Is adland prepared for a global recession?

More than half (59%) of senior business executives from around the world, surveyed by IDC last month, believe there will be a recession in the coming year. As global growth slows, with banks hiking interest rates in response to inflation, the world may be edging toward a global recession in 2023.

For the marketing industry, a recession will undoubtedly mean budgets will be reduced and more staff layoffs. During the last year of the Great Recession in 2009, ad spending plummeted 12%, according to the average of spending estimates from GroupM, Magna and Zenith.

"If a recession were come to pass in 2023, a conservative estimate is agencies will shed another 10-12% of staff," says Jay Pattisall, principal analyst, Forrester. "But I anticipate they will be better equipped to handle any recession because marketers and agencies have a playbook from the pandemic for redirecting spending to optimal channels."

Marketing during slower growth periods is vital 

Earlier this year, consultancy Analytic Partners warned brands against cutting advertising budgets, saying that 60% of the brands that raised their marketing investment during the 2007/2008 recession saw improved ROIs.

"In navigating the consequences of Covid over the past few years we’ve been reminded that marketing during slower growth periods is vital for mid & long-term success," says Richard Brosgill, managing director, APAC, at Assembly. "We’ve been actively having conversations with our clients, helping them establish longer-term strategies and perspectives in anticipation of any potential downturns. While we’re open and realistic about the challenges, we are largely optimistic about the opportunity."

Rebecca Turner, managing partner at independent creative firm The Core Agency, says recession scenario-planning isn’t something they're actively doing as an agency. "Seasoned clients understand they need to sustain their brands during the good times and the bad,” she says.

But elsewhere, some are noticing a tightening of the belt when it comes to spend and fewer business briefs.

"We’re seeing fewer new business briefs emerge than we saw in the first part of the year—and some clients are understandably being a little more conservative with discretionary spend as they rework their own plans in preparation for a tighter economic landscape," says Lee Nugent, regional director at Archetype. "That said, this isn’t the case across the board or in every territory. So, while we still expect this to be our best ever year in APAC, we do expect—and have planned for—a tougher H2."

Tom Geekie, CEO of data, creative and performance marketing agency Jaywing Australia, foresees the biggest risks lie with agencies that have narrow service offerings, as they are unable to be more agile and flexible to do what will make a difference.

"It will be important, should economic conditions continue to deteriorate, to demonstrate to clients the agency team is truly invested in a client's marketing objective and will work tirelessly to drive a positive impact," says Geekie. "Even if it isn't the core service they were engaged to help with."

And Joono Simon, CEO and chief creative officer of Brave New World, agrees that being nimble and agile is an obvious way to stay afloat in difficult times.

"But it’s easier said than done because most enterprises are built for the good times and pivoting overnight isn’t easy," says Simon. "If the agency is an integrated model that offers the whole spectrum of services that covers multiple consumer touchpoints, you can stay relevant to your client by offering at least some of your services that help your client do more with less."

Recession-proof clients

For some, one way of weathering the storm of an impending global recession is to find recession-proof clients.

"I would identify recession proof clients to be in the following industries: utilities, gas, healthcare, and consumer staples," says Humphrey Ho, managing director at Hylink Digital. "These clients, generally speaking, either spend increasingly through a recession or remain stable compared to their finance, tech, startup and growth companies, or D2C counterparts. So it’s a matter of picking and choosing those briefs when we go out to pitch."

Ho adds that agencies who focus on services such as helping clients organise and transform their business through this next change are going to be quite crucial.

Ultimately, most agree that agencies who are able to adapt will not just stay afloat during a recession but thrive.

"It’s the role of the agency to adapt. This is where quality comes to life, and we can be forward-thinking to find change and fuel growth," says Brosgill of Assembly. "It is during these critical times that marketing innovation, whether that be through new digital activations, emerging tech or fresh brand campaigns, can lead to disproportionate long-term growth."

Bringing marketing work in-house

In previous downturns, the outlook hasn't been great for agencies as companies attempt to save on management fees by bringing the marketing work in-house. How much of a concern is this going forward?

"We believe that building an in-housing framework based on cost is the wrong starting principle," says Brosgill. "It might be a short-term cure today, but the long-term investments associated with building an effective in-house team can overshadow these benefits."

Nugent of Archetype doesn’t see the current economic outlook accelerating the in-housing trend in any meaningful way. "In fact, recessionary behaviour has typically seen organisations less likely to hire in-house teams and take on more fixed cost," says Nugent. "Instead, they’ve typically turned to agencies to provide services that can be seen as a variable cost during downturns—albeit with tighter budgets."

Meanwhile, Emily Taylor, chief strategy officer of M&C Saatchi Australia, says the trend towards in-housing is not new in the AUNZ market and sees it very much as an opportunity. "Our business has been consulting and building in-house models with our clients for years," says Taylor.

In August this year, M&C Saatchi launched Micro Agency, an in-house consultancy which allows them to share experience and help clients establish or improve their own in-house teams while also being able to bolster their internal teams by tapping into the specialisms within the M&C Saatchi Group.

"This flexible hybrid engagement gives clients the best of both in-house and external skills and of course gives us a role in either instance," adds Taylor.

Ho of Hylink doesn't expect management fees to be saved in-house. He believes the question that should be asked is what value do in-house marketers bring?

"Although in-house marketers can anticipate a challenge with the products they are launching, they often do not have the data science, custom audience, or strategic thinking ability that advertising agencies bring to the table,” he says.

The bigger risk, says Fredrik B. Gumpel, CEO of Lion & Lion, is not companies saving on management fees by bringing the marketing work in-house, but marketing budgets dropping overall.

"As uncertainty increases, companies will be looking to lower their fixed costs such as permanent staff. And one solution to that could be reducing internal marketing teams and thereby increasing your variable and more flexible cost through agencies,” he says.

An opportunity for independent agencies to shine?

Rather than a recession be a death knell for agencies, it may well be an opportunity for them to step up to the plate and show what they are really good at: doing more with less.

"Tough market conditions always present an opportunity for agencies to shine," says Nugent of Archetype. "There’s naturally a more intense focus on standout creative ideas that can be delivered affordably and on marketing programmes that have a clear ROI for the client. Agencies that can combine adaptability, agility and a real understanding of their client’s business (and not just communications) challenges will continue to thrive—even in a tough market."

The Core Agency’s Turner says whether we have a recession or not, agencies are no stranger to having to do more with less: "Core ideas can still be achieved with smaller budgets to help clients punch above. In fact, with media spend under pressure the importance of effective creative has never been more important."

At Brave New World in India, in the event of a recession, they plan to recalibrate their content strategy by opting for smaller content formats like thumbstoppers and cinemagraphs as opposed to large-format content that burns a big hole in the pocket.

"Also going for an army of nano influencers instead of celebrities or large influencers in these times would not only save your marketing budget but also optimise the brand’s grassroots level connect, which is vital during a recession," says Brave New World’s Simon.

However, not everyone is optimistic. Geekie of Jaywing says that while the digital marketing sector has grown rapidly in recent years, leading to an influx of marketers to fill newly created positions, many are still fairly inexperienced and lack commercial acumen and broader business competences.

"It is all but likely that many of these marketers and agencies will be found out and suffer because they simply can't navigate rougher economic waters and increased pressure," says Geekie. "On the reverse though, agencies which have invested in their teams, capabilities and processes are likely to stand out from the pack and will be able to continue to grow regardless of market conditions."

And while CMOs will be challenged to deliver the same output from lower investments, Gumpel of Lion & Lion believes it will be an opportunity for smaller agencies to shine.