LONDON: The advertising industry “may be in danger of losing the plot”, said WPP, as the agency holding company reported a difficult first half in which clients had cut spending and agencies faced pressure to reduce prices to win or keep business.
Announcing interim results, WPP reported that, “following the pressure on client spending in the second quarter particularly in the fast moving consumer goods (FMCG) or packaged goods sector”, it was revising downwards its full year growth forecasts; both like-for-like revenue and net sales are now forecast to be between zero and 1% growth.
It pointed to a number of factors, including “increasing social, political and economic volatility”, typified by the surprise election results in the US and UK, and the increased focus of finance and procurement departments on cost.
“Competition is fierce and as image in trade magazines, in particular, is crucial to many, account wins at any cost are paramount,” it continued in an assessment of the industry outlook.
“There have been several examples recently of major groups being prepared to offer clients upfront discounts as an inducement to renew contracts,” it added.
Other incentives on offer include heavily reduced creative and media fees, extended payment terms, unlimited indirect liability for intellectual property liability and cash or pricing guarantees for media purchasing commitments.
“These practices cannot last and will only result eventually in poor financial performance and further consolidation, the premium being on long-term profitable growth,” WPP stated.
“Our industry may be in danger of losing the plot.”
Data sourced from WPP, Guardian; additional content by WARC staff