Advertisers' dilemma amid new squeeze

With hindsight, March looks a watershed month as UK consumer confidence took a knock and some retailers saw spending tumble.

The result is that TV and paid-for newspapers have both reported a sharp drop in ad revenues since Easter. The outlook until September does not look great.

It's not enough to blame tough like-for-like comparisons with the 2010 football World Cup. Some advertisers are cutting back.

There may be exceptions, particularly in digital. Last week, Google reported a stunning 19% surge in UK revenues, which comes almost entirely from advertising.

But on the same day, the latest quarterly Institute of Practitioners in Advertising/BDO Bellwether survey painted a tough overall picture. A majority of firms reported that marketing budgets were revised downwards between April and June - the third consecutive quarter of declines. Confidence is at its lowest level for nine quarters, adds the IPA, which means it is back at levels last seen in early 2009.

IPA president Nicola Mendelsohn tried to find a silver lining, saying agencies can take "some comfort" from the fact "there are some advertisers maintaining spend nevertheless".

Yet with little sign of optimism for the wider economy in the short term, advertising clients face a dilemma: Cut costs or invest in the brand in the hope of growing market share.

Travel firm Thomas Cook is an interesting example. Its shares crashed by a third last week as it warned of falling profits, which have been exacerbated by the turmoil from the Arab Spring and a UK slowdown.

But one City source suggests Thomas Cook might also be suffering - to a small degree at least - from its decision to cut its advertising budget. One estimate is that the travel firm's ad spending has been slashed by as much as half compared to 18 months ago when the brand ran a TV campaign featuring Jamie and Louise Redknapp. Thomas Cook credited those TV ads for helping to lift early summer holiday bookings by 15% last year.

It would be wrong to think cuts to advertising are the main reason behind Thomas Cook's tough trading this year. Plainly, there were other, bigger macro-economic problems at work.

Sources close to the company add that they don't believe marketing was a key factor and that, in any case, their ad spend is seasonal.

But what is clear from the IPA figures is that a significant number of brands have been cutting ad spend recently.

There is an alternative, of course. That is to keep investing in the brand.

The marketing industry is still very keen on a piece of research from Deutsche Bank last year which examined 30 large European and US consumer companies over the last 15 years and found that those that increased their advertising and promotional spend most saw sales grow 30% faster and profits 50% faster than their peers.

The lesson for brands ought to be clear. But it is easy to forget when the economy takes a lurch for the worse.

Going global: Will creatives buy into the idea of an online trading exchange?

Advertisers and ad agencies have only just begun to explore the ways digital can transform they ways they trade with each other. Advances in technology, efficiency, transparency, data and the ability to transact in real time and on global scale are just some of the reasons driving change.

The advertising industry is used to buying ad space online but some niche players are emerging which are hoping to capitalise on the trade in creative ideas.

Blur Group, a start-up in studios under the West Way in Westbourne Grove, is an online exchange for advertisers and creatives. Any creative can join from a one-person operation to a micro-agency with ten staff or even, say, an 800-strong agency.

Founder Philip Letts says more than 11,000 different freelancers and outfits from around the world have signed up since it launched 18 months ago.

Then, when an advertising client comes to Blur, it puts out a brief which theoretically can be seen by all those creatives who can pitch for the business.

In practice, explains Letts, Blur usually manages the process so that a relatively small number of creatives see the brief.

Blur is now getting around two briefs a week and expects to have run 500 this year. Some big-name advertisers such as Disney, General Electric and Sega have come on board in recent months.

"This markeplace is increasingly becoming a place where people want to provide and source creative services," claims Letts. "It's a more cost-effective, more rapid-response and bigger, broader place to find creative solutions.

Since Blur acts as intermediary, the advertiser doesn't have to go through the hassle of setting up a formal roster, negotiating with lots of different creatives. Blur handles the financial side, taking a 20% cut of whatever budget goes to the creative.

The advantage for the micro-agency is that it can compete with big agencies on the same pitch while the client can get greater transparency on price.

That is particuarly important for digital work because clients often don't know much to pay to build a social media page or a mobile phone app.

"You can put a pitch on the exchange and you get prices back and you know what the market is for a website or phone app," he says.

Letts, who ran internet start-up Beenz a decade ago and left some time before its closure, believes Blur has the potential to disrupt the established agency model by letting advertisers go direct to the creative.

"We're not like a retained agency model with lots of account directors to pay and expensive offices.

You might retain the agency but on a smaller level."

Just don't expect big agencies to accept that meekly.