Why brands are cutting adspend
By Abimbola Mohammed
The COVID-19 pandemic has changed the world we live in. Businesses worldwide are struggling to stay afloat, as restriction orders are reducing consumption, keeping people at home, and leaving many unemployed. There are limitations to travels and gatherings. Businesses across all sectors have experienced a significant drop in demand for their products and services. Ad agencies are seeing risks and losses coming from every direction. All these have effects on brands and even the money they push into advertising as some brand owners are still struggling to recover from losses due to the pandemic and adapting to the new normal.
At the beginning of 2020, digital adspend was expected to increase significantly worldwide. However, those estimates have had to be readjusted. According to e-Marketer, if we take a look at China, before the COVID-19 outbreak, ad spend was expected to reach $121.13 billion. This estimate has now been pushed down to $113.7 billion. Advertising budgets are often the first thing to be slashed when organisations go through a crisis. Thus, agencies need to prepare for clients canceling and reducing their marketing budgets. Lower advertising budgets mean less revenue for ad agencies. As such, ad agencies’ revenues have also declined. But it is not all doom and gloom as there is plenty you can do to help your agency stay afloat and even prosper during these troubled times. In view of this, MARKETING EDGE put out feelers to industry expects on what could be the reason as to why brands are still pausing on their adspend.
Otis Ojeikhoa, Managing Director/CEO, Brand Optimal, stated that brands are squeezing their adspend from their regular 70% to above the line and 30% below the line to either 50/50% or with below the line topping above the line spend because one is able to demonstrate conversion better than the other. His words: “If I heard an ad on the radio or saw an ad on television, it doesn’t guarantee me buying, but if I walk into a store and a promoter speaks to me about the product, the chances of buying may become high because of the ability to interrogate. The buyer can ask questions on how the product works. So, that level of interaction or engagement will lead to conviction which now will lead to conversion.” He noted that brands are squeezing up their budget because they want tangible immediate results.
When asked if the pandemic contributed to the pause on adspend, he stated that it is according to the marketing objective of the brand. “There are many brands like Nestle that have completely squeezed their budget to below-the-line over time which of course increased one-on-one marketing, experience marketing and sales because you can see Return on Investment (ROI) doing that. But above-the-line of that mass media kind of advertisement is very difficult to demonstrate ROI or conversion. That is why they cut adspend, not because of the pandemic – the squeeze has been happening for sometimes now. We are going to see more squeeze of below-the-line activity.”
For Lekan Otufodunrin, MD, Media Career Development Network (MCDN), there are other reasons aside from the pandemic that is causing brands to cut or pause on adspend. His words: “The economic situation is contributing to why brands are holding up on how they spend on advertising, as brands have a lot of expenses and they have to prioritize what to spend on. Take for instance, if they used to do ten pages of adverts, they may want to do two, because they are running a business to make profit too. Considering the fact that salaries must be paid and the economic situation is not stable, they may want to reduce their spending if the profit expected is not forthcoming.”
He noted that it is the economy that is affecting everybody. “Companies are looking for marketing options that will be less expensive and more effective. As long as they don’t make much money, they can’t spend so much on promotion.”
Recently, the CEO of Coca-Cola, James Quincey, while speaking on the company’s Q1 2021 results, said pandemic-related lockdowns continue to impact markets, which could greatly affect how it distributes marketing spend over the coming year. “If we see demand is coming in at the higher end and more re-openings (of markets) happen quickly and revenue starts accelerating, we will also likely re-accelerate the restitution of marketing spend.
“Conversely, if for whatever reason revenue starts to look a little weaker, then we are likely to hold back on some of the marketing. I think it’s important you view the rest of the year not as normal times, but one where we have to think about how we are using the resources judiciously, in wanting to invest to drive growth and get back to normal,” he said.
Speaking on the same subject, Executive Director (Secretary), Association of Advertising Agencies of Nigeria (AAAN), Kemi Fabusoro, said she believes that the reason why brands mostly cut their adspend is based on their revenue, adding that brands can’t continue to spend on advertising when they do not make reasonable profit.
Her words: “There are several reasons why brands cut on their ad spend. Advertising is a percentage of revenue, so when a particular brand projects N500m for a year and sells that particular amount of product, then there is the possibility of pushing more on advertising. Now let’s say that same brand wants to use 5% of N500m gotten from that revenue to do advert, but realised that the projected amount month-on-month is not going to be met, then such brand will need to re-project, so the initial 5% projected for N500m will reduce.”
Chief Operating Officer at SO&U Ltd, Abiodun Adefila, also gave insights into why advertising spend has reduced drastically. According to her, digital is another medium that delivers on efficiency, is affordable, effective and less expensive than what advertisers used to know.
She gave an instance of a client who spent N100m on TV advertising last year. This year, same client decided to spend N40m on TV, while taking the remaining budget elsewhere. “A media agency would say the client has reduced ad budget; the truth is that the client didn’t reduce adspend, but diverted the fund elsewhere. If a client sees another platform that is solving the problem, it is only reasonable that the client will take its business elsewhere,” she said.
When asked if the creative agencies could also be the reason why brands cut their adspend, Mrs. Adefila stated that there are more than 100 registered agencies in Nigeria. “If a client sees that an agency is not delivering on the value wanted, the client can take the business elsewhere. It is not about the poor handling of agencies, the fact is times are changing even for clients and agencies too.”
In times like this, brands need to be extremely careful not to get caught up in the immediacy of same-day signals and partial information. Instead, they should focus on the signals that show true value, like customer acquisition cost. Follow those signals, invest in building a brand with long-term value, and avoid making rash decisions.
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