The spate of recent earnings declarations by the big marketing communications holding companies shows a consistent levelling out of revenue and profit. The commonality of reported performance confirms that this is a trend, not a blip.
The holding companies offer a range of potential reasons for the softening of demand. Many of them are ‘inside out’ views of the advertising industry, where the factors cited are caused by advertiser behaviour, including budget cuts by consumer package goods manufacturers under pressure to maintain margins.
Arguably the real reason for the plateau in advertising spend is much more fundamental; advertising in its conventional sense is no longer pre-eminent in its influence on people’s purchasing behaviour. This is especially the case when everyone is carrying a computer in their pocket that is changing their way of life. The smartphone has changed behaviour and is now changing advertising.
People use smartphones for communication, information, entertainment and transactions, with advertising struggling to find its place in an app-led world. Intrusiveness leads to ad blocking and skipping.
But it’s not just smartphones. We have now genuinely reached an era when multi-channel, multi-device marketing is a reality in all sectors of business, and companies need to manage a complex set of channels and content on a continuous basis.
Consequently, budgets are splintering across a far wider range of marketing levers, including customer experience disciplines that smooth out the path-to-purchase. Conventional advertising remains a core component of the marketing mix, of course, but advertising budgets are growing more slowly than marketing budgets overall. There is increasing investment in technology-led solutions which improve brand engagement and reduce friction in the purchase process.
Faced with the plethora of channels and content needs, companies are increasingly taking more control over those channels and even the content, as evidenced by Unilever’s increasing use of in-house resources.
Apart from the greater control of in-sourcing, companies struggle to find external providers who can deliver the full range of their channel needs. Employing multiple agencies is always an option, but not an ideal one.
Managing multiple data-streams and reporting platforms is another management headache best addressed in-house.
The rise in marketing budgets demonstrates the overall health of the marketing industry, but the new money being generated for the marketing supply-chain is going to the digital marketing and technology experts, and not to the advertising-led traditional players.
Companies need tech-led players who can integrate platforms and data, especially as such new influences as voice recognition begin to play a role in the purchase process.
Trust and transparency also play a role in client investment decisions. They need a new breed of external partners, but ones that they can rely on for absolute dedication and commitment to the company cause, with terms-of-trade that they can take to the bank. They are becoming far less tolerant of conflicts of interest and expect their partners to only ever act in the client’s interests.
The holding companies will no doubt develop new services over time that tap into the growth in digital and customer experience marketing, and will become less reliant on conventional advertising. At the same time, they will need to compete with the new breed of competitors who will offer full transparency over money and data.
Unless the holding companies reinvent themselves to meet the new and wider needs of clients and also regain trust where it has been eroded, earnings calls may continue to be difficult dates in the calendar.