Digital media continues to put the squeeze on ad spending
As traditional media users and advertising spending shift to digital platforms, it’s causing advertising budgets to shrink. This effect has been called digital deflation. And it’s causing massive headaches for traditional media, advertising and marketing businesses worldwide.
Just look at the experience of WPP – the world’s leading advertising and marketing services company, with US$18 billion of revenue – which cut its 2017 guidance for the second time this year. Revenue growth is now expected to be non-existent and the trajectory may be deteriorating with July 2017 “like-for-like” net sales falling by 2.6 percent. 2017 is on track for its worst result for WPP in terms of “revenue growth” since 2009, when it declined by 8 percent during the depth of the GFC.
WPP’s share price is off by 26 percent from GBP19 to GBP14 in the past six months.
Owner of hundreds of businesses including Ogilvy & Mather, J Walter Thompson, Young & Rubicam, Grey Global Group and Hill &Knowlton, WPP has good transparency on the state of the world economy via the breadth of its clientele. Founder, Sir Martin Sorrell, commented on the pressure from client spending, “particularly in the fast-moving consumer goods or packaged goods sector”.
Proctor & Gamble, Nestle, Unilever and Anheuser-Busch are putting additional pressure on advertising and marketing service firms to reduce the fees they pay for their services. In the world of digital deflation and the growing dominance of Amazon, these large clients have relatively less pricing power in the developed economy markets and their marketing and procurement departments are very focused on costs.
WPP singled out a decline in advertising spending on items such as laundry detergent and toothpaste and Unilever said in its June half-year earnings report that it plans a “step up” in brand and marketing investment in the December half-year. Earlier this year, the company said it planned to cut the number of advertisements it created by 30 percent and reduce the number of creative agencies it works with by half to 1,500.