Dive Brief:
- Ad giant WPP cut its growth forecasts for the year down from prior estimates of 2% growth to 1% or 0% growth in its second-quarter earnings released Wednesday — a dim outlook that seriously rattled investors and has sent ripples through the industry, according to The Wall Street Journal.
- WPP tied its woes to consumer product goods companies — brands like Unilever and Procter & Gamble (P&G) — continuing to pull back on their ad spending, especially in North America. WPP stocks plummeted almost 11% yesterday, the sharpest one-day decline in over 18 years, the Journal said, dragging competitor ad holding groups down with it.
- WPP CEO Martin Sorrell said the changed outlook was cyclical but added that it serves as a "big wake-up call" for the ad industry, per the Journal. The CPG sector overall is fighting a low-growth, low-inflation environment along with the rising dominance of Amazon as a distributor of consumer goods.
Dive Insight:
If anyone was questioning traditional ad agencies' precarious standing in the overall marketing landscape, the latest news hammers the point home. WPP's bleak growth prospects for the rest of 2017 come despite the holding group, the largest in the world, enacting belt-tightening measures large and small in the year's first half. It cut its budgets for the Cannes Lions advertising festival — an event cherished by agencies but notorious for its lavishness — and has also been trying to meet the demand of marketers like P&G in simplifying its agency structure.
But none of those bids to both save money and potentially appease clients address two harsh realities for WPP: big-name brands are simply spending less on traditional advertising and are also more often turning to marketing services providers other than agencies as agency business practices continue to be mired in transparency shortcomings and come up short in achieving digital transformation.
On the first front, P&G, the world's largest advertiser by media spend, announced in April it was cutting $2 billion out of its marketing budget over the next five years; Unilever has taken a similar tack, curtailing ad production and agency relationships. P&G's Q4 earnings from July found the CPG giant pulled back $140 million in digital ad spending for the quarter but still saw sales rise. If massive consumer goods companies continue to cut their marketing and advertising spend so dramatically and still post positive results, agencies' influence will only continue to dive.
The other major issue is that consultancies like Accenture and Deloitte are continuing to win over brand clients as modern marketing demands a greater reliance on technology and data services — areas traditional agencies have fallen behind in. At the same time, more brands are also moving work in-house, further drying up business prospects.
