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Testing the temperature: State of the Nation

It doesn’t take a genius to figure out that confidence within the marketing industry is almost at an all time low. And the latest Bellweather report confirms just that. But how is confidence holding up in the regions?

So, with all this chaos going on, the IPA’s Bellweather report for Q3 2008 will have made for further unpleasant and worrying reading for the marketing community as it showed that annual marketing budgets had been revised down at the fastest rate since the survey began some nine years ago. In line with that fall, business confidence regarding financial prospects also suffered a record breaking decline and spending on traditional media had also witnessed a sharp downturn. Even online spending is described as stagnating.

A month ago The Drum launched its ‘State of the Nation’ online poll so that we could take the temperature of the marketing and media community based outside of London, across all of the key marketing centres that The Drum’s readers inhabit.

Not surprisingly, agencies in Edinburgh, Glasgow, Manchester, Leeds, Birmingham, Bristol and beyond were keen to have their say in the research, which aims to offer an insight into how the marketing community outside London is faring at the moment and to assess the level of confidence in the industry as we move forward into 2009.

Topline findings
More than 200 agencies took the time to complete The Drum’s State of the Nation survey and we’d like to thank them for their time in doing this.
What becomes immediately evident when analysing the results of the survey is the vast range of companies that exist in The Drum’s patch in terms of size and turnover. The average number of staff employed by those agencies that completed our survey is 23.3, with the largest company employing some 200 members of staff, while the smallest operate as sole traders.

Not surprisingly, turnover varied greatly across respondents, the average turnover being £2.44m, but the highest grossing firm in terms of turnover was an integrated agency with £35m.

Respondents to the survey came from right across the broad spectrum of marketing disciplines – advertising, design, digital, direct marketing, public relations, integrated, consumer marketing, business to business marketing and media sales.
(The exact breakdown of respondents can be seen in table 1 below.)

 

 

 

 

Turnover
Looking at the entire sample we can see that turnover has increased during the last six months for almost half of all respondents, 47.1% to be exact. However, a quarter (25.5%) of businesses have experienced a decrease in turnover during their last six months of trading.

Slightly more than a quarter (27.5%) of companies have seen their turnover remain static over the last six months, something they will no doubt be aiming to at least replicate during the following months.

Staff
While the financial chaos is making headline news in the newspapers, how it impacts on the real economy is most evident in terms of jobs and recruitment.

Again, looking at the entire sample of 200-plus companies, we can see that 60.7% of companies are planning to maintain their current number of staff employed, with 27.5% of company bosses planning to actually increase the number of staff they employ during the next six months. We will see which areas of the marketing community are feeling the most positive about staff recruitment later. With regards to downsizing in terms of staff, some 11.8% of company bosses are already considering reducing their staff numbers from present levels. This statistic also does not take into account those who may be forced to downsize thorough loss of business, bad debts etc.

Impact
It is sometimes hard to imagine how the stories of financial mismanagement we read in the newspapers will translate into the ‘real’ economy, but 88.2% of respondents feel that the current credit crunch will hit the ‘real’ economy.

While more than three quarters of all respondents (85%) do, however, feel that the impact on their businesses will be serious, 51% of respondents feel that with some tweaks to their cost base and operations they will be able to manage their way through the downturn to emerge at the other end. Some 7.8% feel that the impact on the real economy will only be slight, which in light of the Prime Minister’s rescue package unveiled as The Drum went to press may now, at least, be understandable. That said, 5.9% of our sample describe the impact of the current financial downturn as catastrophic for their businesses.

It is however, better news from a regional perspective, with more than half (60.8%) of companies believing that the regional economy will be more resilient than the London economy. Some 39.2% of respondents believe that the regional economy will be equally as affected by the downturn as that of London.

Sector specifics

Advertising sector
Of the 200 respondents to the survey 23.5% classed their core business as advertising.
The average staff numbers of the advertising businesses was 26.5 and the average turnover of those businesses was £3.17m, though the range of turnover was vast from £40,000 to £8m.

Across advertising businesses we see that turnover has remained static in 25% of businesses and 31.25% have experienced an increase in turnover. Sadly, 37.5% of advertising respondents said they had a falling turnover during the last six months.
In terms of head count 81.25% are planning to keep their staff numbers static between now and April 2009, with just 6.25% expecting to be in a position to increase staff numbers and 12.5% already planning to decrease their staff number.

With regards to the impact, the regional advertising community expects to be more resilient to the downturn than London with 68.75% feeling more confident about being based in the regions and only 31.25% feeling that the regions will be as badly affected.
That said, 53.3% of the regional ad community believe that they will be able to manage their way successfully through the downturn, with no advertising respondents feeling that it will be catastrophic for their business. 

Design sector
Design was the third largest group to respond to the survey, with 21.6% of respondents describing their businesses as primarily design.

The average staff number across respondents here was 10 members of staff, which again shows the great variety of staff employed by design businesses in the regions from large organisations with 40-plus staff down to the one man operators. Turnover again varied greatly, the largest design business turning over £3.5m with the smallest turning over £50,000.

Again, design businesses were planning to keep staff numbers static for the next six months, with some 62.5% planning to make no change. However, there appeared to be more plans to increase staff numbers than in the advertising sector with 29.16% of respondents stating that they plan to increase staff numbers between now and April 2009. Only 8.33% plan to actively reduce staff numbers in the coming six months.
Exactly 50% of the design community expect the impact of the downturn to be as hard on the regions as it will be on London’s economy, though 58.33% expect the impact to be ‘serious but manageable’ and only 8.33% expecting the downturn to have a catastrophic impact on their businesses.

Digital sector
Interestingly the largest group to respond to the State of the Nation survey was the digital community, with 25.5% of all respondents coming from that area. And perhaps not surprisingly, bearing in mind the mind shift towards digital marketing in recent years, the regional digital sector is more upbeat about the future than its traditional media cousins.

The average number of staff employed by the digital respondents was 25, however the average turnover was quite low at just £1.73m, though this was perhaps skewed due to a number of respondents preferring to keep their turnover figures under wraps.
That said, confidence should be high in the digital sector as 65% of digital businesses have enjoyed a growth in turnover during the last six months. Many (30%) have seen their turnover remain static since May 2008, while just 5% have seen turnover decrease for the last six month period. A clear sign that clients are increasingly turning to digital to meet their marketing objectives.

And it seems that confidence that this trend will continue in digital is reasonably high with a whopping 95% of digital respondents expecting to either increase their staff numbers (50%) or at least maintain staff numbers (45%) at their current levels.
Again, in terms of the impact expected to be felt in the regional ‘real’ economy, the digital sector has a brighter outlook. No digital business sees the impact as being catastrophic with 70% of digital bosses being confident that they can manage their businesses successfully through the downturn.

Integrated sector
Some 13.7% of respondents described their agency as being integrated, meaning they address a client’s marketing challenges across the most relevant marketing disciplines, be it advertising, design, digital, PR etc. The nature of these all encompassing beasts mean that they are larger in number and the average staff number of the integrated businesses that responded was 50. Again some declined to offer turnover figures, so the average turnover figure of £3.37m may be artificially low.

That said 28.5% of integrated respondents did say that they had experienced a fall in turnover in the last six months, with 71.5% saying that turnover had remained static or risen for the same period.

With regards to staffing, 57.1% are planning to keep staff numbers static up until April 2009, while 35.7% are actually planning to increase their staff numbers over the next six months. Perhaps, in this climate these integrated agencies will look to increase staff numbers in areas that are easier to track ROI, such as digital and direct marketing.
There is also perhaps a brighter outlook for integrated agencies in terms of the impact on the regional ‘real’ economy, with 57.1% of respondents feeling that the regions will suffer less than London during the downturn.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In conclusion
At this point in time it is perhaps difficult to draw many tangible conclusions for what lies ahead for the thousands of marketing agencies based outside London across the UK.
The results of The Drum’s first State of the Nation survey perhaps simply provide us with a starting point from which we can measure the outlook and confidence of agency bosses as we all fight to survive what is undoubtedly one of the toughest economic climates in living memory.
As we can see the digital sector remains more confident of what lies ahead and no doubt the agencies in that sector are working tirelessly to encourage clients to invest more of their remaining budget in that area to maximise ROI.

With the Q3 Bellwether reporting business confidence at an all time low it is tough to remain upbeat, particularly when clients are not briefing you quite as often as they once were, but it is important to retain as positive an outlook as possible to keep staff moral and creativity high.

To that end, we hope that the words of advice offered by some of the leading members of the marketing industry on the previous pages will give you some food for thought.

The Drum will run its State of the Nation poll again early in 2009 to compare how industry confidence is progressing. To make sure you don’t miss out on your chance to take part next time visit www.thedrum.com and sign up to our free e-shot bulletins, which deliver the latest news, views and marketing related jobs directly to your in-box every week.

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State of the Nation Vox Pop:
How can agencies steer a path through the current economic crisis?

Tony Stanton, Chief Executive, An Agency Called England
Stick to your knitting and get as close to your clients as they will allow, even if they are not spending money – they will again soon. And get paid as early as you can – cash is king in the current climate. Cut costs but not people. You will need them again when the crunch is over.

Sera Miller, partner, Material Marketing
Start being honest: stop trying to tell people it’s all OK. It’s not. What we need is a focus on values. Tune in to those of your clients, your consumers and your own. Budget cutting is only a short term fix but it is inevitable so prepare yourselves for the storm, not just financially but creatively as well. Batten down your hatches and remember that ultimately, tough times can produce winners as well as losers.

Roger Ward, former MD of BDH TBWA, and veteran of two recessions
Listen to the old farts. Anyone who’s been here before will have made mistakes you can learn from. Remember, recessions are great for good businesses because they sort out all the rubbish. Bad players go bump; while talented people become even more competitive. Businesses need talent more than ever in times like these.

Mark Beaumont, creative director, Dinosaur
The US in panic mode, the jury’s out on whether Brown knows what to do and you’ve asked a creative director how to navigate these difficult times? Stay true to your vision, concentrate on your core-skills, be keen, be nice. Alternatively, act like it’s a nuclear war and stock up with beans, batten down the hatches and huddle round your radio ‘til you hear news that it’s all OK again.

Richard Elwell, partner, Unsuitable
Chunkier bits of business may be rarer at the moment but there is still stuff out there. Look under every stone for it and get off the beaten path – seems some companies are still receptive to your mailer and cold call. It doesn’t all have to be about landing new contacts either, look at your existing clients who may just be waiting for that piece of communication that bucks the current climate and rakes a few extra quid in (for you and the client). All in all, agencies may be leaner at the end of this but all the fitter for it.

Mike Ashton, MD, JDA
It’s crucial to focus on the pluses, some clients are prospering in the current environment, diversify and focus your new business drive on these areas. Keep producing great work because great work will always find a buyer. Stay positive as positivity rubs off on agency and clients alike. If all the above fails invest in strong underwear!

Paul Wheeler, MD, MediaCom North
Given that we’re entering economic times unlike any in living memory, and given that this is going to cause some of the biggest changes in consumer behaviour since the advent of the motor car, the words of Walmart’s founder, Sam Walton, seem apposite:  “Whenever you get confused,” he said, “go to the store.”  The output of some of the industry’s standard consumer insight tools is going to feel a little behind the times, to say the least, and marketeers whose agencies base their planning on extremely recent consumer insight are those with the best chance of avoiding the worst of times. So get down to the store (leaving your credit cards at home), and base next months plan on this week’s research.

John Morgan, joint MD, Brahm
Remember who pays our salaries. Clients. Remain positive and focused. Understand and appreciate the current trading situation from your clients point of view. Strive for new ideas, particularly for clients who may be in a tricky trading environment, these ideas don’t necessarily need to involve large marketing budgets, particularly in these digital led times, sound strategic thinking, simple implementation. Put yourself in your clients shoes, imagine it was your own money/business, what would you do?

Suzanne George, MD, Denvir Marketing
More than ever, now is the time for brands to reach out to their consumers, understand them, make them feel good in these difficult times and thank them for their loyalty. The consumer is changing faster than ever in this current climate. Brands that invest now and build consumer relationships in the bad times will have earned lifetime loyalty.

Hugh Mason, partner, Pembridge Partners
Focus, focus, focus and protect your core. Specifically focus on operating efficiency and performance. Make the decision to become leaner now, cutting back non-essential expenditure and staff. Then select a small number of key metrics to pace your performance against your peers (eg cost/revenue targets; pitch win ratios, sales call conversion rates etc), truly holding yourself accountable to meeting the targets you set. Focus on cash flow management. Reduce cash tied up with debtors. Focus your positioning – be sure you know what is the true core of your business and why it means you offer a differentiated service.

Helen Hourston, MD (Edinburgh), The Gate Worldwide
Be lean and focused. Be honest with your staff about market conditions but have a clear strategy for the period ahead. Share your thinking with your team and make sure everyone knows what is expected. Client companies need extra support and understanding. So, it’s no time for the uncommitted. Demonstrating real talent and commitment will give you a competitive edge and pay dividends in the long run.

Derek Sneddon, co-founder, Pocket Rocket
The crucial thing is to champion services that are front-of-mind during tight times. Traditional advertising will undoubtedly be one of the first casualties of marketing budget cuts, as will many of the production-rich design projects that designers crave. Online though, will probably see an upturn, since it’s a low cost route to market. So maybe the key to success when it comes to the crunch is, don’t try to chase business that isn’t actually around. Offer real value, perhaps aim your sights a little lower than you would have previously.

Steve Antoniewicz, MD, Recommended Agency Register
If you have just won a new piece of client business make sure you do all the relevant financial checks before you set out on a new relationship, you want to know the bills will be paid after all. Equally if you’re a client you need to know that the agency you like so much will still be around to deliver the work.    

David Wilkinson,chairman, Unit Communications Group
If you’re running your business on tight reserves, cash is king and survival is the mantra. Save growth plans until the economy turns the corner. The temptation is to do business at all costs – don’t! Concentrate on where you’re guaranteed to get paid; and on time. Don’t give unsecured credit – your bank won’t give it to you.

Ben Quigley, MD of Different
Fear of the unknown is the worst fear of all. It’s survival of the fittest time. Try to emerge from the downturn stronger than you went into it. Focus single-mindedly on your core offering – great work, great relationships and proven effectiveness.

Scott McCallum, client services director, Avian
Invest in building the best possible team by recruiting candidates of the highest calibre. That team then develops marketing programmes that can create real value for clients. That demonstrates commitment and you will be rewarded by their loyalty in return. Focus on growing the existing business efficiently and organically.

Tim Pile, chief executive, Cogent Elliot
The key (for us anyway) is to retain ultimate flexibility in our approach and our business model, continue to invest sensibly in our growth and stay close to our customers - listening and responding to their needs. The economy will recover and those who stay fit to compete during this downturn will be much better placed to build an even stronger business in the mid-term.

 

Featured by The Drum

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