As we are closing in on the rock bottom of the financial downturn, effect figures are starting to appear left and right. Svenska Dagbladet recently summarized the effects of the downturn (here , here, and here, in Swedish) on the Swedish marketing industry and there are quite a few interesting facts to be evaluated (for recent blog posts on the subject of marketing spend check here, hereand here).
- 19 mid-size advertising agencies have gone out of business since September 2008
- Marketing accounts valued approximately 3 billion SEK have migrated from agency to agency
- Marketing spend is predicted to contract by 13 percent in 2009
As for the number of agencies that have gone out of business – all I can say is that in some cases it is probably deserved and in other cases unfortunate. Mid size advertising agencies are often partner run and owned and the effects are probably greater for the involved individuals than on the marketing industry as such. What is clear is that the downturn has indeed affected a certain segment more severely than others. Larger agencies often have a broader revenue stream and can wear out storms better and the smaller firms are more flexible and tend to specialize.
From a purchasing perspective it is interesting to see in many cases purchasing has been imperatively involved in the sourcing process.
The SvD article claims that the downturn has forced (and in some cases enabled) companies to re-evaluate strategies as well as costs in an effort to maximize marketing effectiveness – in some cases this has meant switching marketing focus (from print to web) in others it’s been the direct effect of decreased marketing budgets.
What is interesting in the SvD article though, is the responses of the agency leaders and what they’ve perceived as drivers for the changes.
Says Björn Larsson, CEO of Lowe Brindfors:
Clients want better control of their total marketing spend, and it becomes easier and more transparent with a single partner. The consolidation favours larger agencies that can manage larger assignments and are well known on the market.
Now, from a marketing spend perspective this is a dangerous path to tread down.
Buying marketing services is more complex than just getting a single partner to ensure transparency. Buying marketing services is best done when purchasing can support the marketing with a correct spend analysis where one can split creative services from production.
To prove the point, ponder a company with four distinct brands – in a not too far past these four brands would work with four different agencies (who in turn controlled both creative and production spend). If they were to follow the advice given above their downturn approach would be to consolidate all spend on one large(r) supplier. Bad choice. This will over time inevitably lead to poorer quality work. The best way to manage this would be to split creative services from production. Let the agencies pitch on creative services for each brand, and pool all the production volumes and source these separately.
To ensure best price on creative services “pitching” is the marketing equivalent of the Brazilian auction: the buyer establishes the price he is willing to pay (i.e. the budget) and vendors pitch their most creative solution (instead of volume which one would see in most Brazilian auctions).
By facilitating a competitive environment and supporting the marketing functions purchasing can act as catalysts for increased effect of ever cent of marketing spend. Still, it is vital that purchasing functions understand the needs of the marketing function as well as the market drivers that can be exploited.
