In this guest post, Mat Baxter (pictured below), global chief strategy and creative officer at IPG Mediabrands, warns, if history serves, ad budgets are certain to be another causalty of Friday’s ‘Brexit’…
Advertising is largely about confidence. Despite the proven relationship between advertising and sales, advertisers typically cut marketing budgets when the economic climate takes a turn for the worst. That’s because advertising spend has always been closely tethered to consumer confidence.
The logic goes something like this: When consumers are confident about the economy they spend more money. And when consumers are out spending more money, brands that advertise tend to capture more of that spending opportunity.
So, advertising spend is often seen as a lead indicator of consumer confidence. The reverse is also true.
But this whole dynamic is a little counter intuitive when you think about it. My view is this: In tough times companies should actually spend their way out of trouble by investing more in marketing to stimulate sales, instead of tightening their belts.
However, most companies are inherently conservative and tend to pull back their spend and ride out the storm.
And storms don’t get much bigger than today’s Brexit decision. Inevitably consumer confidence is going to take a massive hit – and it’s likely to spread beyond the UK to other parts of the world. That’s bad news for the advertising industry.
Based on my past experience, whenever major global events rock consumer confidence marketers make significant reductions to their advertising budgets. It happened after 9/11. It happened during the global financial crisis. And it will happen following the Brexit.
The big question is the size of the drop. My guess is major advertisers might stop advertising all together for a few months (something major brands have done in the past in similar circumstances) and could possibly reduce their expenditure by anywhere from 10 per cent to 40 per cent until the real impact of this decision becomes clear.
Either way, the Brexit is going to have plenty of nasty children and “Adxit” will be its first born.