Will COVID-19 lead to a revolution or an evolution in the advertiser-agency relationship?
Times of crisis – from periodic recessions to the current global pandemic – are hugely disruptive to business in general. The business of marketing and advertising is no different. But it’s how agile companies can be in response to this disruption that will separate successes from failures. It’s also this very agility that will lead to innovation in models, policies, and legislation, setting the ecosystem up for future success and fresh thinking.
Impact on the advertising industry
Even before COVID-19, the advertising industry was going through a period of self-reflection and shake-down. The major holding companies had acquired smaller players across multiple disciplines, leading to complex ownership structures. At times, this led to agencies within the same group competing against one another. What’s more, developments in both technology and consumer behaviour meant that newer, smaller entrants to the market could compete on level terms with the larger groups, on price, agility, and new ideas.
Secondly, the pandemic has led to numerous major events – in sport and live entertainment – being cancelled. This was supposed to be the year of the Tokyo Olympics and Euro 2020 hosted across a dozen countries. The cancellation of these events has led to the loss hundreds of millions of marketing dollars and brands trying to mitigate or exit existing media buying commitments. With most of the world on lockdown, out-of-home and cinema advertising has all-but dried up. Much of this money won’t be reinvested in 2020, and estimates of budget cuts of up to 50% now sound plausible.
Our sister company Ebiquity recently surveyed the outlook of 44 major global advertisers with a combined media spend of over $15bn. Almost all were rethinking budgets for the year, with 80% planning to cut, half by more than 20%. Agency holding companies will need to become leaner just to run profitable businesses. WPP has said it hopes to save $1bn and Publicis €500m in recently-announced cost cutting measures.
So, with less available advertising revenue and smaller agencies able to compete, the question remains whether this approach goes far enough, given brands’ intentions to cut budgets in the short term and significant cuts possible for the rest of 2020, too.
What brands can do to mitigate COVID-19?
With reduced budgets to work with, advertisers may take the opportunity to rethink their agency capabilities and processes to transform their relationships. This could include the drive towards a more cohesive global / regional holding group model to enable agile decision-making, while using local agencies for reactive work. Brands will also be focused on efficiency and transparency around commercial cost structures, and models such as pay-per-performance may become more prevalent.
To meet these lower cost models, agencies may need to rethink their organisational structures. In place of back-office functions in every market, it’s quite possible that agencies will need to transition to a shared professional services function, with legal, HR, IT, and tech all sitting in one or two locations remotely, much the same as many of their clients do already.
Further opportunities may lie with functions including production, studio, and some aspects of creative being outsourced to low-cost locations. This could leave just client-facing staff in market, with freelance support for creative and trading desks for media, as required. As advertisers drive changes in agency structure and service delivery, overhead costs will come under significant pressure, leading to complete transparency of costs when agencies compete for new business.
If advertiser demands succeed in reshaping agency supply, this accelerated process of evolution would in fact be truly revolutionary. Yet it’s often only at times of crisis that such significant changes can be made. To paraphrase Charles Darwin, it is not the strongest or biggest who survive, but those who can evolve and adapt to their environment as change happens.