(Whirl)Wind of Change
Many of us are still trying to grasp the severity of the current coronavirus pandemic, which has not only uprooted the daily lives of consumers but also the way business is conducted across the world. While every industry is being affected, the advertising space has been dealing with a whirlwind of swift, whiplash-inducing changes. Like any great story, in order to fully grasp how the various sectors of this industry have been transformed, it involves looking at the past, present, and future.
Let’s Rewind: “The Past”
The multibillion-dollar advertising industry is a fast-paced, competitively complex, and increasingly cluttered thunderdome, housing thousands of media companies, publishers, analytic and measurement firms, agencies, and advertising brands. Over the last few years, the U.S. ad industry has experienced consistent growth and is expected to reach $52.6b by 2023. Digital media has played a significant role in this growth, with agencies now investing more to integrate advanced technologies with their legacy systems. In 2017, the share of digital ad revenue surpassed the 50% milestone, almost double 2009 levels. Despite varying specialties, the different sectors of the ad industry collaboratively unite with a common goal in mind: to effectively and creatively connect with consumers in order to form meaningful brand relationships. Ad agencies are potentially the most versatile (and volatile) sector, serving as the middlemen of the industry. In 2017, there were over 13k ad agencies in the U.S.¹ Just as ads come in a wide range of formats, there are different types of agencies that brands can choose to partner with based on their specific goals. There are full-service agencies, which provide a complete range of ad-related offerings across all media and markets, and specialty agencies of all sizes, which tout specific expertise including traditional, digital, public relations, social media, creative, and media buying. In general, ad agencies have been placed under growing pressure by squeezed margins, movement to in-house agencies by advertisers, increased competition from consultancies, and increasing demands by clients seeking the best way to reach consumers.
How Coronavirus Is Changing The Ad Space: “The Present”
There are numerous factors at play in the daily agency world including, client demands, consumer behavior, technology changes, data innovations, talent acquisition and retention, in addition to financial pressures and harsh deadlines. The unprecedented coronavirus pandemic has caused a lot of knee-jerk reactions and hasty changes in media deals. No vertical has been left untouched. A surge in ecommerce activity and new brand safety concerns as coverage of the outbreak unfolds has forced marketers to quickly adapt their business models to better serve their customers, in turn, putting more pressure on agencies. As brands continue to work on establishing their ground, agencies have been placed in a unique position. They are internally dealing with on-going layoffs, furloughs, hiring freezes, and restructuring, while simultaneously playing mediator for panicked clients and pivoting strategies following significant ad spending decreases, budget reallocations, and canceled pitches and events. Some agencies are temporarily shifting priorities, putting their talent and resources into helping those who are fighting the pandemic on the front lines. Larger agencies that have taken bigger hits with layoffs, have created resources like job boards to connect job seekers with companies that are currently hiring. On one hand, agencies are dealing with the on-going rejiggering (note: not canceling) of media plans by clients. On the other hand, they are also working with media companies and publishers to make sure that campaigns are appropriately rescheduled. While 89% of advertisers have been disrupted by COVID-19, only a third have canceled a campaign outright. The rest are changing their media mix and/or looking to shift their spending into the second half of the year. Despite the shifting of current media dollars, 81% of advertisers expect to cut ad budgets significantly this year, and 68% expect to spend less next year because of the pandemic.² As ad dollars are being reconsidered, many advertisers and agencies are taking severe cost-cutting measures by cutting any discretionary expenses they can. Speaking of “discretionary” costs, there are apparently unpaid bills plaguing the space. According to the Association of Independent Commercial Producers (AICP), advertisers and their ad agencies currently owe production and post-production companies more than $200m for work on commercial shoots that were completed but not paid for when work abruptly halted because of the coronavirus shutdown. The industry as a whole will need to solve for this financial gap in supporting the increasingly important production community because when we come out on the other end of this global crisis, marketers and their agencies will need the ingenuity of the production and post community more than ever to create communications to reach customers and stimulate the economy.³
Hey, Watch Your Tone.
Given the current state of the economy and the on-going health concerns, there is an increasing concern regarding sensitivity with advertiser messaging. Advertisers who aren’t careful with the execution of their campaigns risk looking tone-deaf or (potentially worse) like they are trying to capitalize on a global health crisis. Some brands have been applauded for their responses to the coronavirus crisis, while others have completely missed the mark resulting in widespread backlash. Some brands have even changed their logo to encourage people to practice social distancing measures. Ultimately, it is the messages of resilience, hope, solidarity, kindness, love, humanity, and advice on how to create the new normal that have been well received by consumers desperately seeking honest communications during this uncertain time. Emphasis in brand messaging may shift, with greater resources needed to reconfigure media plans, but the need for effective channels to reach consumers still remains. Considering the exorbitant amount of time consumers are currently spending at home, agencies should look to digital solutions.
Independent Agencies Were Made For Times Like These
In the current economy, clients want to eliminate any unnecessary overhead or talent they don’t need, which gives a leg up to smaller, independent agencies. The smaller shops have cut out a lot of the fat that clients don’t want to pay for. They also have the autonomy to make their own decisions since they’re not beholden to a parent company. Independent agencies are more nimble, adaptable, unfiltered, cost-effective, responsive, and entrepreneurial by nature. While independent agencies who don’t have holding companies hanging over may have more freedom, they also face a number of incoming trends and challenges in an ever-changing ad space, driven by shifting media consumption and new technologies. As marketers and publishers continue to navigate these uncharted waters, searching for a refreshed perspective on best practices for brand suitability, independent agencies offer unique advantages. Online advertising or retargeting (59%) and personalization (56%) were reportedly the top two trends that agencies would be used for in the year ahead. Delivering innovative ideas and attributing revenue to marketing are the top barriers to the success of a client/agency relationship according to ~46.5% of marketers.4 Indie agencies are also more likely to have happier employees. Seventy percent of independent agency employees said they are happy in their jobs, compared to just 53% of those at agencies owned by holding companies. Seventy percent of staffers at independent agencies also described their workplace environment as positive, (vs. 49% of staffers at holding company-owned agencies).
What Comes Next?: “The Future”
It’s safe to say that there are more questions than answers right now regarding what the future holds for the industry. It’s important for independent agencies to focus on surviving the short-term, but also consider what the upcoming weeks and months could look like. So how can indie agencies set themselves up for long term success, while also maintaining “business as usual” operations in the meantime? Adapt, adapt, adapt – but first, they must prioritize the health and safety of their employees. Sure, technology aids in daily processes but it’s the people that are the bread and butter of the business. It goes without saying, it is better to be proactive than reactive in the ad industry. However, the COVID-19 outbreak has proven to be a situation that no one was prepared for. As agencies guide their clients through the current crisis, they must take this as a lesson when developing a post-COVID plan. 82% of U.S. agency and marketing professionals admitted to having no contingency plans in place to manage media investments in the face of a large-scale national or global event.2 During uncertain economic times, as brands face declining revenues and shortages of cash, natural tendency has been to cut back on seemingly “discretionary expenditures” such as R&D, marketing, and advertising. The universal conflict seems to be whether such cutbacks are wise or detrimental in the short- or long-term. However, past examples of brands continuing to advertise through economic hardships such as the 2008 recession, have proven that it is beneficial in the long run. Consider this: over half of U.S. consumers said they’ve opted to delay the purchasing of various products and big-ticket items in light of the outbreak.6 That means brands will want to ensure these products are top of mind when the outbreak-trajectory begins to improve and they resume spending. When marketers cut back on their ad spending, the brand loses its “share of mind” with consumers, with the potential of losing current – and possibly future – sales. An increase in “share of voice” typically leads to an increase in “share of market.” An increase in market share results with an increase in profits.
Dig Deeper For A More Solid Foundation
The current pandemic aside, what will independent agencies have to do to stay ahead of the incessantly shifting industry? Research and insights will serve to assist in creating a successful path forward. CMOs are zeroing in on consumer data now more than ever and that data has to be actionable and fuel powerful stories. Agencies who are able to marry creativity and data will be best fit to take their clients’ rapidly changing needs to the next level by providing rational perspective on current and future forces and trends affecting the marketplace. It is important to keep track of changing media landscape and consumer sentiments, which ultimately drive purchasing behaviors. Throughout its history, the advertising industry is no stranger to disruption. Having shown continued resilience, there is no doubt that it will continue to do so given the innovation and proven adaptability of agencies. While there’s no official rulebook on how independent agencies should handle the current situation, their smaller teams and flexibility offer an advantage in this ad climate. It may involve reconfiguring strategy but it is possible to add value for clients and exceed expectations without pushing spend. Agencies need to concentrate on outcomes rather than the number of bodies for campaigns. All solid relationships are built on trust and communication. Indie agencies should most importantly focus on maintaining meaningful and transparent human relationships with their clients. At the end of the day, what’s an advertisement without the most important people on either side of it?
- Statista, November 2019, “Number Of Establishments in the Advertising and Related Services Industry in the United States from 2007 to 2017, By Sector”.
- Advertiser Perceptions, March 2020, The Coronavirus Effect On Advertising Report
- Deadline, March 23, 2020, “Commercial Houses Owed $200 Million By Advertisers And Ad Agencies For Work Before Shutdown, Trade Group Says” Article
- Agency Trends Survey. Conducted by Ascend2 and Research Partners, March 2020
- Digiday, Agency Culture And Employment Report Spring 2019
- GlobalWebIndex, March 2020, Release 3: Multi-market research