The UK and Western Europe were hard hit in 2009 by recession, with clients abruptly cutting marketing spend and setting their marketing suppliers the ‘challenge’ of delivering the same service for as much as 50 per cent less cost. Creative businesses have had to cut costs and reinvent their delivery process in order to rise to this challenge. Profits have suffered and businesses which have maintained revenue levels have done so by growing in a shrinking market and seizing market share. Will 2010 be better? Well, it might, but not necessarily, because green shoots have turned into tall conifers.
WPP chief executive Sir Martin Sorrell’s ‘L-shaped’ prediction for the current recession has been updated, with the recovery from this downturn now predicted as ‘LUV-shaped’. The LUV shape is made up of an L-shaped recovery for Western Europe, a U-shaped one for North America and a V-shaped one for Brazil, Russia, India, China and the ‘next 11’ emerging economies (Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, South Korea, Turkey and Vietnam).
Notwithstanding this downbeat prediction for the UK economy, GDP is likely to be positive in 2010, but marketing spend usually lags behind, and so any significant recovery for the marketing sector is unlikely to be felt before 2011. But 2010 will see a continued change to the make-up of the marketing sector. Recessions provide a real test for businesses and tremendous pressure on management to define very clearly what the business offer is and to shape this to meet the demands of the marketplace. This is even more important when suppliers are chasing fewer business opportunities and clients are looking very carefully at the value they get for every pound they spend.
Historically, recessions have provided an opening for new ideas that precisely address the customer’s need to flourish – in fact, many household names, such as Burger King, Hyatt Hotels, FedEx, CNN and Microsoft all started out of recession.
There’ll be more start-ups. It is tempting to suggest that the current recession will see more start-ups driven by those who have been made redundant and choose to start their own business rather than tackle a difficult job market. No doubt this is partly true, but those businesses that go the distance are those started by executives who see a divergence between what the market needs and what their current business is delivering. With little prospect of turning a substantial business around in the short term, they opt to leave and start one which can exactly reflect their vision.
Market reports continue to reflect a switch in client spend to digital marketing, away from more traditional media. Feedback from businesses across all marketing disciplines suggests that clients require that any creative solution now needs to work across more executions.
Marketing businesses need to think ‘wide’, but also need to be focused. The marketing sector has rapidly become even more over-supplied than usual, which demands more focus and ‘stand out’ to survive. Businesses which don’t have a point of difference will struggle and may fail. At the same time, we will see more convergence as creative businesses battle to lead strategic thinking across all media. Content will become an increasingly interesting area. Gamers will happily accept advertising content embedded in their games even though Sky Plus users skip through them. The specialisms which will thrive are direct marketing, digital and mobile. Public relations and public affairs, too, can expect a prosperous future as the sector’s traditional skills – building relationships and influencing opinion-formers – are brought to bear on the new online world.
Consolidation will continue to be a feature. Clients are likely to consolidate, with more mergers and takeovers. In turn, they will continue to consolidate suppliers and reduce the number of relationships they have to manage and increase their purchasing power. Growing existing client relationships rather than chasing new ones may be a winning strategy. At the same time we’ll see consolidation among creative businesses seeking to gain critical mass and rationalise central overheads. We will also see some businesses which don’t act or react and won’t be here at the end of 2010, as their balance sheets won’t be strong enough to survive the recession.
We will also see businesses improving profitability in 2010, having worked hard in 2009 to restructure their operations to meet the challenges of the recession. It is these businesses, which have improved efficiency, worked on their offer and how to deliver it, which will benefit first from any upturn.
Amanda Merron is a partner at accountant Kingston Smith W1