Coronavirus: How the advertising industry is changing

Coronavirus: How the advertising industry is changing

A billboard displaying a message in support of the NHS

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Adverts praising the NHS have sprung up on UK billboards that may otherwise have been empty

The first rule of advertising is that your adverts have to be seen to have any effect.

This is why if you have managed to get out of the house recently in the UK you might have noticed that there are an awful lot of adverts supporting the National Health Service, and key workers on billboards and bus stops.

As Anja Lambrecht, professor of marketing at the London Business School, explains, it is one of the signs that the advertising industry is struggling.

“It is most obvious outdoors with billboards – no-one is driving past them, so no commercial firms are advertising,” she says. “That is why they all have adverts for the NHS.”

On TV an ever-growing number of us are increasingly watching streaming services such as Netflix and Amazon Prime, which don’t have any adverts. Meanwhile on traditional commercial TV channels, there are lots of advertising breaks with very few adverts in them.

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TV revenues are down on both sides of the Atlantic, with Fox one of those affected in the US

In the UK, ITV’s advertising revenue was down 42% in April, while Fox in the US has seen revenues halve. It is a similar picture in other markets, because there are many products that are just not selling at the moment. So why advertise them?

Take the car industry – sales in the UK in April fell 97%, and are at the lowest level since 1946. They also fell by almost 50% in the same month in the US.

It may seem obvious therefore that car advertising is a waste of money. But cars are still being advertised – albeit to a lesser extent – on TV, on social media, and even on some billboards.

That is because the advertising and marketing industries have long memories, and worry that their customers don’t. Companies with brands that have been around for decades, and which are worth billions, don’t let them die in a recession.

“Brands are reminding people that they exist,” says Andrew Stephen, L’Oréal professor of marketing at Oxford University’s Saïd Business School. “Research shows time and time again in a crisis that turning off advertising altogether slows down the recovery.”

So some businesses will always maintain advertising, no matter how bad things get, as Prof Lambrecht explains. “During the 2008 recession, Procter and Gamble and other similar companies kept their advertising constant. Firms try to stay in the consumer’s mind, even if consumer spending falls. It pays to keep your brand in the consumer’s eye.”

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The Financial Times has seen sales and advertising revenues fall sharply

In this respect, some companies are treating this pandemic as an economic shock like others they have been through in the past. But in other ways it is different. For a start, advertisers have to work out where to spend what money they do have.

There has long been a move away from traditional outlets such as TV, radio and newspapers, as the advertising industry realised they were no longer reaching their target audiences. The money instead has been spent where audiences and especially young audiences go – online and especially on social media.

But lockdowns also mean we are staying in and watching more TV, so which way should the industry jump? Matteo Montecchi, a fellow in marketing at King’s Business School, seems fairly sure.

“Using digital and social media to get information out there, especially to the younger generation, was already a trend before the pandemic,” he says. “This situation has just exacerbated that trend.”

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London Business School/Mark Mather

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Anja Lambrecht says that UK firms have, in the main, stopped advertising on billboards

Which means that advertising executives are now working out where to spend their limited budgets online – not easy when the explosive growth in apps like TikTok means there are more and more places to spend what money they have.

But there is one added bonus – it seems likely that older generations have used the lockdown to increase their use of the internet, and can therefore be targeted more effectively online.

The downside is that some industries that are very dependent on advertising income are in a real bind. Newspaper revenue, for example, is falling dramatically.

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Not only have sales slumped, the Financial Times’ print sales fell 39% in April, but advertising revenue has as well. Not least because many firms don’t want to put their ads next to stories about the pandemic – rather difficult when that is the biggest story around.

Mr Montecchi believes local press in particular is in a bad way. “Local papers will really suffer and may not survive,” he says.

Finally, what of the advertising firms themselves?

All those creative types who usually write catchy slogans, film the latest supermodel’s makeup range, and sell multinational industry huge marketing campaigns that will reach every corner of the world.

Now, like almost every other industry they have had to dramatically cut back, work from home, furlough staff, and put their plans on hold. It is pretty difficult to film ads at the moment, even if there is anyone out there willing to spend money on new ones.

And that isn’t going to end overnight, we are in the middle of one of the greatest economic shocks imaginable. And although firms want to keep their brands in the public eye, marketing and advertising budgets are going to take a hit for years to come.

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The advertising industry was already increasing the amount spent on social media

But for the “creatives” there is a longer-term worry: their business model has been to produce top quality advertising with the highest production values – exotic locations, famous names, brilliant film work, masterful special effects and seamless editing.

The problem, says Oxford University’s Prof Stephen, is that when you look at the audience’s reaction to lower production values, “research shows consumers don’t really care, especially on digital channels”.

To be blunt, if you can get the same result by spending less, why wouldn’t you do that?

This pandemic and lockdown will have dramatic effects on all aspects of marketing and advertising, from those dependent on its spending, like newspapers and TV channels, to the companies that make the adverts themselves.

Not least because it has helped to accelerate the change from advertising in mainstream media to digital, which means the industry has had to react ever more quickly to a changing landscape in the middle of an economic catastrophe.

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