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Intelligence Briefs

Businesses will have to invest in their brands or face extinction

Industry Contributor

Peter Vogel, CEO
Wavemaker

4 November 2019 4min read

Australian marketers were not alone in reining in their ad spend in 2019. According to a new Gartner survey of more than 300 CMOs in North America and the UK (covered by Forbes), marketing budgets on the other side of the world declined as a percentage of company revenue. But if brands are to realistically tackle challenges from distribution disrupters and insurgent brands, they’re going to have to start re-investing in marketing.

 

Key points:

  • According to a new Gartner survey of more than 300 CMOs in North America and the UK, marketing budgets declined from 11 per cent of company revenue in 2018 to 10.5 per cent of revenue in 2019. 
  • That drop may be temporary, with 61 per cent of CMOs surveyed saying they expect spending to rebound next year.
  • Or is this a case of misplaced optimism? CMOs interviewed in 2018 thought budgets would increase in 2019.
  • Worries of a global recession still abound. Nearly 40 per cent of economists surveyed in August by the National Association of Business Economists expect recession to hit next year, 78 per cent expect an economic downturn by 2021.
  • Locally, Standard Media Index (SMI) figures show that the Australian ad market experienced 11 consecutive months of decline, and in the 2018/19 financial year, the ad market was down for the first time in six years.

My Takeout

There is no doubt that 2019 was a year ‘in limbo’ for marketing. With the hangover from the financial services royal commission, a credit squeeze, a year of State and Federal elections, and a number of client mergers and acquisitions – it’s no wonder the ad market experienced 11 consecutive months of decline, as evidenced in the latest SMI figures.

However, just like the 300 CMOs surveyed by Gartner in the US and UK, I am confident that ad spend in 2020 will be back to growth. It has to be if businesses and their brands are to survive, not only in the long term, but also in the ‘nearer’ term.

It’s not an exaggeration to say we are entering the biggest battle for growth ever experienced in Australia. Businesses will have to invest in their brands or face extinction.

If you think I’m over-reacting, take a minute to consider the competitive landscape. Competition is coming from everywhere, not just your traditional competitors. As we know, the biggest challenge for brands is coming from ‘distribution disrupters’. Amazon is obviously the biggest challenger, but there are many others across many sectors – players such as Uber Eats and other distribution models; Direct to Consumer, Subscription Commerce and On Demand.

With many of these models, consumers are either exposed to more brand options, or the brand options are selected by the intermediary.

The second biggest challenge is coming from smaller ‘insurgent’ brands. Almost every category is being cannibalised by smaller alternative offers – natural, eco, craft or ‘premium’ products are among the most prominent. They are all stealing market share; even if they are only snatching small shares initially, the effect of two or three of these insurgents can have a noticeable impact on established brands and the categories they compete in.

Throw into the mix the fact that these competitors are going to market in different ways, and it’s easy to see how it’s becoming difficult for big brands to fight on all these fronts.

There is an answer, of course. And that is for businesses to re-invest in brands – and in doing so, to drive brand trust and brand considerations, by building their distinctive assets and ensuring consumers are asking for or requesting specific brands. Brands need to build loyalty and continue filling the top of the funnel.

This can only be achieved through marketing investment. Brands need to improve their customer experiences and ensure their communications are more personalised, relevant and engaging. Data and content can enable brands to achieve this. Intelligent use of data now allows brands to personalise their messaging at scale. And, Australia offers tremendous opportunities for brands to meaningfully integrate into rich local content and programming. Whichever route you choose, it requires investment.

This is why I believe that ad spend in 2020 will have to return to growth in Australia.  

Let’s go. What do you think?

Industry Contributor

Peter Vogel, CEO
Wavemaker

Peter Vogel started his career in South Africa on the client side. After selling the media agency he founded, Nota Bene, to WPP, he has been with the group for 16 years, across three continents. Following two years in Hong Kong as MEC Asia Pacific CEO, he returned to Australia in January 2018 to run Wavemaker Australia & New Zealand.

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