AA/Warc: Industry analysis
UK adspend is expected to fall by -15.6% this year, according to the latest Advertising Association/WARC Expenditure Report – a slight upgrade on earlier forecasts. However, the market won’t return to growth until Q2 2021. Here, industry experts analyse the findings.
The latest AA/WARC expenditure report demonstrates the fragility of UK advertising due to the impact of COVID-19. With the possibility of a second lockdown, government guidelines being revised often, and continued uncertainty around Brexit, it’s difficult to truly establish when we will start seeing a recovery in UK advertising spend.
Although the 2020 spend numbers paint a bleak picture, those advertisers who have continued to spend during lockdown, such as supermarkets and FMCG, have reaped the benefits of a deflationary market, numbers not seen since the last recession. Digital marketing has remained resilient during this time as consumers shift media consumption online, although not all have benefited. Interestingly Google is down for the first time ever, and Twitter is also having a difficult time, showing there is nuance to the digital story.
The big shift to eCommerce also has big consequences for brand messaging and marketing strategies. In this context, having a strong brand has become even more important in order to stand out, and brands shouldn’t lose sight of the impact of brand building, in particular in driving long-term performance coming out of the current recession.
Marketing will be critical to recovery efforts after this crisis. With this in mind, incentives such as the Advertising Associations Tax scheme will go a long way in encouraging advertisers to spend. However new HFSS restrictions poised for 2022 will only add further red tape. As such, brands need to remain agile and continue to optimise on a regular basis, and need to be in tune with consumer sentiment, spending power, and consumption patterns.
It is no surprise to see the 39% decline reported in Q2 and it is easy to feel doom and gloom about all the negative numbers. However, the recovering trend is the important part. We have seen the TV market begin to, if not bounce, I would say certainly lightly spring into recovery from the beginning of Q3 onwards. As people return to their jobs and offices so the media will also return, particularly in Out Of Home. It just may not return in quite the same way, reflecting the changes to the way we choose to work going forward.
Further heart can be taken from the improving outlook for the year as a whole moving from -16.7% in April to -15.6% now. Of course there are potential pitfalls as we move forward; a second wave, increasing unemployment. However with people returning to some sense of normality and consumers starting to spend again there are as many reasons to be positive.
The adspend figures present a stark, but not unexpected picture of the current UK advertising landscape, and is one that is reflective of what is happening at a global level. While the industry is cautiously predicting an upturn in spends in the latter part of the year, the current figures demonstrate how agencies, clients and media partners need to work more closely together than ever to support the recovery.
The ongoing pandemic will lead to long-term behaviour change both from consumers and marketers, so as agencies we need to help brands to adapt to the changing landscape. It’s those who can move fastest to adapt to new behaviours who will see the most success. We can no longer rely on what has worked in the past, we need to meet shifting customer expectations of brands instead.
The value of advertising spend during tough economic conditions has never been more important, so as an industry we need to come together to make it as easy as possible for brands to invest.
Jeremy Hine, group CEO, MullenLowe Group UK
After nine consecutive years of market growth, the AA/WARC report has found that adspend growth, understandably given current circumstances, has finally come to a halt. COVID 19 has completely upended the advertising industry’s upward trajectory and caused brands to revaluate their marketing strategies and to cut budgets.
While marketers will welcome the report’s claim that growth will return in 2021, the sector should remain vigilant. Adspend is only set to outperform 2019 levels by 2022 but budgets could still slump even further.
In this time of uncertainty, agencies must continue to prove their worth. They must deliver a brilliant integrated product, media thinking and creative output, that punches above its weight. It is paramount on marketers, with the support of agency partners, to demonstrate the value of creativity on a company’s bottom line. Marketers need to react to and solve business challenges with campaigns that stand out, have an impact and deliver results.
As we continue through Covid-19, we are seeing a more fragmented reality arising in how different groups are experiencing it and impacted by it. This fragmentation will create shifts in media consumption for different groups, which should grow with time through 2020 and 2021.
Those who are less financially or medically vulnerable during the pandemic are going to drive a return of certain channels’ value (e.g. cinema and OOH), but others (the elderly and medically vulnerable, the furloughed, those made redundant) will have their lives, behaviours and subsequently media consumption shifted.
The least surprising, but most notable, shifts are towards on-demand channels with greater flexibility for messaging and budget fluidity. While these shifts towards digital display and video, as well as FEP VOD formats (OTT/CTV) have been propelled by the pandemic and subsequent lockdown, we anticipate this evolution to remain even as we transition out of lockdown and back to normalcy.
The value of a channel is contingent on the audience you can reach and while we will see value return for channels depressed by Covid, both short term and long term differences in the pandemic’s impact will keep us from returning to ‘normal’.
While there is a slight improvement in ad spend predicted in the latest AA/WARC expenditure report, it also shows we still have a long road to recovery. Government aids may help contribute to this recovery, but it won’t necessarily be felt across all industries.
As brand exposure advertising such as out of home is expected to decline by 70.4%, some businesses will suffer from a lack of brand awareness and competitors encroaching on their space if they don’t start utilising online to its full potential. This is usually the state of play with brick and mortar businesses which rely heavily on footfall and naturally choose to advertise close by to drive consumers in store.
Although both search and display is predicted to see a dip in spend, they’re not suffering as bad a fate in comparison to other channels. Advertising is going to be a vital lifeline for struggling businesses if the industry is to start on an upward trajectory from 2021. However, brands which have already adopted an omnichannel approach or have a strong online presence are likely to bounce back quicker.
A tax incentive scheme will hopefully encourage a return to advertising, but it will be interesting to see the incremental effect offline has on online, and how quickly businesses reinvest into their marketing channels.
Justine O’Neill, director, Analytic Partners
It would be an understatement to say that Q2 was a massive shock to the UK adspend market. So, it is great to see that the decline was lower than expected and strong growth is predicted in 2021, a much needed boost of positivity for the industry.
We saw many brands pull their marketing investment in the depth of the crisis. But this report, and our own data, shows that we are starting to see many industries (unfortunately not all) looking to rebuild and move towards growth, aware of the risks not maintaining brand presence can bring.
Whilst these figures indicate that at least some level of confidence is returning to the sector, it is also confirming the previous predicted trends of decline in TV and growth in digital. This channel shift is by no means set in stone however and it will be interesting to see how it evolves as marketing plans get back on track and we get greater visibility of data.
While times are challenging for some brands, others have a great opportunity to be brave, try new things and capitalize on a less crowded market to relook at their marketing mix, consider new channels and ultimately make strong gains, both short and longer term, in the efficiency of their marketing pounds.