If you're concerned about shrinking ad budgets, blame Lehman Bros.
Speaking at the Association of National Advertisers Financial Management Conference in Boca Raton, Fla., today, WPP Group CEO Martin Sorrell said marketers have not fully recovered from the Lehman collapse in 2008 and subsequent financial crisis, leaving a residue of conservatism and cost squeezing that continues to haunt the agency world.
"Lehman was a pivotal moment," Mr. Sorrell said in an animated presentation to the audience of 550, who were mainly corporate marketing procurement executives, agency finance executives and finance-focused consultants. "That weekend changed the mentality of corporations to a large degree."
One response at WPP is to try to deliver cost savings of 10% to 20% annually on accounts, Mr. Sorrell said. Of course, that would shrink many accounts to nearly nothing within several years, though savings can presumably be reinvested in a wider range of work.
Even so, Mr. Sorrell said, the cost squeeze, also driven by the rise of marketing procurement in the decade since he last addressed the conference, isn't healthy for agencies or clients.
"I think there are some who believe that the best agencies are the weakest ones -- the ones that are sort of beaten into submission," Mr. Sorrell said. "I disagree with that . One of the results of that is more consolidation."
Agencies need money to invest in new functional capabilities, Mr. Sorrell said. But "we're relatively under-resourced compared to the competition," he added. By competition, he referred to the nontraditional sort -- digital-media players such as Facebook, whose impending IPO he contrasted with WPP's $17 billion market capitalization. "We're a minnow" when put against valuations such as Facebook's, Apple's $500 billion or Microsoft's $200 billion, Mr. Sorrell said.
Clients, particularly packaged-goods ones, face similar cost and profit pressures from big-three global retailers Walmart, Tesco and Carrefour, which Mr. Sorrell described as "increasingly under pressure" themselves.
Acknowledging that agencies are junior, not equal, partners with clients, he said that "a strong junior partner is better than a weak one."
Those discouraging signs aside, Mr. Sorrell was buoyant about the dual wins last week from Bank of America and MillerCoors for cross-disciplinary WPP teams. He cited them as a sign that the holding-company solutions he has long favored are gaining growing favor with clients. In a Q&A session with ANA CEO Bob Liodice, he tweaked blogosphere critics of another of his holding-company solutions: the Enfatico agency created for Dell and folded less than 16 months later, in 2009, into Y&R, which subsequently lost some of the business after a review.
What WPP was trying to do "is what everyone is trying to do, which is create an agency for the client," Mr. Sorrell said. "And we got harangued for doing it." Enfatico wasn't about costs, as some contended, and "still exists to a very large degree," he said.
Mr. Sorrell conceded that ego and political issues can make cross-agency, cross-functional teams hard to create and run, but said that "the deeper you go inside our organization, the more excited our people are about working together horizontally."
In a talk ostensibly on agency-client relations but that could well be titled "The World According to Sir Martin," the chief of the biggest agency-holding company by market capitalization also forecast changes in the marketing landscape, including the potential for a $20 billion opportunity to shift money to digital from other media, based on the discrepancy between consumer time spent with the medium and proportion of marketer dollars spent.
Consumers spend 25% of their media time with digital media, Mr. Sorrell said, but marketers spend only 19% of their marketing budgets there globally, by WPP's reckoning. The disconnect is greater in mobile, with 8% of time spent vs. 0.5% of budgets, he said. TV is relatively balanced, at 41% of time spent and 42% of budgets. Mr. Sorrell said that print is the only medium with a substantial overallocation of media budgets compared with time spent -- and hence most vulnerable to the shift.
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