Growth wanted

In an economic downturn, the marketing budget is often the first item on the chopping block for businesses looking to cut costs. Clients selling highly discretionary items and luxury brands are cutting back on advertising as much of their target consumer market goes back to basics.

Sellers of big ticket items are in a similar boat as consumers become more reluctant to take on additional debt to fund purchases. Industry revenue over the five year period from 2004-05 to the conclusion of 2009-10 will only show a very marginal gain when averaged across the period, growing at a rate of 0.8% per year.

With clients going back to basics, focusing on targeted and measurable advertising in order to control costs and avoid ineffective spending, the advertising services industry revenue is expected to contract in both 2008-09 and 2009-10.

History suggests that in some industries, such as those selling low involvement, frequent purchase products, continuing to spend on advertising through difficult times can have rewards in the longer term. More advertisements emphasising value are appearing, and at the time of the Government’s stimulus handouts, advertisements aimed at stimulus spenders were common. The downturn is not expected to slow the move toward online advertising, as online can be a cheaper alternative to traditional mass media.

Additionally, with faster internet connections and increasing bandwidth limits, people are consuming more media online and via mobile phones, and less through traditional media such as television, newspaper and radio. People are going online to watch television programs and sporting events, access news and information, and keep in touch with friends and family.

Industry revenue over the outlook period to the conclusion of the 2014-15 fiscal year is anticipated to well outperform the average generated over the current performance period, growing at an average annual rate of 3.0%. Economic growth is forecast to strengthen in 2010-11 after the two lean years. As job losses slow and confidence returns, stronger growth in household disposable income and expenditure will encourage greater spending on advertising by industry clients.

The redirection of marketing budgets away from main media advertising to more direct forms will continue, with more advertising firms following the lead of major players by combining with PR agencies, market research firms and other complementary advertising agencies to become one stop shops for clients’ marketing and communications needs.

Over the whole of the outlook period continuing industry consolidation is expected to occur, partly related to increasing mergers of major companies internationally, but also due to local conditions, as firms seek out further revenue growth.

Also, the Australia-US Free Trade Agreement and the relaxation of some direct investment conditions, may lead to increasing investment/acquisitions by American agencies in the local industry. Also over the period many small and newly established creative agencies, with people formerly from the larger agencies, are and will continue to actively compete (and winning some accounts) against the larger and more established ones. Some of these smaller agencies can now guarantee that senior people will be assigned and actually work on clients’ accounts and are more responsive to clients’ needs.

Key success factors for operators in the industry:

• Close monitoring of competition. Agencies need to be entrepreneurial and aware of what is happening in the industry, with consumers and with client’s products and their competition. Agencies also need to be aware of which accounts are or may come under review.
• Access to niche markets. For the smaller operator to develop over time specialist skills or specialise in certain key areas/industries. Many larger agencies now have links with companies to provide a one-stop shop service.
• Having a loyal customer base. The development of a base of loyal clients (based on satisfaction with campaigns and the results achieved) so as to have a significant component of fee income from repeat work.
• Ability to effectively communicate and negotiate. The quality of strategic thinking and the strength and quality of creative ideas is vital in winning and holding accounts.
• Effective cost controls. To always provide quality service to clients (through continually delivering quality products to clients both within time and budget) and to tailor service fees to meet clients’ budget and needs.
• Marketing of differentiated products. To develop differentiated campaigns for clients based on quality market research and strategic thinking.
• Use of production techniques that add value to base product(s). To have a close association with all media, and to have some media clout to obtain the best results for the client in its overall media spend/budget. To have available a number of value-added services which can be used by clients, including web pages, etc.
• Access to a highly skilled workforce. To have in-house, or at least access to, consultants with specialist strategic thinking and creative skills.

Robert Bryant is the general manager of business information firm IBISWorld.