The state of global advertising
The regional head of Ogilvy says the advertising industry has already learnt to live with a tough economy, but the coronavirus takes everyone into perilous new territory. Emerging markets, however, know how to handle volatility
Advertising agencies the world over will have to rapidly adapt to a new operating paradigm influenced by shrinking economies and now the outbreak of the novel coronavirus.
The world is gripped with fears that the virus will cause a global recession at a time of already weak growth. As a result, panic-selling has swept stock markets.
But Paul O’Donnell, CEO of the Ogilvy group’s Europe, Middle East & Africa operations, says he takes encouragement from developing markets, which tend to show more optimism and resilience than some markets in Europe. Ogilvy is one of SA’s blue-chip agency groups and counts among its clients Vodacom, Volkswagen and KFC.
O’Donnell, speaking exclusively to the FM during a visit to SA, says the ad industry has over the past five years grown accustomed to a tough economic environment.
"There was a time in the UK where I was delivering 20% growth and now some agencies and their clients are delivering just 1%, where 3% was considered a nosebleed," he says.
And now the Covid-19 coronavirus outbreak is going to affect business for the next year at least. O’Donnell says the global ad industry tends to concentrate its efforts in the second quarter, when "most things get planned and done", and he warns the sector is inevitably going to be hard hit.
O’Donnell is involved in a major account pitch for a Japanese brand, but because of the virus he has been unable to meet potential clients, and is forced to rely on platforms like Google Hangouts to communicate. He says it works but is not ideal for an industry like advertising.
O’Donnell says the coronavirus emergency is going to affect business sentiment as well as component supply from countries such as China and South Korea. The trickle-down impact on sectors like the ad industry will be extensive, he says.
But he sees an advantage for emerging markets, as the volatility has created a problem-solving culture.
"People in these markets are resilient and clients I have spoken to in SA say they will find a way through.
"There is a sense of optimism and opportunity here that I don’t always see in Europe. SA always gives me a fillip and energy to move on."
O’Donnell also reflected on the state of global advertising and whether big agency conglomerates still have a future.
Ogilvy is part of the London-headquartered WPP Group, whose stock plunged to its lowest level since 2012 in late February after the company reported an organic revenue decline of 1.6% in 2019 and 1.9% in the fourth quarter.
O’Donnell says some divisions in WPP are growing and adopting technology but then there are what he calls "legacy" operations. He says there is more optimism in WPP as moves are made to make technology central to its operation. He also says the group has reduced its debt.
He singles out the Ogilvy SA operation for praise, saying it is among the earliest tech adopters among agencies around the world.
On where the industry is heading, O’Donnell says it has to rediscover its true north and determine what its core purpose is.
Part of that will be the challenges the digital environment is throwing up, including partnering with Google and Facebook "without giving the business away".