Marketers are either pulling or pausing advertising spend just a week after the Brexit vote as they look to insulate themselves from the growing uncertainty about the future.
That incertitude is sucking confidence out of brands and it’s difficult for them to keep calm. Marketers know how to mitigate risk in the wake of 2008’s financial crisis but have been stunned by a Brexit they thought was impossible. Their biggest concern now is for the economy and agencies are already getting twitchy that their clients will use the immediate economical and political uncertainties to slash spend in the medium to long-term.
Fear preys on fear
What’s driving that fear from brands is the threat of a recession. A third of Brits plan to cut back on big purchases, while half will increase their savings following the landmark decision, both of which could quicken a recession and consequently years of soggy growth for brands. It amounts to a confidence game with the economy that companies find themselves in, unsure (yet) whether to stick or twist when it comes to protecting their brands.
Is it better to pause or pull projects, cut spend or delay launches? These are some of the early dilemmas dominating post-Brexit discussions between anxious marketers and their agencies. One unnamed agency executive revealed a client had “cancelled a load of spend”, while another who has construction contracts admitted “no one is doing anything other than making vaguely reassuring noises”.
“No one has said we’re stopping campaigns [to us] I just get the impression that there’s an underlying fear at the moment,” said Dan Pimm, co-founder and partner at media agency December19. “I think we’re in for a tricky ride because the problem is we’re in a place where no one has a clue as to whether we’re going to go into a recession.”
It' a thought shared by Esprit. The clothing business told Reuters it’s braced for a dip in consumer sentiment in its key markets in Europe, which is looking increasingly likely. Consumer confidence has crashed following the vote to leave the EU, according to YouGov data, which has slumped from 111.9 in the first three weeks of June to 104.3 since the decision - the last time consumer confidence was at this level was in May 2013 when it was at 102.9.
To spend or not to spend in tough times?
In the end, the choppy Brexit waters will sink more than £200m from ad budgets in 2016, according to a GroupM forecast in the days before the vote. TV and newspapers will bear the brunt of the reductions, compounding an already tough times for the publishing sector. The forecast was backed by a survey of more than 1,000 business leaders days after the referendum that revealed more than a third plan to cut their investment plans. And when investment shrinks marketing budgets are among the first to face the chop.
“I think that their [agencies] biggest concern is that projects will be held up, support for brands will not be at the level it would otherwise have been at and revenues will probably fall certainly in the rest of the year,” said Paul Bainsfair, the director general at the Institute of Practitioners in Advertising.
“Realistically there's not very much one can do [to advise agencies] until the dust settles and you know what is really going to happen. We've got the extraordinary situation in the political machine of both leading parties in disarray and it's causing more uncertainty. It's very difficult for us to say 'be calm, do this, do that' when in truth it would just seem hollow – because we don't know any more than anyone else.”
For now, agencies are consoled by the fact that the vote’s initial impact has sapped money for late media buys and is yet to rip through long-term plans. A point Adam Crozier, the chief executive of Britain’s biggest broadcaster by ad revenues ITV, foreshadowed last month when he warned “uncertainty” in the ad market had contributed to flat revenue in its first quarter.
“When things are uncertain the safest thing to do for many markets is to wait,” said Johnny Hornby, founder of The & Partnership.
“Uncertainty and waiting causes inaction and inaction in advertising normally means a lack of doing anything. Advertising is vibrant when people are launching new things and importantly when there’s confidence around. Unfortunately, the UK was actually in a good place [before the vote] – there was confidence around and things were happening. I think this [the vote for Brexit] will put an abrupt jolt in it.”
Certainly, there’s some emerging evidence from analysts to suggest that companies that were about to invest in the UK are taking a step back. Ad agency Ogilvy was one business to suggest it would do so pre-Brexit, while Vodafone and Easyjet have made similar threats in the aftermath. Those businesses that were looking to use the UK as a base to sell into Europe are thinking about other markets, according to reports.
Gaining an unfair share of voice
The real changes to the UK and the European Union (EU) are arguably two years away. And yet the fears of hedge fund managers are praying on the fears of business and people. Rather than “whinging about it I think you have to lean into the Brexit and try and get to a better place given the country is in a good position in terms of digital,” argued Hornby.
The UK is a net exporter of advertising services to the world and the EU in particular. Forecasts from the UK's ad association before Brexit predicted the country’s advertising exports to rise 54 per cent over the next five years, or about £2.5bn in extra earnings for the industry. A large component of this domestic growth is the industry's creativity and technology, both areas that also rely on a regular and robust flow of foreign talent, plus the ability to sell these services seamlessly to the EU.
“In the short term there should only be an impact in terms of sentiment, though longer term restrictions in the movement of people/talent may limit the industry's ability to deliver leading services on a global scale, while selling services seamlessly to the EU,” Alex Wisch, company research analyst at Bloomberg Intelligence.
Not everyone believes the country’s economy’s going to hit a brick wall and some brands and agencies are preparing to take a leap of faith.
More than 50 technology business bosses – led by digital luminary Baroness Martha Lane-Fox – have called on their peers to “look forward, not backwards” in a defiant letter they all signed earlier this week. Indeed, marketing agency Verbalisation, innovation shop Fearlessy Frank and production company Latimer Group are among the smaller shops that believe they could adapt to the volatility by offering clearer propositions around accountability and the customer.
“We haven’t seen clients put anything on hold [in the immediate aftermath of the referendum] but that could be because of the nature of our boutique business which is spread across the UK, Geneva, Stockholm, Amsterdam and New York,” said Alex van Gestel, former senior marketer at Bacardi and the chief executive of Verbalisation.
“Our advice to clients is to play the long game. There are enough studies out there to show that those companies that invest into recessions come out healthier and earlier than those that cap budgets.”
Jon Davie, chief executive of Zone, expanded on this point: “I think [Brexit] will generally accelerate the move toward digital in the medium term toward more accountable marketing expenditure. It will accelerate the shake out of what was already happening in traditional media.
"The digital sector didn’t really suffer the same dramatic impact as traditional media did after the financial crisis. I suspect the same will be true for us this time around."
Before any serious reflection from the industry can happen a plan for the split needs to crystallise and that can only take shape once the country’s two main political parties resolve their leadership issues. The hope being that the stability both figureheads will provide could afford businesses the opportunity to mount their own recovery plans.
Additional reporting by Katie McQuater.