Close-Up: Live issue - How do you make cash in recession?
By Caroline Lovell, campaignlive.co.uk, Friday, 05 December 2008 12:00AM
Adaptability can ensure the downturn doesn't have to mean gloom for agencies.
During the Second World War, Wrigley's advertised even though you couldn't buy its chewing gum in the shops.
It is often said that brands with the right budget and balls can do well in times of economic crisis if they continue to advertise. After all, many rivals will disappear from marketing view. But as the economic gloom sets in, it's clear that marketing budgets will be cut in 2009 - and agencies are going to have to find new ways to stay profitable.
The first survival tip seems to be simple: demonstrate your value to your clients by saving them money. This can be achieved through making cost-saving deals with repro houses, photographers, production companies or by cutting fees for agency profit bases, such as the studio or producers.
Equally, agencies can increase their income by carrying out tasks that are normally tendered elsewhere, such as qualitative research or design. Heck, they can even cut back on expenses such as fresh flowers, taxis, entertainment.
But there must be more to survival than cost-cutting. How can agencies actually make money in a recession?
Many agency heads have lived through one, or maybe two, recessions during their careers. This time will be different, however. This time there's digital and observers suggest that traditional advertising budgets will be cut first, while direct and digital - because they're smaller, fee-based, and can, in most cases, demonstrate a return on investment - will do better.
So agencies should extend their client relationships by offering a greater number of services that are more accountable. And that makes recession a good time for start-up agencies with new, more flexible ways of working or specialist services not offered by the established pack.
But if you're already an established agency with an entrenched model, finding better ways to work with clients for less needs to be on your corporate agenda. Peter Walker, the finance director at CHI & Partners, says: "The key thing is you won't be able to offer the same level of service. You have to have conversations to do less, to do things better, differently, more effectively."
In client contract terms, Hamish Pringle, the IPA's director-general, says that more than ever, agencies need to focus on the minutiae of the deal: "Discussions on terms of business should be conducted not by relationship managers, but by people with negotiations skills."
Others suggest that agencies need to develop more open relationships with clients so that they can pitch new ideas outside of the norms of a traditional advertising relationship, and perhaps share some of these risks and rewards.
Many even believe a downturn can encourage inventiveness and creativity. Rory Sutherland, the vice-chairman at Ogilvy Group UK, thinks that 2009 could be an exciting year as London may transform itself from a banking to a creative capital.
It seems likely that all agencies, whether big, small, traditional or digital, have the potential to ride the storm, and make money, if they just listen to their clients'needs and change accordingly.
Getting through the recession could be less about who is the fittest and more about who can be most adaptable - whether that's in offering new services, tightening belts or even becoming more creative.
AGENCY HEAD - Rory Sutherland, vice-chairman, Ogilvy Group UK
"A downturn is an interesting time to start a specialist division as it is easier to gain an advantage when everyone is shadowing each other and companies don't have the resources to move into new territories.
"The first thing an agency should do with a brief is say how would we solve it if we had no money at all. Clients should come and talk to us when they've got no money and see what value we can add.
"A recession could be good news for the industry as a collective entity; a recession is the mother of invention."
INDUSTRY BODY - Hamish Pringle, director-general, IPA
"Agencies should look at winning increased share of their existing clients' business and avoid reviews that look as if they'll be conducted unprofessionally.
"It might require investment in new services with greater accountability. During the last recession, those agencies with more lines of business did better than those in single niches.
"Agencies need to empathise with their client's position and put their strategic and creative ability to work on helping them survive during the recession.
"For the power brands, a downturn is the most cost-effective time to win customers - competitors are cutting and media rates are falling."
AGENCY HEAD - Melissa Robertson, joint managing director, Miles Calcraft Briginshaw Duffy
"Part of the challenge lies in demonstrating your value to clients. This may be in evidencing cost savings in third-party costs sourced through you or through different profit bases within the agency.
"You can also help save client money, and generate additional income for the agency by carrying out tasks normally tendered elsewhere.
"Finally, you can show solidarity by putting some of the fixed income - and possible additional monies - into bonus pots. If our contribution results in our clients riding the storm successfully, then the agency can be proportionately rewarded."
AGENCY HEAD - Marc Nohr, chief executive and founder, Kitcatt Nohr Alexander Shaw
"Clients are protecting digital and DM budgets at the expense of generic advertising because we can show them payback. If we can't show payback then we can only offer hope and hope is a tough sell in a recession.
"We must be realistic about what clients need to deliver sales and not whinge about parking long-term customer development programmes. Clients prefer to rent brains rather than bricks, especially when they are focused on immediate income generation.
"You've got to fight for territory within marketing services now; the battleground is more complex. How do you survive? Buy a weaker competitor."
This article was first published on campaignlive.co.uk
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