Capitalise on ad downturn

A significant cut in clients’ advertising spend has left designers cautious of a knock-on effect in the design industry.

“Last time I remember saying ‘this will be good for design’, it wasn’t,” says the eponymous chairman of Rodney Fitch & Co.

Fitch has some less than fond memories of the last recession and remembers, like others who were in business in the early 1990s, that what was bad for the advertising industry was ultimately bad for design.

So this time round, with reports that clients are cutting their ad spend, designers are being cautious about any beneficial knock-on effect for the design industry.

Recent reports from AC Nielsen and the Institute of Practitioners in Advertising both point to small, but significant cutbacks in advertising expenditure.

And while this is due, in part, to the dotcom fallout of recent months, the question is whether the design industry is well positioned to ride any impending storm. Ten years ago, design was a much less mature, less sophisticated beast, and its standing with clients was generally more lowly. Most people did packaging design, interiors or logos.

But when the ad agencies fell out of favour, some consultancies were astute enough to take advantage of the gap they left by way of a cunning repositioning. It’s all about brand guardianship.

“A few of my design clients have moved up the food chain,” says Amanda Merron, partner at accountant Willott Kingston Smith. “Some have been briefing ad agencies on brand values.” This is certainly the experience of consultancies like Wolff Olins, The Identica Partnership, Interbrand and Enterprise IG.

With one client, Identica sits in while ad agencies pitch for the worldwide business. “Brand consultancies are now more at the heart of businesses,” says Identica chairman Michael Peters. “In a recession, design is stable because you can’t let the brand suffer. The brand has to be alive after the recession, so you have to continue to invigorate it.” Compared with an advertising budget, the spend on brand consultancy is relatively small, he adds.

But traditional design businesses have made another, more subtle shift since the last recession. “In recession, sophisticated investors in brands will question where they get value,” says Fitch chief executive officer John Harrison. “Consumers are influenced by brand experience. I think there are advantages to the branding and design industries because they have a natural alliance to brand experience.”

Imagination pioneered the whole brand experience concept, and this style of relationshipbuilding. “There’s a pressure [for clients] to spend on marketing that connects them with consumers,” says Imagination marketing director Ralph Ardill. He predicts the construction of more “social experiences” like Dublin’s Guinness Storehouse, a £30m brand experience visitor attraction designed by Imagination, launched last December (DW 8 December 2000).

Clients which invest in such spaces often expect them to function as profitable businesses, which means they are funded through capital investment rather than from the marketing budget, Ardill notes – a reason why consultancies which are involved in such projects are not too worried about a cut in marketing spend.

As well as some serious repositioning, the last decade has been notable for the number of acquisitions within the design industry. There are hardly any big or medium-sized outfits left that are independent.

So while many groups had to face the last downturn on their own, some of these same groups are now part of a bigger organisation. According to Merron, the impact of this could be twofold: “Consultancies owned by bigger groups are more likely to be in a financial state to weather the storm. [In addition] the external discipline of having a parent group is likely to mean difficult decisions [such as job losses] are made sooner.”

Ian Cochrane, chairman of management consultancy Ticegroup, backs this up: “Those that are part of bigger groups will be shielded. But they’re also under pressure to maintain their margins, so there will be cost-cutting and staff will be let go, which could lead to client dissatisfaction. Whereas smaller [independent] groups can afford to break even for a while, which bigger groups don’t seem to tolerate.”

But there are myriad other design groups that were either unwilling or unable to make that switch to focus on strategic consultancy or “experience”. These are the ones whose health is less secure, for their clients have not come to rely on them so heavily. It’s going to be the lower level of the business that will get hurt if marketing spends are cut, says Cochrane.

And like the big design networks, there is no precedent for how the digital media sector will fare. Logic says that these groups should benefit, if more money is pointed towards direct marketing.

The 15-strong Nykris Digital Design has had more enquiries this year than ever before. It is in demand for a combination of designing new sites and maintenance of existing ones, says director Nikki Barton. “A couple of years ago, people were spending money on things [for their websites] that they didn’t need to. Now people know what they want to get out of it,” she says.

Whatever the recent evidence from the advertising world, the message from design and branding at the moment is positive. They say they are yet to feel any slowdown, and many, like Nykris, are getting busier.

Recession? What recession?

Last autumn ITV companies warn of decline in ad revenues

This month Yahoo! reported that annual revenue growth had plummeted from 100 per cent year-on-year to 10 per cent

In the 11 months to November, the UK’s 30 biggest advertisers cut ad spend by 5 per cent over the period. The biggest spender, Procter & Gamble, cut its spend by 25 per cent. Overall ad revenue declined in real terms by growing at less than the rate of inflation, according to AC Neilsen.

The latest IPA Bellwether Report, the quarterly advertising and marketing industry monitor, forecasts slower growth in marketing spend. Just under half of all companies reported an increase in spend, against just over 18 per cent that were cutting spend.

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