John McGee: 'Can we recover from lost decade as advertising spend struggles to grow?'
Anyone familiar with the 'Lost Decade' that crippled Japan from 1992 until 2002 will remember how the economy plunged into a deep recession following a prolonged and credit-fuelled period of massive growth in the 1980s.
As we know, all good things can come to a tearful and painful end. In the case of Japan, the stock market, some banks, commercial and retail property prices, wages, consumer spending and confidence, all hurtled over a cliff, heralding in a 10-year period of stagnation.
But as Japan recovered - perhaps not quite to the extent that economists had hoped for - it was clear that things would only get better as it strived to re-establish itself on the global stage. Across many industries Japanese companies once again regained their confidence and matched it with increased levels of investment across the economy.
Some of this, of course, sounds very familiar, even though Ireland's own economic downturn lasted five years. But when it comes to the bounce-back in the Japanese advertising market, all the respective similarities that economists like to paint between our period of economic woe and that of Japan end there.
In fact, you could say our advertising industry is still rooted in its own lost decade, given the near stagnant market conditions that have existed since 2008.
This is borne out by a recent report published by the GroupM-owned agency MediaCom, which noted that advertising spend declined by as much as 40pc between 2009-2012 and has never really recovered, despite the strong fundamentals that have been underpinning the Irish economy since it emerged from recession in 2013. At a time when other advertising markets are growing by anything between 3pc and 7pc a year, this is somewhat troubling.
MediaCom also notes that advertising spend as a percentage of GDP amounted to 0.24pc in 2018. This compares with 0.92pc in the UK and 0.59pc for Europe. It also highlights that we trail other markets when it comes to the amount of money marketers have at their disposal. Irish companies, for example, spend around 8pc of their sales on marketing compared to, say, the UK, on 11pc.
There are many ways of interpreting this with many variables to consider. But it still begs the question: is the Irish advertising market dysfunctional and will it ever return to the halcyon days of 2017?
A good starting point in attempting to answer these questions is to look at the level of investment that has gone into digital over the last 10 years, a period that just so happens to coincide with the massive growth in earnings by Google and, more recently, Facebook.
Straight away, we run into difficulties not least because nobody knows how much money is actually invested in digital in Ireland as the giants that dominate the digital advertising market in Ireland do not disclose what they take out of the Irish market. Compounding this is the fact that money invested with Google and Facebook sometimes falls below the radar and comes from non-media agency sources including specialised digital search and social agencies and, increasingly, directly from advertisers.
So, if the digital figures have been historically underestimated - as seems highly likely - then it goes some way in explaining why we lag other markets. But it doesn't tell the whole story.
One of the most obvious explanations is that during the downturn, many advertisers slashed their budgets out of necessity. This was not helped by the fact that 33pc of media budgets originate in the UK and whether by necessity or a misinformed perception of the market, Ireland is way down the pecking order. All of this goes against the perceived wisdom and clear empirical evidence that suggests that those advertisers who increase their investment during a downturn can expect a significant boost to their market share post-downturn. It appears to fall on deaf ears every time the economy goes into reverse.
The Irish advertising industry's lost decade is also marked by a number of other factors. As advertisers looked to cut back, they also exerted considerable pressure on the media supply chain, including agencies and media owners, as the push for cheaper, better and faster became all pervasive in a market that was already under pressure. Often, this led to a race to the bottom as media agencies undercut each other in an attempt to win new business. In any race to the bottom, there are no winners.
Compounding matters was the introduction of zero-based budgeting by many leading international companies like P&G, Unilever and Diageo. As the name suggests, the annual budgeting process starts from a zero base and every item of planned marketing expenditure has to be analysed and justified.
Marketing budgets are then built around what is needed for the upcoming period irrespective of whether they are higher or lower than previous years. While they are good for extracting efficiencies, they are not always conducive to growth in the overall market.
The last 10 years have also been marked by short-term and often more tactical campaigns, sometimes at the behest of shareholders obsessed by quarterly earnings, other times at the behest of retailers putting the squeeze on their FMCG suppliers. Indeed deflation has been one of the key features of the Irish grocery market in recent years. Short-termism and deflation combined, can unnerve marketers and their brands. And big brand advertising is often the main casualty.
I would add to this list the misguided perception and expectations that marketers have of newer advertising channels, particularly social media and have been diverting money - how much we will never know - into these platforms.
Indeed, this was a point raised during the CMO Summit last year by Core's Alan Cox. Citing a report carried out by Ebiquity in 2018, in addition to a survey of marketing profession carried out by Core, he noted that marketers believed that paid social media, online display and online video were the top three channels when it came to return on advertising investment when in fact the evidence shows that it's TV, radio and newspapers that are the most effective.
While we may be waiting some time for a return to the good old days of 2007, one positive to emerge from all of this, however, is the fact that never has it been cheaper for advertisers to up their game.
As Ian McGrath of MediaCom, the author of the report, puts it: "At an individual business level I see it as a great opportunity for an advertiser to invest ahead of competitors to increase penetration and brand metrics and for international brands to divert advertising spend into Ireland to drive incremental gains."
Sunday Indo Business