With ad spend up, here’s how agencies are preparing for growth

Various ad industry barometers are showing some rays of sunshine amid the dark clouds of cost-of-living pressures and a potential ‘shallow recession’. It all helps build morale and resilience at a point when agency leaders are reviewing new business strategies, planning where to invest, and evaluating which potential partners can help develop their pipeline.

The recent IPA Bellwether report produced some uplifting headlines, with UK business revising their budgets up to the strongest levels in almost a decade in Q4, providing an optimistic start for the year. Nearly 45% of Bellwether survey respondents said that they were planning budget expansions for 2024/25 – three times the number planning to restrict spending.

The newly-released Advertising Association/WARC report, meanwhile, shows UK ad spend up 15.9% in Q3, exceeding the £9bn mark for the first time for the quarter, while the credit ratings service S&P Global Ratings gave a boost for those agencies looking to expand into the territory with a forecast that US ad spend will rise 7.6% this year.

To provide balance, Sir Martin Sorrell of S4Capital indicated that he doesn’t see much improvement in the macroeconomic environment “and client caution on marketing spend will likely persist”, so agencies are going to have to be smart on qualifying leads and addressing how they are raising their own profile in a competitive environment.

Ad spend is robust

For agency leaders, it’s a question of gathering intel, staying on top of trends and spotting opportunities. By drilling down into various reports, we find the sub-trends that will have agency antennae twitching. S&P’s projections say that US digital ad spend will see the greatest rise over the course of 2024 and 2025, while “legacy” media will stutter this year.

The AA/WARC report points to search (including retail media) and online display (including social), driving higher than expected ad spend; online retailers increased their ad spend by 156% as competition for customers hotted up.

A deeper dive into the Q4 Bellwether shows that the disciplines that have notably benefited from recent ad spend investment include events and direct marketing. The latter enjoyed its greatest upturn since 2005. Events is expected to have another strong year, with a net balance of +17.8% of marketers boosting their events budgets for 2024/25. Direct marketing (DM) also appears to be an area of focus with a net balance of +16.8% preparing to increase DM spend. Main media has a rebound forecast for strong performance with a net balance of +14.2%.

Agency business development practitioners say the numbers are borne out by their own experiences. Pedro Martins, chief growth officer at Total Media, said: “2023 proved to be our strongest year yet (and that’s saying something given our 42 years). Q4 is always a big quarter for us and this year was equally strong.”

Andrew Rose, VP sales EMEA for StackAdapt, points out that with budgets up to the strongest levels in almost a decade, marketers will want to ensure they’re getting the most value – and looking to optimize campaigns for both efficiency and impact.

Rose said: “This shift presents an opportunity to explore innovative targeting approaches, with a laser focus on data-driven insights while adapting to evolving privacy standards as we enter the post-cookie era.”

Luke Willbourn, managing director UK at Talon, adds that the strong growth in events ties in with people wanting to spend more time outdoors, connecting with the environment and people around them, and experiencing the real world. He says: “This calls for brands to create exciting and inspiring experiences that truly engage and offer something meaningful to be experienced together. This not only builds brand awareness but delivers bottom-funnel results too when combined with programmatic out-of-home campaigns."

Cameron Russell, head of marketing for Royal Mail Marketreach, comments that it’s heartening to see direct mail with its unique capabilities around capturing attention and targeting in the marketing mix, “being one of the principal drivers of marketing growth this Bellwether.”

What sectors are strong?

What sectors are staying buoyant? Sales prospecting tool Winmo has shared data that reinforces the increase in ad spend in retail and e-commerce, with significant jumps in investment for companies including Temu, Amazon, Argos, Boots, and Dreams – and in entertainment with YouTube, Freenow, and BBC all spending more.

A wider look at the business landscape shows retailers Tesco and Sainsbury’s reporting strong grocery sales over the festive period and raising their profit outlook. Travel is also surging, with the World Tourism Organisation projecting international tourism numbers to exceed pre-pandemic levels this year.

And no one should ignore the boost that elections give to media channels. It’s a near-certainty that it’ll be an election year in the UK, while the US ad spend is predicted to jump by nearly a third over the 2020 election investment according to Group M.

There is plenty for agencies to play for – but they must make sure they can use all the tools (from positive PR to punchy thought leadership) to differentiate themselves and highlight their cultural fit with a potential client.