Will the fortunes of adland decouple from economic downturn?

It used to be the case that investments in advertising were considered as a lagging indicator of economic growth and downturns, but does this still pass muster?

In recent weeks and with a looming recession, agency and media executives have been somewhat upbeat about the industry’s ability not only to ride out the recession, but also recover rapidly in spite of gloomy GDP and inflation outlooks for much of this year.

Agency holding group forecasts released late last year have downgraded adspend growth. Dentsu forecasts UK adspend will grow by 3.6% this year, and Group M predicts it will rise by 5%. Both groups predict retail media, CTV and other digital channels will grow more rapidly than channels such as TV, radio and print. The UK’s GDP has been forecast to contract this year by between 0.5% to 1.5%. 

At two recent Campaign events, leaders of media agency groups and media owners struck an optimistic tone that the recession would be less deep and painful for adland than it has in the past.

In a Year Ahead for Media panel that featured Publicis Media UK chief operating officer Mark Howley, Carat UK chief executive Clare Chapman and IPG Mediabrands UK and Ireland chief executive Richard Morris and The Sun’s executive vice-president and publisher Dominic Carter, the outlook was upbeat.

They believe the recession will not be as gloomy as the Bank of England has predicted and that there could be a disconnect between the fortunes of adspend and the broader economy.

It was a sentiment that was echoed cautiously at a Campaign breakfast briefing panel that featured ITV managing director of commercial, Kelly Williams, Hearst chief commercial officer Jane Wolfson and Spotify EMEA head of sales Rak Patel.

But is a decoupling of adspend and the economy just wishful thinking? Campaign asked industry leaders and received a mixed response.

Phil Smith

Director general, ISBA

The idea of decoupling, as an escape from the forces of gravity or from economic fundamentals, is something I don’t wholly agree with. That said, there are fundamental shifts in business models in play that make some forms of adspend non-discretionary. Marketers always have to make the case that their brand spending is a long-term investment with a positive return. 

So, the focus on effectiveness and efficiency – and its measurement will remain intense. This principle drives ISBA’s agenda and it is why Origin, the delivery of accountable cross-media campaign measurement, has again been made ISBA’s top priority by its members.

Sue Frogley

UK chief executive, Publicis Media

We will never see adspend disconnect entirely from the broader economy, but I expect to see it less closely coupled than ever before. While many companies are facing inflation in their commodity and energy costs, learnings about investing through a recession are now well known and those that have more tolerance to these rising costs are, therefore, more likely to act upon those learnings and think longer-term.

Media investment has also become much more measurable in terms of ROI, giving CMOs and, importantly, CFOs more confidence to invest in a downturn. We also know some brands will want to continue to demonstrate their purpose and social values, especially at a time when consumers are expecting transparency, accountability and responsibility.  

As with all economic downturns, the impact will be felt more acutely in certain sectors but many sectors of the economy are still thriving, such as luxury and travel. This reflects the dual-speed economy that we expect to see take shape this year, with those on higher incomes less affected by the recession. 

Overall, while adspend may diversify further in 2023, we are still predicting a year of growth.

Alex Best

Founder and chief executive, Wonderhood Studios

Unfortunately, I do see overall adspend following the broader economy in the next couple of years. As investors tighten their purse strings, some brands simply won’t have the cash to invest in marketing. We’ve seen a notable drop in the number of projects from scale-up brands and I see this trend continuing into 2023/24.

However, it won’t be the same story for all brands. The big smart advertisers (it’s worth studying how Procter & Gamble has behaved during every economic downturn) will continue to invest in marketing, making life very difficult for their cash-strapped competitors. These advertisers have the resources to keep investing in marketing and now is the time to push this advantage. 

For the brands and agencies that believe in the power of creativity, the outlook should be positive. Creativity loves constraints and if we can cleverly navigate the unpredictable media landscape, the next couple of years could be a golden age for creativity.

Enyi Nwosu

Chief strategy officer, UM London

Yes, adspend will decouple from the broader economy. It is increasingly clear that this is happening with growth in ad expenditure out-pacing GDP growth domestically and globally. A perspective backed up by the most recent IPA Bellwether Report, a survey in which UK marketers are predicting growth in 2023, even as they tackle the headwinds of a challenging economy.

There are a number of reasons for this. Whilst it is inevitable that some brands will reduce spend, there is enough precedent from recent recessions which demonstrates brands that hold the line in difficult times emerge stronger than their competition.

Downturns also give rise to a creative and innovation renaissance which is set to continue. During the pandemic, all media became more flexible in terms of planning and investment, which will also help clients respond to changes and create opportunities in a volatile market.

Alice Enders

Head economist, Enders Analysis

Our current topline estimate of the best case for UK adspend growth in 2023 is 2-3%, following 4-5% in 2022. The UK economy is mildly recessive due to real private consumption being in retreat as high inflation and in particular for essentials has been eating into real incomes since April 2022, and in spite of government subsidised home energy bills, which averted a much worse recession. 

In addition to households reducing spend on nice-to-have categories, business spend on outsourced advertising services is under pressure due to operating margins being squeezed by high levels of energy prices, cushioned until March by government subsidies, plus input cost inflation and nominal interest rate hikes. In real terms, adspend is bound to underperform the economy in this recession, just as it did in the last recession of 2008-09.

Hamish Nicklin

Chief executive media, Dentsu UK and Ireland

Brands that continue to spend in a downturn bounce back quicker and stronger – we’ve got a lot of very recent pandemic data which bears this out. Current C-suite executives will have that experience front of mind as they face into present uncertainty.

There is also more awareness around the board table of a brand’s need to help their customers navigate uncertain times and acceptance that consistent marketing spend is directly linked to the ability to do that whilst reinforcing brand awareness and affection when prices are going up. While we will never completely decouple, all of this might take us further than we’ve seen previously. 

Sam Fowler

Chief strategy officer and partner, Craft Media London

The notion that the advertising industry could fare better than the broader economy, is a hopeful one at best. Looking back at the impact on advertising budgets in previous recessions, stretching back to the 1970s, thanks to Ebiquity's report Advertising through a Recession, we see that confidence and spending in advertising dips faster and harder than the market in totality.

Hopefully I am wrong and marketers are paying heed to the excellent work from the likes of the IPA but the reality, I fear, will be an example of history repeating itself.