Will 2018 be a better year for ad agencies?

Dive Brief:

Ad agencies are predicted to bounce back in 2018 after a rough 2017, according to a UBS survey of 350 global marketing executives and 500 U.S. CFOs, Business Insider reports. The growth will be driven by a 4% to 5% increase in global advertising spend, particularly for major sports and political events, and by large advertisers increasing their work with creative agencies.
Among respondents, 76% said brand advertising still works, and 55% of those from large companies said they would increase their brand media spend in 2018, compare to 50% in 2017. Fifty-six percent of large companies reported plans to increase brand media spend over the next five years, while 21% said they would spend less.
Respondents said they would increase spend in other marketing segments, as well, including customer retention, public relations and social media marketing, more quickly than brand media. Consumer, finance and retail brands will most likely drive the increase in brand media spend in the next five years.

Dive Insight:

The findings are noteworthy as recent trends have seen marketers choosing in-house staff, consultancies or direct relationships with big platforms like Facebook over working with creative agencies. Another finding from the UBS report, that spending on brand marketing will increase, is one reason marketers could rely on agencies more. Consumers' demands of brands are evolving and as marketers look to position themselves to appeal to millennials and Gen Z, many may recognize that creative agencies have a strong track record for this kind of strategic thinking.

Most of the large advertisers surveyed, or 90%, said they think creative and media agencies add value, and 67% say they will increase the amount of work from creative agencies this year and 63% plan to increase the work for media agencies, compared to 56% for brand media overall.

The results of the UBS survey should be encouraging news for ad agencies, as respondents report increased spend in brand media. Last year was a rough one for agencies, as issues of transparency and brand safety consistently came up and the risk of consulting firms becoming more powerful loomed, according to the Business Insider report. There has also been the trend of advertisers placing more focus on direct marketing tactics that drive measurable results.

Over the past year, several big companies have announced plans to restructure their marketing teams and move more marketing functions in-house, citing cost savings and the ability to have more control over campaigns. In its Q2 earnings report for the 2018 fiscal year, Procter & Gamble announced that it will reduce the number agencies that it works with by another 50%, with projected savings of $400 million. The company had previously reduced the number of agencies it uses by 60%, which had saved the company $750 million in agency and production costs and improved cash flow by $400 million.