Marketing & Advertising
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Coronavirus Buyer’s Guide Marketing & Advertising April 2020 Supply Chain Risk Stimulus Impact Availability of Best Practices Assessment Analysis Substitutes for Contracts Historical Performance buyers are cutting budgets. In addition, product shortages are causing buyers Marketing and advertising agencies have historically performed poorly during of market services to freeze ad campaigns as they are unable to fulfill orders. recessions. In 2009, US ad spending as a percent of gross domestic product sunk Some clients are asking for contract suspensions, while others cut back all or to its lowest level in decades. Moreover, Ad Age reported the sharpest revenue part of their spending on marketing and advertising initiatives. While digital drop since 1945 (7.5%) during 2009. In addition to losing business, many firms advertising is faring better than traditional media, both categories are down offered discounts in order to retain clients. Revenue then suffered for several more than 30.0% according to IAB. Revenue for advertising agencies is poised years as recessionary price discounts of as much as 30.0% were taken as the new to decline 2.0% in 2020, indicating poor performance. benchmark by some clients. As reported by McKinsey, ad spend did not return to pre-recession levels until 2011. According to an Interactive Advertising Bureau (IAB) report, 74.0% of buy-side decision-makers expect that the coronavirus will Market Headwinds & Tailwinds have greater impact on US ad spend than the Great Recession. Marketing and advertising firms are recalibrating their businesses around these headwinds and tailwinds: • Cuts to key buyers’ marketing and advertising budgets Current Performance • Declining consumer spending While the Great Recession resulted from problems in the financial system, • Changing consumer preferences for mission- and cause-based messaging current threats of a recession revolve around declining consumer spending. • Higher monitoring of advertisements to weed out sensationalized content As marketing and advertising campaigns generate fewer conversions, key • Social distancing policies that make shooting new video ads difficult procurementiq.com 1-888-878-9429 [email protected] Contents Supply Chain Risk Assessment......................................................................3 Upstream Suppliers.....................................................................................................3 Downstream Buyers....................................................................................................4 Stimulus Impact Analysis..............................................................................5 CARES Act Provisions.................................................................................................5 Availability of Substitutes..............................................................................6 Creative Procurement Opportunities..........................................................................6 Best Practices for Contracts..........................................................................7 Best Practices.............................................................................................................7 Key Takeaways...........................................................................................................8 Appendix.......................................................................................................9 Related Reports...........................................................................................................9 procurementiq.com 1-888-878-9429 [email protected] Risk Assessment Upstream Suppliers CONSIDER THIS: Upstream Risk Before Risk After As reported by the Supplier COVID-19 COVID-19 COVID-19 Impact New York Times, about 33,000 workers at US • While media companies may sell ad space to businesses directly, ad news companies have been furloughed, laid space can also be purchased by advertising and marketing firms on off or taken pay cuts. behalf of clients. With ad budgets pinched, a crucial revenue stream for Additionally, many Media Companies Medium High media companies is vanishing, thereby weakening financial stability. small newspapers and • BuzzFeed was on the path to profitability at the start of 2020, but publications that rely is no longer slated to achieve its goal due to the pandemic. on ad purchases have shut down due to slower • Market suppliers may also purchase ad space on social media demand from marketing platforms on behalf of clients. The buying pool for social media agencies and other ads is shrinking as small and midsize businesses close due to business buyers. decreased foot-traffic and economic hardship. Social Media Low Medium • Despite growing traffic on social media platforms during this time, Platforms suppliers’ profit margins are in danger as they struggle to sell ad space. • Social media giants will likely be able to weather the pandemic, but smaller platforms may become acquisition targets or discontinue CONSIDER THIS: operations altogether. Last year, Facebook brought in $70.7 billion • While revenue for ISPs may decline in 2020 as business closures in sales from small reduce demand from clients, high average profit margins will help businesses, the group hit hardest by the current Internet Service ISPs remain solvent and provide services without disruption. Low Low economic downturn. Providers (ISPs) • Despite surging usage, the internet is expected to remain functional as ISPs take measures, such as limiting high-resolution streaming, to keep internet speeds from tanking. • Although demand may eventually slow, a spike in demand for coronavirus-related information will help boost operators’ revenue during 2020. Market Research Medium Medium • According to Harvard Business School, marketers shaved roughly Firms 10.0% to 20.0% off research budgets during the 2008 recession, indicating that demand for these services may fall as the economy weakens. procurementiq.com 1-888-878-9429 [email protected] 3 Risk Assessment Downstream Buyers Downstream Risk Before Risk After Buyer COVID-19 COVID-19 COVID-19 Impact • The hospitality sector is getting significantly less foot traffic and some companies are even closing due to financial hardship. Overall, CONSIDER THIS: Restaurants & restaurant and hospitality buyers have less funds to spend on As part of its efforts to Hospitality Medium High market services. save $800 million this Establishments year and offset losses • The travel industry cut its ad spending by about 50.0% during the from the coronavirus first two weeks of March 2020 compared to a year before. pandemic, Airbnb has halted marketing • Credit card companies are struggling to profit as consumer spending. spending tightens and relief programs allow cardholders to delay payments without penalty. Credit Card • In September 2008, the number of TV ad units run by credit card Medium High Companies services slid by about 24.0%, according to Nielson. Similar declines may occur in 2020. • Visa and Mastercard have cut revenue outlook amid the pandemic, with Mastercard knocking 2.0% to 3.0% off a previous forecast. • Reduced consumer spending is expected to weaken retailers’ financial stability, causing them to cut marketing budgets or, in extreme cases, cease to operate entirely. Retailers Low Medium • According to Quartile Digital, Amazon merchants spent about 6.0% less on advertising during the second half of February than they did CONSIDER THIS: a year before. While Ford is yanking its national ads promoting • Although automakers have taken a serious hit, cancelations of vehicles, it will replace major events have freed up budget dollars, causing automakers to the ads with a new reallocate spending and invest more heavily in TV-based and online campaign covering Car & Automobile Medium Medium ads. its response to the Manufacturers pandemic and the • Automakers spent an estimated $184 million on 54,000 airings favorable terms offered from March 1 to March 18, according to iSpotTV. to Ford Credit customers during this time. procurementiq.com 1-888-878-9429 [email protected] 4 Stimulus Impact Analysis Coronavirus Aid, Relief & Economic Security Act How does the Federal Coronavirus Aid, Relief, and Economic Security (CARES) Act impact the marketing and advertising market? Allows small businesses (i.e. the bulk of advertising agencies and marketing firms) to apply for the Paycheck Protection Program (PPP), under which some businesses may be eligible to receive a loan of up to $10 million on favorable terms. Provides $25 billion in federal funding allocations to help public transportation systems remain operational. In keeping transit operations up and running, buyers will be able to continue purchasing transit ads, which cost less than most other advertising mediums such as television, radio, billboards and newspapers. Modifies the loss limitation applicable to pass-through businesses and sole proprietors so they can utilize excess business losses and access cash flow. Accelerates the ability for companies to recover Alternative Minimum Tax credits, permitting companies to claim a refund now. Temporarily increases the amount of interest expense businesses are allowed to deduct on their tax returns by increasing the 30.0% limitation to 50.0% taxable income (with adjustments) for 2019 and 2020. Provides that net operating losses (NOL) arising in a tax year beginning in 2018, 2019, or 2020 can be carried back five years and temporarily removes