The World: How agencies are coping with global client cuts

As consumer nervousness about spending grows, advertisers are reluctant to commit to budgets, Claire Billings writes.

An uncomfortable reality of a recession is that ad and marketing budgets are among the first to be cut. In the UK, the most recent Bellwether Report revealed record cuts in adspend. In the US, the likes of Nike, FedEx, Procter & Gamble and General Motors have slashed their marketing budgets.

In Japan, which relies on exports of electronic goods and cars, the biggest ad agency, Dentsu, has cut its income predictions for the year. Along with Hakuhodo and Asatsu DK, respectively the number two and three in the market, Dentsu has cut its ad rates by 40 per cent.

"Japanese companies mainly export to the US, China and other countries," Yukihiro Oguchi, a senior manager at Dentsu Japan, explains. "Moreover, the yen is very strong, so it's a double punch."

Elsewhere in Asia, the situation is patchy. China and India are still showing growth, albeit slower because of their reliance on exports to the US and Western Europe. Elsewhere, Thailand's travel industry has yet to recover from the social unrest at airports last year.

"There are budget cuts but not across all sectors: we are still seeing considerable growth in FMCG," Chris Thomas, the chairman and chief executive of BBDO Asia, says.

Budget cuts in Australia have been postponed because Christmas figures were better than expected. Marketers are adopting "a wait-and-see approach to budget cutting until Easter", Nigel Marsh, the chief executive of Young & Rubicam Brands AMZ, says.

In Europe, the only bright spot appears to be the Central and Eastern regions, which Maurice Levy, the chairman and chief executive of Publicis Groupe, points out are emerging markets and receiving aid from the European Union.

So how is the recession affecting the day-to-day lives of agencies and advertisers around the world?

"Consumers are hearing and watching quite dramatic news on the crisis and even if they have not been touched personally, they believe they will be," Levy explains. "So, their reaction is to be very cautious and to do their best to avoid being caught by it. This means we have to change the language, the creative approach."

Gwyn Jones, the group chief operating officer at Bartle Bogle Hegarty, says that advertisers are also nervous about the long term. "There is clearly more caution," he says. "Clients seem to be less willing to commit forward on budgets. It's not that they won't end up investing but there is less certainty about it."

In some markets, there has been an inevitable rise in pitch activity. Australia has seen the creative accounts for Coles Supermarkets and Myer department stores come up for grabs. Ditto the media accounts for Fairfax and Vodafone.

"Agency speculation is that almost all of these pitches were driven by a desire to push costs down, rather than selecting an agency based on strategic or creative ability, which is sad," Paul Bradbury, the managing director of Whybin\TBWA in Sydney, says.

In Brazil, where recession has yet to take hold, Alexandre Gama, the president and chief creative and planning officer of Neogama/BBH, adds: "I believe there will be an increase in pitches this year due to the search for higher efficacy from clients."

Obviously, the slump will be felt more acutely by those agencies that rely in large part on clients in troubled industries such as the automobile business, but because of the growing nervousness, few sectors will be protected.

Andrew Robertson, the president and chief executive of BBDO Worldwide, says: "The nature of the impact on the agency depends on its clients. Having said that, if you look at changes in consumer behaviour, some consistent patterns emerge. People are trading down, trading out and, occasionally, trading up. Where they can change one product to another with a big price saving and a small perceived reduction in quality, they do. So, in many markets and categories, there is growth in private label share and if a brand is at risk of this, we have to make a stronger case for its quality."

So, what lessons can be learned?

Richard Pinder, the Publicis chief operating officer, believes that while there's no denying we're in the grip of a financial crisis, advertisers should be careful not to be too downbeat.

"I find it disappointing that so many people throw all marketing principles out the window by holding up a mirror to what the consumers are feeling and saying 'yeah, you're right'. How does that help the consumer? How does that make them feel good about your brand?

"Brands should be saying 'we can give you a little bit of joy'. That's where they can hugely succeed and communicate in this time."

Robertson recognises the change in consumer behaviour that has led to people cutting back in categories that involve credit, yet he notes there are ways to get around this.

"They are trading out of consumer durables, holiday and car purchases because they're postponable, and even if they want to buy now, they can't get credit," he points out. "Hyundai in the US has a campaign promising that, if you lease a car from them, and lose your job, you can give the car back. It's an interesting strategy."

Many of the world's ad markets are suffering, then, but there are opportunities for advertising to reassert its strengths.

Levy says: "I believe the crisis should signal the return of the creative agency, because we need imaginative solutions more than ever. Great ideas will make sure that people change their behaviour and look positively towards the future.

"If we want people to buy products, invest in their house or anything else, we need to find new ideas and a new approach to connect much better with the audience."

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