campaign activity.57 The value of Quality

34

Adjusted Life Years (QALYs) created in 2009 as

a result of the campaign was 65.7 million. After
taking account of additional care costs, the overall
payback from the campaign is estimated to have
been 26 million in 2009.
In 20032004, there were over 4 million incidents of
theft in the UK, making it the largest single type of
crime. Along with the emotional distress to victims,
theft also has a financial cost an estimated
9.5 billion per year.

T
 here was a decline in flu vaccination rates in
2010, the year when the government withdrew its
advertising campaign for flu vaccination, which had
previously been running for a number of years.59

A 8 million stroke awareness

campaign produced an economic
payback of 26 million in just
one year.

In response, the government launched the Dont

advertise your stuff to thieves campaign to raise
awareness and encourage behavioural change.

m
i
l
lion
6
2

million

The campaign spend was 13.5 million and it is

estimated to have reduced the cost of crime by
189 million.58

56

IPA Effectiveness Awards (2006), Department of the Environment (Northern Ireland), The longer term effects of anti-drink driving advertising.

57

IPA Effectiveness Awards (2010), COI Dept of Health Stroke Awareness: How the Department of Healths stroke awareness campaign acted fast.

58

IPA Effectiveness Awards (2008), Acquisition Crime COI Home Office Crime: Cutting the cost of crime.

59

Health Protection Agency research cited in Daily Telegraph (2010), Why was the flu jab campaign dropped?, 28 December.
ADVERTISING PAYS How advertising fuels the UK economy

35

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ADVERTISING PAYS How advertising fuels the UK economy

37

APPENDICES

38

APPENDIX A

40

APPENDIX B

46

APPENDIX C

48

ADVERTISING PAYS How advertising fuels the UK economy

39

Appendix A

The impact of
advertising on GDP
This appendix presents the details of the econometric estimation carried out in order to assess the impact of advertising
on GDP (Section 3).

A.1 Advertising and economic growth

The objective of this section of the analysis is to assess the aggregate impact of advertising on GDP.

A.1.1 The dataset employed

The analysis used a dataset to estimate the relationship between GDP per capita (the dependent variable of interest),
advertising expenditure (the main explanatory variable) and a number of other variables determining GDP growth (e.g.
aggregate capital investment, volume of international trade for the country and level of government spending).
An initial dataset of countries was constructed by collecting publicly available data from the World Banks World
Development Indicators.60 This was supplemented by data from the Advertising Association, WARC and Nielsen, as well
as by data from the International Labour Organization (KILM and LABORSTA). This generated a panel of 17 countries
comprised of the worlds largest economies as well as some developing economies, spanning a 14-year period from
1998 to 2011.
Table 1: List of countries included in the analysis of advertising and GDP

Countries
Argentina, Australia, Brazil, Canada, Chile, China, France, Germany, India, Italy, Japan, Peru, Russia, Singapore,
United Kingdom, United States, Vietnam
Source: Deloitte analysis

An additional key factor that influenced the choice of these countries, especially the less developed nations, was the availability
of relevant data for this analysis. Table 2 presents the variables included in the econometric model with their definitions.
Table 2: Variables used in the analysis of advertising and GDP per capita

Variables

Description

Source

GDP per capita

Real GDP per capita (constant USD, PPP adjusted)

World Bank World

Development Indicators

Trade/GDP

Annual trade volume as a share of GDP (proxy for the degree of

openness of a country)

World Bank World

Development Indicators

Investment/GDP

Annual share of aggregate investment 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 (constant USD, PPP adjusted)

Advertising Association /
WARC / Nielsen

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

Source: Deloitte analysis

60

40

The majority of G7 countries in the sample (plus Australia) cluster towards higher advertising intensity levels, whereas the
less economically developed countries cluster towards lower levels of advertising intensity.

A.1.2 The approach

The approach of this study, including variables used, follows the work conducted by Aiginger and Falk (2005),61 who
set out to investigate determinants of economic growth. The final specification used in this study is very similar to that
used by Aiginger and Falk, with certain 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)62 and Lee, Levendis and Gutierrez (2009).63
The Aiginger and Falk paper uses OECD data over the period 19602002. The latter two papers adopt a standard
economic growth model using a sample of 44 African countries over the periods 19882007 and 19752006, respectively.
The approach to testing and quantifying the impact of advertising builds directly on this literature by including advertising
as an additional potential driver of economic growth.
This analysis does not reflect the full transformational impact of advertising, as in all countries and all periods in the
sample there is some advertising. Nonetheless it captures impacts on GDP from changes in advertising expenditure that
are more significant than small marginal changes in the amount of advertising within one country.64
The impact of advertising on GDP per capita is complicated by the likely existence of reverse causality. Specifically,
higher levels of advertising are expected to lead to higher GDP per capita; however, conversely, higher GDP per capita is
expected to be associated with firms increasing advertising expenditure in order to capture a share of the larger market.
Because of this complex relationship, isolating the causal impact of advertising on GDP is difficult and requires careful
econometric analysis.
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.
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).65 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.
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
inclusion of time-dummy variables will address these factors, and mitigates the potential for inconsistent estimates that
would result from omitted variables bias. Whilst it would not be possible to identify the impacts of separate time-varying
variables together with the time-fixed dummy variables, this is certainly not the case for variables that are countryspecific, such as those currently included in the model. Hence including time dummies leads to consistent estimates in
the case of common omitted variables.

61

Aiginger, K. and Falk, M. (2005), Explaining differences in economic growth among OECD countries, Empirica Vol. 32, pp. 1943.

62

Andrianaivo, M. and Kpodar, K. (2011), ICT, financial inclusion, and growth: Evidence from African countries, IMF Working Papers, 11/73, pp. 145.

63

 ee, S.H., Levendis, J. and Gutierrez, L. (2009), Telecommunications and economic growth: An empirical analysis of sub-Saharan Africa. Available from SSRN: [Link]
L
abstract=1567703

64

 he model does not show the full transformational effect; rather it depicts the effect from increasing or decreasing advertising from its current levels. Part of this is controlled for by
T
the use of countries at various stages of development. However, it is likely that the full effect of advertising would be larger. The intuition behind this is that advertising is likely to
have a non-linear impact on GDP. For example, it may be that for each incremental pound spent (or reduced) from a lower level of advertising, the impact on the market is likely to
be higher than it would be at higher levels of advertising.

65

 rellano, M. and Bover, O. (1995), Another look at the instrumental variables estimation of error-components models, Journal of Econometrics, Vol. 68, No. 1, pp. 2951. Blundell,
A
R. and Bond, S. (1998), Initial conditions and moment restrictions in dynamic panel data models, Journal of Econometrics, 87(1), pp. 11543.

Available from: [Link]

ADVERTISING PAYS How advertising fuels the UK economy

41

A.1.3 The model

A.1.4 The results

Table 4 below reports the estimates of Equation 3 using the Arellano-Bover/Blundell-Bond estimator

The model specification adopted takes the following form:

Table 4: Econometric results

Equation 3: Theoretical Model

Equation 1: Theoretical Model

Equation 1: Theoretical Model

Econometric results

Equation 1: Theoretical Model

tion
Theoretical Model
tical1:
Model

On the left-hand side of the equation is GDP per capita, which is expressed as a function of the lag of real GDP per
capita, advertising expenditure and Equation
a set of determinants
of growth.
These are: total hours worked, government
1: Theoretical
Model
.
expenditure, trade volumes, and aggregate investment. All variables are in logs and the model allows for first-order
,
GDP per capita is assumed to be contemporaneously endogenous, that is, correlated
with current and
moving average serial correlation in the errors.66
,
.

past realisations of the error term. Hence:

Number of observations = 163

Number of groups (countries) = 17
Time variable: time
Observations per group:
min = 1
avg = 9.588235
max = 12
Number of instruments = 143
Wald chi2(17) = 132199.16
Prob > chi2 = 0.0000
Coefficient

Standard
Error

0.950598

0.013009

73.07 0.000

0.925101

0.976095

-0.16925

0.026674

-6.35

0.000

-0.22153

-0.11697

0.069423

0.014499

4.79

0.000

0.041005

0.09784

-0.0515

0.013746

-3.75

0.000

-0.07845

-0.02456

0.032551

0.015775

2.06

0.039

0.001633

0.063469

0.027635

0.010988

2.52

0.012

0.006099

0.04917

Dummy variable year 2

0.043805

0.007887

5.55

0.000

0.028346

0.059263

Dummy variable year 3

0.048376

0.007787

6.21

0.000

0.033113

0.063639

Dummy variable year 4

0.027715

0.006749

4.11

0.000

0.014487

0.040942

Dummy variable year 5

0.0342

0.006345

5.39

0.000

0.021764

0.046635

Dummy variable year 6

0.047735

0.007006

6.81

0.000

0.034004

0.061466

Dummy variable year 7

0.048313

0.00718

6.73

0.000

0.03424

0.062386

Dummy variable year 8

0.041645

0.007105

5.86

0.000

0.027719

0.055572

Dummy variable year 9

0.04014

0.007186

5.59

0.000

0.026056

0.054223

Dummy variable year 10

0.041632

0.007581

5.49

0.000

0.026773

0.056491

Dummy variable year 11

0.015637

0.007537

2.07

0.038

0.000865

0.03041

Dummy variable year 13

0.062478

0.006904

9.05

0.000

0.048947

0.076009

Constant

0.395779

0.259029

1.53

0.127

-0.11191

0.903467

The model was estimated using the system GMM method of Arellano-Bover/Blundell-Bond over the period 19982011 on

heoretical Model
theAdvertising
data as described
in A.1.2. investment and trade are assumed to be pre-determined, that is, correlated
expenditure,
with past realisations of the error term but uncorrelated with contemporaneous and future realisations
.
The error terms
and
are assumed
to be independent and identically distributed over , and .
ofisthe
error term:
GDP per capita
assumed
to be contemporaneously endogenous, that is, correlated with current and
per capita is assumed
to be is
contemporaneously
endogenous, endogenous,
that is, correlated
current and
GDP per capita
assumed to be contemporaneously
that is,with
past realisations
of the error
term. Hence:
. correlated with current and past realisations
ealisations of of
the
.
theerror
errorterm.
term. Hence:
Hence: .

Advertising Advertising
expenditure,
investment
and trade
assumed
to betopre-determined,
that
expenditure,
investment
andare
trade
are assumed
be pre-determined,
thatis,
is,correlated
correlated with past
.
tising expenditure, investment 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
realisations of the error term but uncorrelated with contemporaneous and future realisations of the error
ast realisations of the error term but uncorrelated with contemporaneous and future realisations
of the error term:
term:
error term:

P > |Z|

95% confidence
interval

Source: Deloitte analysis.

The above analysis shows that a 1% increase in advertising expenditure leads to 0.07% higher GDP per capita in the
same year.

66

42

 he model follows a reduced form approach instead of building a macroeconomic system of equations to understand the impact of advertising on particular variables. The
T
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.

Due to the lagged dependent variable, it is also possible to postulate that an increase in advertising expenditure in a
given year supports a higher GDP. This increase in GDP in the current period will result in higher GDP in the following
and subsequent periods due to the significant lagged dependent variable. Theoretically, this effect takes place over a
ADVERTISING PAYS How advertising fuels the UK economy

43

large number of years. However, due to the large number of variables that could affect GDP, this study has estimated
only a 10-year impact in the interests of prudence. The 10-year effect of a 1% increase in advertising expenditure is a
0.6% increase in the long-run level of GDP.67
The remaining variables all seem sensible from an economic perspective and are significant at the 5% level. The
negative coefficient on the government expenditure as a percentage of GDP variable is supported by a variety of
economic literature, in line with the view that a larger government has 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.68
The coefficient on the variable for hours worked is negative. While this may appear counter-intuitive at first, upon
examination of the data it becomes apparent that more developed countries do indeed have fewer working hours, and
that each hour of work yields output of higher value in more developed countries.
The positive coefficients on both investment as a percentage of GDP and trade as a percentage of GDP are in line with
economic theory, suggesting that higher investment and higher trade openness result in higher GDP.

A.1.5 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.
The first test (Table 5) 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 5% significance level, suggesting that the instruments are valid.
Table 5: Sargan test of over-identifying restrictions

The trended nature of the key variables, possible unit roots and the issue of co-integration were investigated and
necessary adjustments undertaken:
T
 he data used for the analysis is inflation-free. Real GDP figures and Purchasing Power Parity adjusted constant
dollar advertising expenditure are used.
P
 anel unit roots tests were carried out on all series using the methods developed by Levin, Lin and Chu (LLC, 2002).
All variables were found to be stationary, and are a mixture of I(0) and I(1) trend-stationary processes. In other words,
they have a deterministic trend. This means that the variables in question will co-integrate by construction in the model
as estimated, as a linear combination of the variables will be stationary by definition. Note that a trend-stationary
variable is said to be stationary despite its mean being a function of time, because the stochastic properties of the
trend are defined by error process which is stationary, i.e. Y(t)= a + b*Y(t-1) + c*t + error. This was the case for the
dependent variable.
The above means that the model is valid as estimated in log form.
Finally, in order to test the robustness of the advertising coefficient, the regression was run on subsets of the data. The
coefficient remained within the range of 0.06 and 0.09 across these samples, signifying a very small variation. The
subsets included:
testing on only the G7 plus Australia and the BRICs
testing on various subsets of years excluding years at the top end and bottom end of the dataset, and various
combinations of this in order to estimate an impact.
Together, these tests indicate that the estimation and results are statistically robust.

Sargan test of over-identifying restrictions

Sargan test of over-identifying restrictions
H0: Over-identifying restrictions are valid
Chi2(125) = 151.2414
Prob > chi2 = 0.551
Source: Deloitte analysis

The Arellano-Bond test for serial correlation of the error term i,t reported below shows that it is not possible to reject the
null hypothesis of no serial correlation in the errors.
Table 6: Arellano Bond test for serial correlation

Arellano Bond test for serial correlation

Arellano-Bond test for zero autocorrelation in first-differenced errors
order

Prob > z

-2.2559

0.0241

-1.359

0.1741

H0: No autocorrelation
Source: Deloitte analysis

44

67

 s 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
A
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.

68

Economic performance and government size, Working Paper Series No. 1399, November 2011, European Central Bank [Link]
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Appendix B

Table 7: Employment from advertising expenditure, 2011

Employment
supported by
advertising spend
In order to generate an overall employment estimate, existing estimates from DCMS were compiled, which capture:

Media

Method

Advertising
expenditure

Advertising revenue
(excluding advertising
agency commissions)

Estimated
employment

Television

Revenue attribution

4,159

3,557

6,226

Press

Revenue attribution

3,945

3,374

30,607

Direct mail

Revenue attribution

1,729

1,478

24,659

Out-of-home

Revenue attribution

886

758

2,375

Cinema

Value-add estimation

172

147

2,815

Radio

Value-add estimation

427

365

6,858

Internet

Combined approach

4,784

4,091

9,317

16,013

13,771

82,857

Total

people employed in advertising agencies;

Source: AA/Warc, Deloitte calculations

people employed in the production and creation of advertisements;

B.2 Calculating employment through supply chain linkages

client-side/in-house employees involved in the commissioning of advertisements.

The next step in the analysis was to consider how the above generates wider employment across the economy.

To these were added employees whose jobs are supported by the revenue from the sale of advertising space such as
people employed by ad-dependent regional papers.

Government InputOutput tables trace the interdependences between individual sectors and the rest of the economy. It is
possible to derive from these tables multipliers that summarise the relationship between employment in a specific sector and
wider employment across the economy as a result of the sectors interdependences.73

Finally the supply-chain linkages between the affected industries and the wider economy were examined to provide a
broader analysis of the number of supported jobs.

B.1 Calculating the employment supported by advertising revenue

Table 8 summarises the results of this analysis.

Table 8: Use of multiplier factors

Source of
estimate

Media / employment source

Deloitte
estimate

Multiplier
(Type II)

Total
employment

R
 evenue attribution: For sectors where suitable data was available, the direct employment supported by advertising
was calculated by taking a share of total employment in advertising-funded organisations. This share is given by the
proportion of the organisations revenues that come from advertising.

Television

6,226

2.02

12,577

Press

30,607

1.71

52,338

Employment data is only available for some organisations in each of the media. The advertising-supported
employment calculated in this manner is extrapolated to the rest of the market. This is done by calculating the number
of advertising-funded jobs per pound of advertising revenue in the relevant organisations, which is then applied to the
remainder of advertising revenues.

Direct mail

24,659

1.37

33,783

Out-of-home

2,375

1.55

3,681

Cinema

2,815

2.24

6,306

Radio

6,858

2.01

13,785

Internet

9,317

1.64

15,280

Production, creation

115,000

1.55

178,250

Client-side/in-house commissioning

153,000

1.55

237,150

The employment supported by advertising revenue was estimated by one of two methods:

Deloitte

V
 alue-add estimation: For other sectors the total revenue from advertising was available69 but it was not possible to
use the revenue attribution approach because total revenue was not reliably available. In those cases an alternative
approach was used based on Eurostat data.
From Eurostats value-add data tables it is possible to derive the total employment generated per unit revenue for each
sector.70 This was multiplied by the level of advertising revenue to estimate the total advertising-supported employment.
In applying these methods advertising revenue is taken from the AA/WARC expenditure report. An adjustment to the
revenue figures was made in order to avoid double-counting advertising agency and production jobs identified by DCMS.72
71

DCMS
Total

553,150

B.3 Potential overlap with DCMS methodology

The analysis undertaken in this report has been designed to complement and extend the existing DCMS estimates and,
as far as possible, areas of potential overlap have been addressed. Specifically, the Deloitte analysis excludes two areas
that are addressed by DCMS, namely advertising agencies and in-house commissioning.
Nevertheless, the Advertising Association has informed Deloitte that some out-of-home and internet firms within the
Deloitte methodology may be captured with the agency population under the DCMS methodology. As these categories
account for fewer than 15,000 jobs in total, the impact is not considered to be material.

46

69

Sources include AA/WARC.

70

Eurostat produces revenue/value-add ratios and separate estimates for the value-add per employee by sector. These figures can be combined to estimate employment per unit
revenue. Value-add per employee figures date from 2009 but given the relatively slow productivity growth in recent years, they are still likely to represent a valid estimate of 2011
productivity.

71

[Link]

72

 chieved by deducting advertising agency commissions from total advertising expenditures. Commissions are estimated as the difference between Net Advertising Revenue and
A
Advertising Expenditure published by Ofcom for television services. This is approximately 15% of television advertising expenditure. The same ratio was applied to all categories.

73

The employment multipliers used in this study are sourced from Scottish Government Statistics.
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Appendix C

Enabling the
digital economy
Supporting the growth of e-commerce
In 2011, UK consumers spent 68 billion through e-commerce sites such as Amazon and eBay.74 Organic and paid
search activities are increasingly important channels to drive traffic and support online sales:
We saw record levels of Internet traffic at Christmas [2011] with 2.18 billion visits going to online retailers
in December. [...] Getting the right blend of traffic from search, social, affiliates and other traffic sources is
essential, but with search being so dominant at these key times, it is more important than ever for marketers to
optimise paid and organic search campaigns.
Experian Hitwise
Online search is estimated to have accounted for 43% of total visits to e-commerce sites, with another 8% coming through
social media such as Facebook sites that rely on advertising as an important source of revenue.75 Overall, therefore,
internet search and referrals account for half of all visits to e-commerce sites by UK consumers, or 35 billion in sales.
These sales generate a total economic value-add for the UK economy, which captures factors such as profits for UK
firms, wages to UK employees and tax paid to the Treasury.
Convenience and lower pricing are leading reasons for consumers choosing to shop online.76 Much of the economic
value generated by online sales will be substitution from other channels, but even on a conservative basis the net
economic benefits from search/referrals are likely to exceed 2 billion.77

Generating additional footfall in the high street

Although the internet competes with the high street for shoppers wallets, sales remain concentrated in a narrow range of
sectors such as electrical products and food/groceries. In other sectors the growth of online sales has been much slower,
particularly where consumers want to touch or feel a product before purchase.78 However, the internet plays an important
role in sales for these sectors too, acting as a critical medium for retailers to advertise their products to consumers.

Consumers are also actively using the internet to research products before venturing into the high street to make a
purchase. The Autotrader website, for example, allows users to:
read professional reviews of cars alongside the reviews left by other users of the site
check car availability and find local dealers
run vehicle history checks
generate a valuation estimate for a vehicle.
Similarly, the website [Link] provides consumers with access to hotel rooms around the world. The site actively
uses social media such as Twitter and Google Circles to discuss travel destinations with its followers raising the profile
of its hotel room aggregation service in the process. The site attributes a 9% uplift in click-through rates to its use of
social media.83
This process of online research followed by retail purchase accounted for 54 billion in high street sales in 2010,84 of
which an estimated 33 billion can be attributed to advertising-funded sites.85
It is likely that most of these sales would have occurred in the absence of the internet, with the additional research primarily
helping consumers buy their eventual purchase at lower prices. Consumers benefit by an estimated 1.6 billion of savings
on their purchases each year as a result of research of offline purchases carried out on advertising-funded sites.86

Resulting in incremental economic benefit of advertising through

the internet
The increase in economic benefit from advertising supported internet activity is c. 7 billion which results from:
Over 2 billion from search/referrals supported by advertising
3.7 billion from advertisings effect on high street sales; and
1.6 billion of savings on offline consumer purchases preceded by online research on advertising-funded sites.

Paying for free online content worth billions

The internet offers consumers the opportunity to search for websites, send email, interact with friends, review products,
watch videos and play games, all for free and funded by advertising.
One study estimated the value of this content to consumers as, conservatively, 5 billion per year.87

Retailers spent almost 5 billion in 2011 on internet advertising.79 While many consumers may choose to purchase the
advertised products online, the spend is estimated to generate approximately 9 billion in high street sales annually.80
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 expenditure.81 The implication is that
online advertising generates an economic benefit equivalent to 3.7 billion through its effect on high street sales.82

48

74

IMRG Capgemini eRetail Sales Index, quoted in UK shoppers spent more online in 2011, [Link]

75

Experian (2012), Experian Hitwise reveals latest UK Search Engine and Social Analysis, January. Enders (2011), UK consumer e-commerce trends, July.

76

Enders (2011).

77

 his is based on an illustrative assumption that 5% of supported sales would be new sales. This appears to be a conservative assumption, given that it is easier to find certain products
T
online and given the competitive prices available through many e-commerce sites. Sales are converted to economic benefit using multipliers and revenue/value-add ratios.

78

Enders (2011), UK Consumer e-commerce trends.

79

IAB/PWC (2012), Online adspend study, full year 2011, April.

80

 ased 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
B
e-commerce sales, the estimated effect is scaled down by the proportion of total retail sales that occur offline, approximately 90%, based on figures quoted in Online drives
January growth in retail sales: new figures [Link] . Sales are converted to economic benefit
using multipliers and revenue/value-add ratios.

81

Derived from Zentner, A. (2010), The effect of the internet on advertising expenditures: An empirical analysis using a panel of countries, SSRN.

82

 here is some research to suggest that the ROI on online advertising is higher than retail advertising. This implies that the approach adopted here may be conservative because it
T
does not account for this increase in return.

83

UK Internet Advertising Bureau, Case studies.

84

BCG (2011), The $4.2 Trillion Opportunity: The Internet Economy in the G-20.

85

 he attribution to advertising-funded sites was calculated as 61%, based on Ofcom analysis of online activity by consumers. This activity breakdown was then combined with a
T
Deloitte analysis of the funding model underpinning the companies providing the relevant set of services. Ofcom (2011), The communications market 2011.

86

 here is some research to suggest that internet research lowers the prices paid by consumers between 2% and 15%. A 5% assumption was adopted. Zettelmeyer, F., Scott Morton,
T
F. and Silva-Risso, J. (2006), How the internet lowers prices: evidence from matched survey and automobile transaction data, Journal of Marketing Research, Vol. 43, May. This
assumption was applied to the researched online purchased offline sales that can be attributed to advertising-funded sites.

87

BCG (2010), The Connected Kingdom.

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49

Report layout and design by Mark Terry/Gabriella Mai at Etcx3. [Link]

The Advertising Association and Credos would like to thank the following for their support in
producing this report:
James Best, Chairman, Credos
Credos Advisory Board
Economic Steering Group
Our member organisations
The Advertising Associations Front Foot group

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guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please
see [Link]/about for a detailed description of the legal structure of DTTL and its member firms.
Deloitte LLP is the United Kingdom member firm of DTTL.
2013 Deloitte LLP. All rights reserved.
Deloitte LLP is a limited liability partnership registered in England and Wales with registered number OC303675
and its registered office at 2 New Street Square, London, EC4A 3BZ, United Kingdom.
Tel: +44 (0) 20 7936 3000 Fax: +44 (0) 20 7583 1198.
Member of Deloitte Touche Tohmatsu Limited

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About the Advertising Association

Advertising is a vital enabler in the economy, underpinning at least 100 billion of UK GDP.
The Advertising Association unites those businesses and industries which contribute to that effect the
agencies that create and buy campaigns, the commercial media that carry them and the vast array of brands
that use advertising to communicate with consumers, drive their businesses and be successful.
The Association exists as the single voice for advertising in the UK championing its role, defending its rights
and delivering its responsibilities. It works to keep advertising high on the business agenda, develop support
and understanding in government and ensure that responsible practice earns the continued confidence of the
public, regulators and policy-makers alike.

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11-19 Artillery Row, London SW1P 1RT
Tel: 020 7340 1100
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