Language: EN | ES

Ad spending forecast: cloudy with a chance of recession

This article is also available in Spanish. Please use the toggle above the headline to switch languages. Visit digiday.com/es to read more content in Spanish.

A conservative but not dystopian thought to consider: slow ad spending might not be as bleak as everyone thinks.

To be clear, things are bleak — online advertising’s uncurbed euphoria slammed into a harsh reality this year. The layoffs and closures across the media industry are proof of that phenomenon.

Granted, it was inevitable because the rampant growth spurt online advertising has been on was always going to run out of steam. This slowdown is providing a much-needed reality check of sorts for swathes of the market. Inevitable because the rampant growth spurt online advertising has been on was always going to run out of steam.

Online ad spending is maturing and a look at the data gives grounds for cautious optimism — for now, at least.

Whether it’s GroupM or IPG, investment banks or Enders, the data all points to the same thing: so far this slowdown has been only up to a point — the point where digital ad spending aligns with pre-pandemic trends. 

Ad spending could slow down to below 2018 and 2019 growth levels — there’s too much uncertainty over everything to think otherwise. But for now, at least, advertisers continue to spend more, not less. There aren’t too many reasons for them not to right now. 

For starters, this downturn isn’t triggering the same sort of reverberations as previous ones. 

Unemployment, which usually goes hand in hand with a financial crisis, is low in mature markets like the U.K., the U.S. and Australia. Which is to say more people feel like they have economic support to wriggle through this downturn. That’s always good for marketers, especially those being asked to convince people to accept price hikes as a result of higher production costs. 

Remember, prices are sticky, marketers like to say. Once they go up, they rarely go back down quickly (if at all). Why would they if shoppers haven’t balked at the hikes? But if they did erode then it would only be by a bit. That’s what normally happens. Companies give shoppers a bit of an ease, but not too much to squeeze already widened margins.

“When the cost of inputs goes up and advertisers are able to raise the prices and recoup that from consumers then revenue goes up as does advertising because it’s budgeted as a percentage of revenue,” said Kate Scott-Dawkins, global director of business intelligence at GroupM. “It’s arguable that inflation has had somewhat of a positive effect on advertising.”

So while there is clearly some contraction in ad dollars from cautious marketers, this ad slowdown has been more defined by where ad dollars have gone, rather than what got cut. 

Retail media is a case in point. Procter & Gamble already spends around 11% of its media dollars on retail search.

“A lot of this money being spent is incremental because its from a shopper marketing budget that hasn’t included in ad spend yet,” said James Chandler, CMO at the IAB U.K. “This is new money coming into the market which will have a good effect on digital ad spend.”

None of this is to say that the future is all sunshine, rainbows and lollipops for the ad industry. 

On the contrary, these are precarious times. 

Think about the economic factors that are putting the word recession in people’s mouths. Ad spending has slowed this year (beyond the obvious pull-through effect fade) due to a grim confluence of waning ad measurement, rising shipping costs, newly-sober public markets, rising online ad prices and smaller-than-expected customer bases for direct-to-consumer businesses. 

The economic headwinds have’t really hit marketers yet. But there’s every chance they will sooner, not later. After all, there are many households grappling with real income declines, some more than others. To say nothing of the cost of capital and how that will take its toll on smaller advertisers.

“One thing we have noticed is that a few of our clients are looking to start running on media that they can easily pause,” said Will Jennings, head of paid media at performance agency, ROAST. “They don’t necessarily want to have to fulfill commitments with publishers, if they can see that money isn’t working. There’s still budget in the brands but they’re more cost sensitive about turning it on and off. They want to be more agile about how they spend that money.”

That certainly seems to be the main concern emanating from many 2023 budget meetings so far, according to several agency executives interviewed for this article. The consensus being that scenario planning is priority number one. Marketers want to know what the impact would be to their business if they cut their ad budgets lightly, notably or aggressively. They know that ad dollars are the least accountable in any organization and will be the first to go if things go sideways. A time to plan for the worst, and hope for the best if ever there was one.

The next quarter will be one of the first real stress tests for this approach.

“In many markets the upfront commitments are a good signal to the strength of demand as well as what channels advertisers are going to put an emphasis on,” said IAB Europe chief economist Daniel Knapp.

It’s one of many indicators giving off very mixed signals to marketers.

On the one hand, interest rates look like they’re going to continue to rise to suppress inflation, but on the other it looks like central banks are going to change tact. 

Sometimes it seems like consumers are going to be left out in the cold, but at other moments it looks like governments will bail them out should the worst case scenario flicker into focus. 

Perhaps, there will be a wave of mass unemployment given recent layoffs across industries like tech and media, and yet all signs (at least for now) point to concerns about vacancies not being filled. 

That’s a lot of ifs, buts and maybes marketers are having to hedge against. 

https://digiday.com/?p=480143

More in Marketing

Cannes Briefing: Digiday’s guide to the 2024 Cannes Lions International Festival of Creativity

Here’s Digiday’s guide to the 2024 Cannes Lions International Festival of Creativity.

Why Euro 2024 is ‘a big step change’ for the areas advertisers will rely on

Digiday identifies the key marketing battlegrounds at this year’s tournament.