Consumers are the key to survival – be nice to them

WPP’s figures show that times remain tough in advertising but, as consumers are continuing to spend, marketers may well reap some benefit, says George Pitcher

There was precious little to celebrate in WPP Group’s preliminary results for 2002, released earlier this week, so it was greatly to chief executive Sir Martin Sorrell’s credit to appear on the radio first thing Monday morning to talk about them.

Group revenues were down by nearly three per cent, to &£3.9bn, with pre-tax profits plummeting by some 19 per cent to about &£401m. In the face of all this, WPP managed to raise its dividend by 20 per cent to 3.67p and its shares actually rose marginally on Monday morning.

The dividend – and the news that the results were not as bad as the most pessimistic forecasts predicted – may have given some grounds for a kind of phlegmatic optimism, and Sorrell did his best on the public airwaves to pick nutritious morsels from the moribund carcass of the global advertising market.

The latter stages of 2002 were actually “less worse” than earlier in the year, said the usually more articulate Sorrell, but we knew what he meant. Like-for-like revenues were down by nine per cent in the first quarter, but by the third they were down by a little over three per cent and in the final quarter they were just a little under three per cent behind.

North America actually saw some revenue growth – a relatively healthy two per cent in the final quarter – the first in seven quarters. The worldwide recession in advertising markets, traced by Sorrell to the back end of 2000, is showing some signs of an upturn in form, if only of the kind that led West Ham United to beat West Bromwich Albion in the Premiership’s relegation derby at the weekend.

To stretch the analogy, there is much to be played for now in the survival game in advertising’s premier league. If the recession can be compared with a tough football season, there is a whole lot to be gained in prospective revenues by staying in the top flight of global advertising practices at the season’s end.

The sort of revenues that automatically come the way of Premiership football clubs, in the form of television rights and sponsorship tie-ups, are directly comparable with the sort of earnings that the international advertising market generates in expanding markets for those companies that have stayed in the global market during the downturn.

The likes of WPP, Omnicom and Interpublic are the equivalent of the top Premiership clubs which, almost as a matter of course, qualify for the Champions League. Further down the rankings are those advertising groups that may have been relegated from the premier, global league during the downturn and will have cut themselves off from those lucrative sources of revenue when the markets pick up.

It’s too simplistic to suppose that all that stands in the way of a recovery in these markets is a war against Iraq – and the shorter the war, the better. Accuse him of what you like, but even President Bush doesn’t claim that Saddam Hussein is to blame for the dot-com bubble, its bursting in 2000 and the subsequent deflation of Western advertising markets.

True, the unsettling uncertainties of a forthcoming war on the markets have further depressed our economies. But it is still by no means uncommon for analysts in the City of London to be looking forward to a recovery in the equities markets in 2005, with no proper recovery in the economy until 2007.

So, those who earn their crusts in marketing services may have a rather more protracted survival battle than that facing West Brom. And, over the next couple of years, only those companies that play to whatever strengths they can muster are likely to survive and eventually to prosper in the world premier league.

In this context, I was interested to hear another observation of Sorrell’s on his group’s results. He remarked that the two-track economy we seem to have developed in the West suggests that we have been experiencing a business-to-business recession alongside buoyant consumer markets.

This is nothing new as an observation in itself, and it has confounded economists since the turn of the millennium. Manufacturing industries and investment have been shrinking even as the tills have continued to ring merrily in the shops. But I think it has profound implications for those who are intermediaries in the marketing of consumer goods over the next couple of years.

Despite some recent correction in the more ludicrously inflated quarters of the residential property market, rising house prices are evidence of continuing consumer confidence in borrowing and spending. Similarly, totemic consumer markets such as new car sales have indicated that revenues can be defended with a little judicious special-offer activity.

The test during the period of economic recovery in business-to-business markets, which could take considerably longer than is optimistically anticipated, will be how well companies address the relative health of their consumer trade. Consumer markets will need to be nurtured to ensure their continued buoyancy and considerable creativity will have to be expended on defending market share.

This will be tremendous news for consumers, on whom attention is likely to be lavished in coming months. Experience shows that we will pay for it when proper growth returns to the economy – but, by that stage, who cares?

George Pitcher is a partner at communications management consultancy Luther Pendragon

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