Experts share the ‘silver lining’ for ad agencies during an economic downturn
It’s not all gray skies for ad agencies facing the threat of a recession. In fact, for agencies, there are a handful of benefits to potential economic headwinds, insiders and analysts say.
Agencies are looking on the bright side despite economic woes / Adobe Stock
Although new reports indicate that inflation rates are cooling, the threat of recession still looms. In the midst of widespread economic uncertainty, major tech companies like Meta, Amazon, Snap and Twitter – as well as consumer brands ranging from DoorDash to Peloton – have laid off significant swaths of their workforces. Behind the scenes, many executives are slashing marketing budgets and taking a more conservative approach.
But not all brands will pull back. And even those who do dial back their investments create new opportunities for agencies to rise to the occasion. Industry analysts, consultants and agency leaders say there are a handful of (often unexpected) silver linings for agencies that come with economic uncertainty.
Here are their top takeaways:
1. Agencies with a strong strategic offering will be sought as sherpas
“One of the most meaningful opportunities for agencies in a challenged economic environment is the opportunity to reset priorities and help their clients move away from a ‘same as last year’ mindset,” says CJ Bangah, US technology, media and telecommunications principal at PwC.
Right now, she explains, marketers will be asking, “What investments are truly right for the brand and its target audience? Where are historical investments potentially the wrong fit for the current market environment?” As a result, Bangah says, “there is a fresh expectation of increased creativity and strategic thinking by agencies to help drive real returns on investment and business results.”
This is an inflection point for many brand marketers that may ultimately benefit agency partners, says Shiv Gupta, managing partner at U of Digital, a digital marketing education firm. “The biggest, most strategic brands are thinking more about 'staying relevant' with impactful brand advertising during the recession instead of driving sales at the bottom of the funnel. Agencies, particularly those with creative chops, can shine in this environment.”
Agencies, many experts claim, are uniquely well-positioned to help brands navigate the potentially bumpy road ahead. “Agencies should seize the advantages in a downturn by highlighting how they can critically help marketers get through the short-term but also plan appropriately for the long-term,” says Lisa Colantuono, president at AAR Partners, an agency search consultancy.
In particular, she says, brands still need guidance with critical challenges ranging from media fragmentation and the evolving purchase journey to efficient production and revenue stream diversification.
2. Opportunity knocks as some brands amp up marketing investment
Another silver lining for ad agencies at this juncture is the truth that, while some brands are axing marketing investments, not all are. In fact, many may take a rather different strategic position and turn up marketing spend to help move the needle on everything from brand awareness to sales. Agencies are poised to capture a portion of that spend.
As Janet Balis, Americas marketing practice leader at EY, puts it: “There are many sectors who will not and should not reduce spend, and whether it’s direct or through their agencies, they will continue to drive that spend. To move products off shelves at retail, get cars into drive-throughs or even build valuable relationships with financial institutions takes both brand building and performance.”
Furthermore, Balis argues that the reduced spend from some brands will create a competitive advantage for others by creating space in the market. “Given that some marketers will exit the market, brands that stay in it and spend may benefit from opportunistic chances to either build share of voice or buy more efficiently,” she says. “It’s super important not to underinvest in the levers of revenue and growth.”
AAR Partners’ Colantuono, meanwhile, says that at a moment like this, brand advocacy and brand differentiation matters more than ever, “and agencies should be delivering on it via short-term and long-term strategies” and “salient creative.”
3. Brand layoffs create gaps that agencies can fill
During the economic downturn sparked by the onset of Covid-19 in early 2020, Gartner research found that many marketing leaders said agency fees were among the first targets of budget cuts. Media spend, internal staffing and martech were the next targets.
“Generally, we see that agency fees represent a tempting, and relatively quick target when marketers need to reduce budget quickly,” says Jay Wilson, vice-president analyst in Gartner’s marketing practice. “It’s much more difficult to cut martech spend overnight, for example.”
But for many brands, the decision to ax agency spend didn’t pan out perfectly. As Wilson puts it, the 2020 downturn “also demonstrated that being too quick to sever strategic agency resources had serious consequences.”
For one, brands needed agency partners to help them quickly adapt to the new normal – in particular, to help them implement new digital commerce models that included direct-to-consumer strategies, digital ordering platforms, curbside pickup and more.
Brands are also wary of running into the same staffing issues they've seen before. “As the talent environment shifted dramatically during and post-Covid, marketers became stymied in achieving their insourcing aspirations, which in turn demanded continued reliance on agencies, who, while facing their own talent shortages, are typically better built and prepared for fluctuations in resources,” says Wilson.
He argues that brands made a major faux-paus when they unnecessarily cut agency spending in 2020.
Now, as brands lay off marketing staff – but talent shortages continue – Gartner predicts that brands will be forced to rely more heavily on agency resources to fill the gaps. “Whenever organizations make significant cuts to personnel, there will naturally be a loss of skill and expertise,” says Matt Moorut, director analyst in Gartner’s marketing practice. “And given the talent shortages we’ve had for a while, I do think we’ll see more marketing work outsourced to agencies in the short term, to help steer the ship through the storm.”
Wayne Best, chief creative officer, North America at VMLY&R puts it simply: “As many companies downsize their marketing departments, agencies will need to play a more critical role in the client-agency partnership.”
4. It's an opportune time to innovate
Even if business slows for agencies, leaders say that periods of economic uncertainty create valuable opportunities to invest in innovation and prepare for the future.
“Times like this are when agencies have an opportunity to innovate,” says Kaylen McNamara, senior vice-president of new business operations and consulting services at VaynerX. She, like Gartner’s Wilson, recalls the parallels of this moment to the economic unrest of the early days of the pandemic. During that period, she says, the agency saw an opportunity to launch VaynerMedia’s consultancy offering “because brand budgets were in jeopardy, and long-term AOR relationships weren’t always in the cards.”
Now, she says, as the agency heads into 2023, it’s focused on “reverse-engineering” client needs. Today, it’s preparing to launch Social PAC, an offering that positions VaynerMedia as an extension of a brand’s internal team and focuses on delivering research insights and strategy to “create relevance and grow the business.” As brands grapple with the complexities of the economic moment, McNamara says, the offering is proving especially useful for clients looking to upskill their in-house marketers or more smoothly navigate agency rosters.
Others agree that the threat of a potential recession can drive innovation. “Crisis and compression shakes out the agencies that haven't innovated and haven't been self-critical enough about their relevance and the value they create for both clients and talent,” says Media.Monks co-founder Wesley ter Haar. “We've historically seen economic pressures open up opportunities for change, because nobody wants to tackle the difficult stuff when the going is good.”
Jiah Choi, president of Wieden+Kennedy New York, says that at a time like this, brands are “forced to do more with less.” With this in mind, she says, “it's more important than ever to be creative, innovative and nimble, which is what our industry does well.”
She suggests that a challenging economic climate should encourage creative problem-solvers to “get involved in more parts of a brand’s business and interrogate every opportunity to continue driving growth.” She warns against developing laser-vision on the lower part of the funnel and encourages marketers to consider the larger picture. “It’s essential for us to come up with hard-working ideas that continue to build brands while also finding more ways to be meaningful in culture.”
Meanwhile, Deepthi Prakash, global director of product and marketing at TBWA, says her agency has remained focused on consistency in its goal to deliver innovative solutions. “For the past seven-plus years, the one constant we’ve dealt with is economic uncertainty in all its various forms. At TBWA, we don’t look at the economic environment to determine our future. While other companies have been focused on managing and responding to evolving conditions, we’ve continued to expand the problems we can solve – which has only brought us closer to our clients.”
Prakash points to the agency’s innovation arm NEXT and its cultural intelligence practice Backlash as examples of how the firm is “continually investing in understanding culture and consumer behaviors while expanding our offerings across the total brand experience.”
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5. It's the moment to help clients focus on thoughtful and purpose-driven action
Of course, any period of economic disruption will certainly have consequences on consumers and businesses alike.
Leaders like R/GA’s global chief strategy Officer Tom Morton urge agencies to focus on the good they can do in the world amid economic hardship. "We shouldn't talk about ‘silver linings’ when an economic downturn is making life harder for the audiences and customers who we are here to serve,” he says. “We should step up for them. People's need for quality, value, entertainment and ease of use doesn't disappear in an economic downturn – they just have fewer resources to achieve their goals. A downturn should make us more thoughtful about how to be truly useful and interesting to the public, and less indulgent about wasting their time."
AAR Partners’ Colantuono argues that relationships must come first in the agency business. “During the downturn, it’s planting season. Plant the seeds – showcase work, enter award shows, share IP, do project work, invest in your team and build relationships – because in the end, we are a business of relationships first. And when the pendulum swings back the other way, brand stewards will trust your team which is the foundation for successful business.”
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