“There’s a ‘perfect storm’ of economic conditions facing agencies at the moment”, says Huber.
High inflation is hitting consumer spending, concerning CPG brands and retailers, as well as increasing pressures around the cost of living for agency workers. Other costs such as energy, transport and direct production costs for creative and production agencies are also up.
“All these factors are coming together at once to provoke an outbreak of caution among marketers as well as agency leaders,” Huber adds. Advertisers hit by any of those issues are likely to be spending less.
There’s a mass of data suggesting brands that increase marketing investment during a recession receive impressive returns. Analytic Partners’ latest ROI Genome report suggested that brands that increased marketing investment during the 2008 Great Recession saw improvements in their return on investment, and brands that increased media investments in the same period saw a 17% rise in sales. But the IPA’s latest ad spend predictions suggest those lessons may not be having much of an impact on those holding the purse strings today.
And clients not cutting their overall spend are putting their media investments in more cautious areas. “The mix of budgets may change,” Huber says. They’re also keeping an eye on rivals as they plan for less lucrative quarters. “Clients are coming to us to ask what’s going on in the market – what are other CMOs doing? What are they planning? They’re trying to get ahead of what’s coming next.”
This article was originally published in The Drum, and has been shortened from the original. To read the full piece, click here.