The US and traditional media bite back
WPP CEO Sir Martin Sorrell reports
The recovery of 2010 did not turn out quite the way we expected. Rather than ‘L-U-V’-shaped, the world economy was more ‘L-V-V’- or ‘LuVVy’-shaped. The expression LUV was originally coined* to describe the way the world’s regional economies would pull out of recession, but it served equally as a reminder of where we were going. It worked like this – a flatter ‘L’ or italic ‘L’ for Western European growth, a speedier ‘U’ for the US and a sharper, more rapid ‘V’ for the BRICs nations and the Next 11 as identified by Goldman Sachs. The letters do approximate the fragile recovery of 2009 – very much a year of two halves – but were also supposedly the shape of things to come.
However, 2010 was remarkable for the strength of the American recovery – more a ‘V’ than a ‘U’ – and with it, the strength of traditional media. Why? First, there was a certain amount of dead-cat bounce, given that advertising as a proportion of gross national product (GNP) in the US probably fell to a low we had not seen since the mid-1970s. Seemingly, we have already forgotten the depths we reached in the first half of 2009. Second, categories that had almost stopped advertising came back with a vengeance, such as automobiles and trucks, financial services, travel and retail. Third, with so much surplus traditional media inventory in 2009, prices or costs per thousand (cpms) had fallen significantly, making traditional media look a bargain even against new media inventory. Lord Grade of Yarmouth was right when he said as he was leaving ITV that TV prices in the UK were the lowest they had been for 10 years. Fourth, there may have been a feeling developing that new media were more about price and deal and old media more about brand and market share. Finally, post-Lehman, with over $2 trillion in cash on unleveraged balance sheets, cautious chairmen, chief executives and boards were fearful of expanding capacity and investing in slow-growth Western markets, and preferred to maintain or increase share by investing in the brand.
Over a quarter of a century, WPP’s strength has been our ability to identify trends and capitalise on them for our clients and ourselves. It’s how we began with two people in a room all those years ago. It is how we have weathered the recent crisis. And it is how we will position WPP for sustained growth in the years ahead – albeit with nearly 100,000 people directly with us, access to over 146,000 and rather more rooms than we started with.
It is essential that we identify geographic, functional and technological changes and adapt our business to make the most of them. For that reason, we expect the balance of our work to move from the ‘L’ shape of Western Europe and other established, slower-growing economies towards the ‘V’ of dynamic new markets. They include China with its possibly 1.5 billion and rising population, along with India and its even faster-growing population, and the other BRICs nations, Brazil and Russia – not to mention the Next 11.
The process is unstoppable. Cynics can no longer argue that the inevitable power shift from West to East or South to Latin America or South-East to Africa and the Middle East is just about cheap labour and low-cost manufacturing. Indeed, assuming that China and India will remain mere makers of cheap generic goods could prove life-threatening. Both countries are cultivating their own global brands and service industries, and they will be as good as anything the West can muster. After all, we used to say the same thing about Japan or Hong Kong.
Fortunately, WPP has leadership or near-leadership positions in all these countries (other than Iran, one of the Next 11), a position we will maintain. In India, for instance, we have a substantial market-leading share and in Greater China a market-leading share, making the latter WPP’s fourth-largest market already after the US, the UK and Germany. That can only grow as the global financial crisis fades.
Other changes are remaking our world. Of these, the most important is the continuing expansion of those parts of our business that sit outside traditional advertising. More of our work will be in marketing services, the so-called below-the-line areas such as Consumer Insight, Public Relations & Public Affairs, Branding & Identity, Healthcare and Specialist Communications – particularly direct, interactive and internet communications. Public Relations & Public Affairs, also, can expect a prosperous future as its traditional skills – building relationships and influencing opinion-formers – are brought to bear on the new internet frontiers of blogging and social networking. These shifts in the balance of our business are inevitable as audiences fragment, the costs of television airtime continue to fluctuate, gadgets like the iPad, smart phones or e-readers change media consumption habits and – most importantly – as the internet’s reach extends, promising more measurable, predictable results.
So what will keep our clients awake at night in the 21st century? Overcapacity in almost all areas of manufacturing – too many cars still chasing too few customers, for example – casts a cloud over prospects, forcing discounting and a profitless prosperity on key industries. This was true before the credit crunch; it is all the more so now.
Clients are equally troubled by the dominance of global retailers and the consequent pressure on prices. Some companies rely on sales in Walmart or Tesco or Carrefour stores for a large part of their turnover. These sales may be crucial to the company, but the numbers appear no more than a rounding error for retail giants like Walmart. A deep understanding of distribution and retail is crucial for survival.
Internal alignment is another essential requirement as global companies react to new markets in the East and stagnant economies in the West; getting everyone in a company facing the same way, working towards the same vision, is key. As the geography changes, so will old-fashioned management structures. Regional silos can expect a shake-up and local managers, sensitive and knowledgeable about their markets, may well come to the fore again. Consolidation also presents a threat and an opportunity for our clients – and is changing our industry with the rebirth of super-agencies or full-service agencies and shifts in the way we structure ourselves to meet companies’ needs.
Large clients are increasingly looking to parent or holding companies that draw on the strength of their individual subsidiaries to present integrated solutions for their marketing needs. We are winning such pitches. All this dictates that hiring and retaining the right talent will remain crucial for us and our clients. And here is a paradox. It is almost as if the shortage of human capital runs in inverse proportion to excess manufacturing capacity. People and skills are always crucial.
Following the sub-prime, insurance monoline, Bear Stearns, Lehman crisis a couple of trends intensified. Power inside companies moved even further to finance and procurement, particularly in a slower-growth, low-inflation world, where pricing power was hard to come by. And government, which must have injected something like $13 trillion into the $65 trillion worldwide economy, became even more important, not just as a regulator or investor, but as a potential client, too.
Also, health and wellness became more and more critical as a differentiator for goods and services, particularly with declining birth rates and ageing populations. Corporate responsibility is another concern for clients – although in truth a no-brainer. Only those seeking a fast buck and subsequent oblivion would surely think otherwise. While globalisation, free trade and scientific advance, within reasonable environmental and social constraints, will still be the most efficient way of enriching the most people in the world in the fastest time, the recent economic crisis underlines the importance of corporate responsibility and less conspicuous consumption.
Where 2009 was a very, very tough year, 2010 saw stabilisation and a return to growth, perhaps mainly because of the massive amounts of money – $13 trillion and counting – pumped into the system one way or another. Most of that money came from governments, who because of this increased spending have themselves become major clients for us.
In uncertain times, branding or differentiation and innovation – essentially, what we do – are everything. The first requirement is always a brilliant idea. Then you need co-ordination. Without the first, however, the second is pointless. You can’t, after all, co-ordinate a lousy idea. So creativity and imagination win every time. There is a limit to how much you can cut costs, but there is no ceiling on innovation, at least until 100% market share.
- * By Stella Dawson of Thomson Reuters in July 2009.