Why auditing in a crisis is essential for better agency relationships
Advertising investment is a reliable bellwether of economic performance. At times of economic crisis and recession, most brands cut ad spend. Analysis by agency group Dentsu found that, globally, spend fell by -8.8% in 2020 in response to the Covid-19 pandemic, although performance differed by region. While investment in Western Europe was down by -10.9% and Latin America -18.4%, performance was more robust in the world’s two biggest ad markets. In the US, ad spend contracted -7.6%, while in China it grew by +1.6%. Though China was the epicentre and origin of Covid-19, it was tackled there first and hard with closed borders and rigid lockdowns. What’s more, the peak of infection occurred in the first two months of the year when ad spend is at its lowest, around Chinese New Year.
Typically, however, ad spend is one of the first areas of business expenditure to bounce back post-crisis, stimulating economic recovery and growth. Dentsu predicts global ad spend will grow by 5.8% in 2021 and 6.9% in 2022, with markets that experienced the greatest shrinkage in 2020 growing fastest this year and next to compensate. The UK Advertising Association suggests the upswing in the UK may be more than 15% in 2021.
The rise of digital
Extreme pressure on advertisers’ total investment wasn’t the only thing the pandemic brought. To follow consumer eyeballs and behaviour – considerably more online, much less out-of-home and in cinema, and with a boom in e-commerce across the generations – the shift to digital media investment accelerated. These changes were already in progress, but the pandemic has hastened them further. More than 50% of ad spend is now online, but it is also in fewer hands. Two-thirds of all new revenue has gone to Google and Facebook, consolidating their power. When TV was the dominant medium, the biggest TV companies – Disney and Sky/Fox – generated less than $20bn in ad revenue. By contrast, Google and Facebook attract five or six times that volume. The winners are winning more, and the losers are losing more.
More money to Google and Facebook also means more work and increased complexity for media agencies, which were already facing a challenging time with digital transformation. Agencies face additional pressure from technology and data companies, big consultancies, and brands in housing some aspects of advertising. As a result, agency holding companies have seen their share prices decrease in the past three years, while digital media businesses have seen theirs double. These trends, too, have been accelerated by the pandemic.
What this means for advertisers
As societies and nations start to cope with the reality of what living with Covid-19 means – and as vaccination programmes extend – there are growing signs of business and consumer confidence returning. After a very challenging year for many brands, marketers will have to fight to retain and grow marketing budgets. Everyone will be cautious and keep an eagle-eye on how their ad spend is invested. Many advertisers are also likely to test more, trying new things before really investing in them. These are positive trends and will drive better performance and enhance return on investment.
In our field of contract compliance, this spirit of cautious optimism will make auditing agency performance a must-have rather than a nice-to-have. Understanding how, where and why agencies are investing hard-fought advertising dollars will be less about transparency and catching out actors misbehaving in the market, and more about how to invest smarter and with more impact in an era of heightened scrutiny.
Sometimes a pitch to find a new partner can be the only way to reset an agency relationship. That said, auditing and improving a partnership can be a better outcome than starting from scratch with a new partner – running virtual pitches and trying to forge new partnerships at times of crisis is challenging. For although new partners can deliver short-term savings, the upheaval caused can be distracting and lead to a major loss of productivity and know-how. Improving relationships with existing partners can often lead to better outcomes.
Five things advertisers can do to improve agency partnerships
FirmDecisions’ 20-year track record, together with our experience of multiple recessions and our learnings from Covid-19, have taught us that there are simple, actionable steps advertisers can take to revitalise and enhance relationships with agency partners. These steps cut down on wasted time and ensure that combined knowledge is harnessed to deliver future value.
- Get the right contract in place – strong, detailed, up to date. Make sure you have full rights to audit at a local, global and holding company level. Ensure the contract provides clear direction on approvals, rebates, trades, technology and relationships with third-party vendors. Nothing should be off-limits in an advertiser’s quest to ensure that promises made under contract are in fact delivered.
- Run regular, timely contract compliance audits, closer to actual spend. Before the pandemic, audits often lagged two or three years behind investment, too far back in history to provide relevant data and improve partnerships.
- Establish a culture of regular dialogue with agency partners. Put in place more frequent, structured meetings, reviews and processes that reflect the outcome of audits.
- Build in clear approval processes to ensure that strong operational management is built into your day-to-day agency interactions.
- Institute regular check-ups, fixing them in the diary, to ensure that any changes made to ways of working are adhered to and that ongoing progress is made in your relationships.
Covid-19 is a once-in-a-generation crisis, a perfect storm even more impactful because it was largely unforeseen. The effect on the advertising sector and brands’ investment in marketing services was rapid and deep, but as we enter 2021, multiple sources are predicting recovery and return to growth. Advertisers should invest time and energy to reset and refresh their agency relationships, ensuring that they have the right partner who’s delivering what they are contracted to deliver in a timely fashion.
This article was featured in Accountancy Today.