Reasons for the long term stagnation of advertising

The world business community, and indeed the majority of the public, has for many weeks been dominated by the troubles in the financial system. These will have an obviously negative effect on advertising, yet the fundamental difficulties facing the industry have really pre-dated the financial problems.

In most economically developed countries, advertising has been stagnant for a number of years. In the United States, for instance, when the published data are inflation-proofed, adjusted for increasing costs estimates of the total advertising expenditure have not changed over the course of the last five years, and the level is still below that of the dotcom boom of 2000. Employment in virtually all sectors of the advertising business has declined since then. The current financial difficulties will affect specifically the banking and automotive categories, and since these are important, this will all make a bad situation worse.

There are a number of reasons for the long term stagnation of advertising: deep-seated problems that are difficult to resolve. The greatest of these is the lack of growth in the sales of fast-moving consumer goods (FMCG), which traditionally rely on consumer advertising. But in view of the large and growing strength of the retail trade in the United States and most other developed countries, increasing amounts of money that might have gone into advertising are being devoted to retail discounts demanded by retailers. These demands are difficult to resist because of the sheer purchasing power of these large retailers.

In all circumstances, demonstrating the contribution of advertising to sales and profit is notoriously difficult. Advertising agencies do not, therefore, have the ammunition to fight back: to withstand the pressure from retailers and maintain the size of advertising budgets. This situation has not at the moment arisen in India, but with the rapid growth of organised retailing, this is a specter on the horizon that advertisers and advertising agencies will eventually have to confront.

Developing advertising plans has traditionally relied on logic and analysis as much as on creativity. Logic leads to an appropriate strategy for a brand, and in the best advertising agencies, creative people are encouraged to use their imagination and intuition to express this strategy in terms that engage consumers.

The main objective of such advertising is steady brand building. There is an important role for research in planning advertising and tracking its results. And there are often long-term relationships between clients and agencies, since advertising is regarded as a long-term enterprise.

In North America and Europe in particular, there have been moves away from this traditional strategy. Although traditional practice is followed with renewed dedication by the leader in the FMCG field, it is being abandoned to a substantial degree by many other advertisers, some of them very large ones.

One of the characteristics of the new method of operation is a readjustment of the traditional client-agency relationship. Until about twenty years ago, there was a very simple link: from client to full-service agency and then to media.

Then, with the emergence of specialist media agencies, the link became a double one: from client to media agency and then to media, and in parallel a link, from client to creative agency and to media. There was also of course an internal link between the media and the creative agency.

What has happened in the United States and some European countries (Britain in particular) during the last few years has been the emergence of yet another link in the chain.

Organisations best described as strategic partners (although sometimes known as ‘Tiger’ agencies) have been set up and have become widely employed by advertisers. This has meant that there are now three links: from client to strategic partner and then to media; from client to media agency and then to media; and from client to creative agency and then to media. The situation has become very complex, and the relationships between the three types of agency are in many ways confusing.

The outcome of all this is that there are no holds barred in the types of sales promotion and advertising ideas that are thrown into the ring. From some points of view this is refreshing, but there has been a dangerous departure from some of the established principles notably that strategy should precede creativity. It is not difficult to find examples of the new types of operation, and many have generated much publicity. Here are three recent ones:

Work for Sprite invited consumers to participate in the marketing process through a national contest to create a theme song for TV spots.

Design a guerilla promotion inter-active and traditional creative for clients ranging from a 100-year-old sneaker brand to a fledgling airline to a children’s charity.

Push into mobile marketing with its work for Nike Zoom, a cross-sport line of footwear first mobile site that streamed videos to users’ handsets.

What is happening, in effect, is that logical strategy and creative execution are giving way to creative strategy and creative execution. The move in this direction is too widespread to ignore. However, advertisers who, as a consequence, are giving less importance to their conventional strategies should consider three points.

The first is that these ideas all tend to be ‘one-offs’. They may be exciting, but the activities obviously lack continuity. Can any brand afford to be supported by a constant stream of separate individual ideas? The second point is the fact that clients are now working with three separate organisations that provide advertising and promotional counsel. This is bound to lead to confusion and overlap. There is the ever-present danger that the efforts of the strategic partners and the creative agencies will compete and even pull in opposite directions. Synergy will be lost.

But the third point is the most important one. Advertising is in all events difficult to evaluate. But with the econometric tools available something can be done, the techniques are improving, and a limited amount of totally reliable information is coming through. However, with a reliance on ad hoc promotional ideas generated by strategic partners, these tools simply cannot be applied. Publicity and excitement are generated, but there is a lack of hard evaluative facts. In other words, the business is moving in a retrograde direction, and some analysts would consider this to be disastrous.