For advertising agencies these are difficult times as they’re faced with confusing messages about the future of the industry. On the one hand, one leading media buyer has predicted that revenues will soar in the coming year. On the other, agency bosses are waiting for the axe to fall on many public sector marketing budgets.
They are also working through a seismic shift in the way advertising works. In September last year, more money was spent in the UK buying online adverts than on terrestrial TV. It was the first time that had happened anywhere in the world, and that trend is accelerating.
Figures from Internet Advertising Bureau showed that 30% of all UK advertising budgets are now spent online – that’s the highest share of any market in Europe. Its survey, produced with PwC, shows that the UK online market also grew by 4.6% last year.
Another change it reported was on the amount being spent on mobile phone advertising – up by 32% last year to over £37bn. It says that’s a faster rate than expected due to a combination of targeting, immediacy and return on investment.
Advertising agencies in Scotland have been seeing that in action and are having to adapt. The Leith Agency, for instance, now offers a broad spectrum of services, from setting up a brand and design consultancy called “Leithal Thinking”, to direct response and digital marketing.
For the first time, they’re having to design online campaigns for some clients that almost guarantee a response from a buyer. It’s no longer just about brand awareness. Their effectiveness is judged solely by the numbers of viewers who click and buy.
Managing partner, Richard Marsham, says there are clear signs that the amount companies are spending on advertising is starting to recover quite rapidly. “Last year a lot had battened down the hatches,” he explained. “It was almost as though the country had put up a ‘closed’ sign. No-one knew how bad it was going to get and a lot of companies went under.
“But the first six months of the year have been very good for us. The work kept coming in. Yes, some clients in the financial sector cut back but we don’t have many. And others, such as in the drinks sector, were also still spending as normal. We also won public sector work throughout the UK. While that will inevitably be cut back, the work is still there – it’s just a lot more competitive.”
At The Gate, managing director, Helen Hourston, is also breathing a sigh of relief. “It’s been a tough couple of years but we have weathered them OK,” she says. “In fact, we’ve had two good years financially and hit the budgets set by our parent PLC.”
But she admits that “we’ve been lucky. Everything is much more project driven. The downside of that is that these can be cancelled or postponed. We went into 2010 thinking we’d make our targets. But my personal feeling is that next year will be the toughest.”
With all the reports about big cuts in public spending, she also feels relieved to be “not overly dependent on the public sector – only up to 35% of our revenue. The company is on the Scottish Government’s roster but only on the digital side.”
For some of the smaller agencies, the past couple of years have been cruel. Alex Stewart of Ocean70 had to cut the number of staff from nine to two and also moved out of expensive offices in Glasgow; the company’s now based in Linlithgow.
“From October 2008 a lot of clients just stopped spending.” he says, “We had to dig deep into our savings just to survive. And even now when the phone’s started ringing on a daily basis, people are asking for more discounted work. We have to work harder for every contract and make sure the service is up to scratch.
“Clients have also moved online. They’re looking at search engine optimisation, at email marketing and upgrading their websites. They want value for money and something that’s trackable. Make a TV ad and you can’t measure the results. Put the same thing online and you can. They get much more for the same money.”
Jim Devine of 21nine Advertising & Design also says he’s been going back to basics. “I’ve ended up spending a lot of time on my own marketing. Yes, there’s been a pick up in spending; but most clients want web advertising now.
“In the past year,” he says, “we’ve done no physical advertising. There’s also been a massive fall in TV advertising. There are signs of an upturn but it’s very patchy. Clients now want branding and you really have to be clever about what you’re offering for as little money as possible.”
But amongst the new entrants to the sector, there’s considerable optimism. The Borders-based Fruitful Advertising and Design started up in January 2007. Director Giles Etherington says that the timing helped because it was “still a nimble agency when the recession hit. As a start up, working outside the big cities, we have a distinct value for money advantage over the bigger agencies.
“When clients are looking to save money, but not skimp on quality, we became an attractive alternative. This has helped us not only survive, but thrive through the recession. We didn’t need to lay anybody off. We have probably used a little less freelance resource than we would have liked, but now we are looking to take people on.”
That said, he admits that clients did cut their budgets and they’re not expecting them to come back fully until 2011. However, he says that “a recession focusses all businesses on where they spend their money. Many clients will have seen that they can get the same quality of creative work from the smaller, nibbler agencies and will be reluctant to go back to the old way of doing things.
“I see the future of the industry being smaller companies working collaboratively to provide the client with the spectrum of services they require. But, it will only be those who provide the best quality and best service that will survive.”
Curiously, that’s a view shared by even some of the larger agencies. The Leith Agency has seen a growth in collaboration because, as Richard Marsham explains, “very few clients want a one-stop-shop. The majority are looking at key skills, at good ideas and creativity.”
But at The Gate, Helen Hourston argues that “people are no longer looking for specialists. They want agencies that can deliver a broad package across multiple channels. The old models no longer really apply.
“Clients will tell us: here’s the brand,” she explains, “now deliver it across a broad range of channels – direct marketing, radio, TV, online, PR, even community activity and in-store sales promotion. It’s a lot harder to deliver. There’s an expectation that you can deliver everything.”
Hourston also believes that the sector in Scotland has a much more difficult, much longer term problem to overcome, one, she argues, is also deep rooted. “There’s been a trend in the last 10 years for corporate decision taking to move down south,” she says “mostly as a result of mergers and acquisitions.
“20 years ago there were so many big businesses with head offices here but many of these have gone. It means there’s much less brand advertising and fewer TV ads made in Scotland. There are pockets of work around but the worry is that not much may come back.”
However, the recession means that many Scottish agencies now believe they have a better chance of competing against their London rivals. The Leith Agency has just won a major contract from Scottish and Southern Energy in a pitch against several London firms. A number of financial institutions have already indicated they’re looking beyond the M25.
The Scots argue that their lower overheads and the fact that clients are watching every penny means that they’re very attractive in a highly competitive market. The trouble is that they’ve made that case before in previous downturns without achieving a breakthrough. Will this time be any different?