Summit Notebook

Recession’s perfect storm speeds up change in ad industry

Why is it that the United States’ advertising as a proportion of marketing services is at its lowest point since 1977, maybe even lower than since the Second World War?

You may have guessed it it’s the recession.

But it will get better, Martin Sorrell, CEO of advertising giant WPP, said.

“The recession is less worse,” Sorrell said, repeating a favourite phrase of late, and while it’s the biggest recession since 1929 it is also “a perfect storm” that has brought forward change. 

“The recession has accelerated structural changes that were already happening,” Sorrell said at the Reuters Global Media Summit.

Will advertising ever go back to where it was? Yes, if you are looking at new media advertising on Kindles and mobile.

Will the United States rebound? Western Europe? Yes, to both.

Q&A with WPP’s Sir Martin Sorrell

Sir Martin Sorrell, CEO of WPP Group Plc, was interviewed as part of the Reuters Global Technology, Media and Telecoms Summit held this week around the globe. He talked to Reuters reporter Kate Holton in London, with groups of reporters calling in from Paris and New York to ask questions. Here are extended excerpts from a longer interview:  

SOFTER 2009; REBOUND IN 2010 Reuters: How is the U.S. advertising market holding up in light of the credit crunch and housing crisis?

Sir Martin: I would just say that I think we continue to be surprised by the relative strength of the US in the first four months of the year, I guess.

Reuters: Previously said you see a stronger 2010 but concerns in 2009. Are you still happy with that characterization?

Sir Martin: Following the Beijing Olympics and the elections of the new US President, 2009 may see a little bit of slowdown in China but all of these things are relative because China is still growing at 20 percent plus and it can’t carry on forever. The GNP can’t continue to grow 10 percent per annum consistently so — forever. The laws of compound arithmetic just make it very difficult. So ’09 I think you have a little bit of relaxation and also I don’t think the world has decoupled. So if America’s weak, as we have said before, you may not catch a flu, but you may certainly catch a cold.

And then in 2010 a number of events –you have the (U.S.) mid-term congressionals. So any US President has to do something unpleasant in ’09 will do it early and hope that mid-term congressionals would not be affected. But you’ve got the Shanghai fair, the expo in 2010. You’ve got the Asian games. You’ve got the Winter Olympics in Vancouver and you’ve got – the biggest event is probably the World Cup in South Africa

Reuters: If we did experience a greater economic downturn would you expect to see increased competition amongst agencies for business? How does that impact on you?

Here’s an idea…

Sir Martin Sorrell of WPP Group presides over the world’s second largest advertising services company. Business leaders the world over have consulted him on his views on how global economic trends will unfold. Many credit him with being far-sighted on the emergence of India and China, on the importance of the Internet and new media.      Today, at the Reuters Global Technology Media and Telecoms Summit, he suggested that corporations consider a complete about-face to the basic marketing idea entrenched for decades in the U.S. and Europe.  

One of the paradoxes we’re probably going to have to deal with in our industry is that historically, we’ve encouraged consumers to consume more. What we may have to do, particularly in the West as the oil price gets to $140, $150 or maybe even $200 (per barrel) … we may have to encourage people to consume less. That’s a very different approach. 

You heard it. Sorrell made the remarks when asked about his views on “going green” amid rising prices for fuel and the widespread consumer concern over the health of the planet.  

Does it make sense to encourage people to continually buy electronic equipment, which lasts a year costs a lot of money, and then you have to throw it away and that in itself causes environmental issues? Longevity may become more important.       We know that consumers favor companies and brands that take environmental issues and sustainability issues seriously. If you talk to retailers like Wal-Mart for example they will tell you that irrespective of income and wealth, their customers prefer brands that are green or environmentally friendly as opposed to those that aren’t. 

Somewhere, a creative director is going back to the drawing board.

(Photo: Reuters)