How do you solve a problem like... the impact of inflation on agencies?

How should agencies navigate rising inflation?

Each week, we ask agency experts for their advice on real problems facing today’s marketing practitioners. This week, we ask readers how they plan on tackling soaring inflation.

Inflation has been rising on both sides of the Atlantic, hitting a 39-year high in the US and a 30-year high in the UK. That’s an issue for agencies. If target audiences for campaigns and communications efforts are spending less, they’re likely to see a squeeze from clients. Production costs might go up, hitting margins. And in the short term, agency staff themselves may be grappling with the cost of living going up.

After Ogilvy’s Nina Jasinski explored how inflationary pressures could hit agency businesses, we threw the question open to our readers.

How do you solve a problem like... the impact of inflation?

Sophie Lewis, chief strategy officer, M&C Saatchi

Three articles from last week told me how bad it is out there. The first was a primary school teacher being forced to use food banks.

The second was the managing director of Iceland saying his key competition was now ‘hunger and the food banks.’

Lastly, Mick Lynch of the RMT talked about those on the minimum wage being £1,252 worse off compared to a year ago.

If I was a supermarket, or a food brand, I would be thinking about (more) ways to give people access to nutritious foodstuffs for free. About ways to turn every last crumb of waste into food and about partnering with a delivery service to get food to people who need it.

David Edwards, chief customer officer, AMV BBDO

We can’t solve a problem like rising inflation with advertising. We can be more empathetic and helpful. The best marketers have the biggest windows to the outside world, but the convenience of the internet has inevitably made the view less diverse. To make matters worse, 85% of our industry is based in London, but 85% of Britain is not. It’s easy to see how we might lose touch with the 11.7 million people (18% of the population) on a relatively low income. At AMV we have developed a suite of unique research methodologies and tools to help us bridge that socio-economic divide.

Anthony Santiago, managing director, Pink Sparrow

Supply issues and higher demand have caused some price increases for fabrication materials, making it more expensive to produce the environments we create. But at Pink Sparrow, we work closely with our suppliers to get real-time pricing updates and availability to provide our clients with the best recommendations on how to execute their build within budget without compromising look or feel. We also have bulk deals with suppliers to secure the best possible prices. And with frequent fluctuations in pricing, we also aim for long lead times to provide the best opportunity to acquire quantities clients need at the most economical rates.

Kevin O’Farrell, associate vice-president, Analytic Partners

You can’t solve inflation, you can only adapt to the situation. We have seen that brands with high investment in media have a better chance at excelling at this, and those brands tend to use more media channels. They will experience a lower sensitivity to price increases among their consumers and can expect less decrease in sales if prices go up.

Our ROI Genome research shows a 10% decrease in sensitivity with strong media investment. Disinvesting in media during times of inflation can actually lead to long-term base sale decline. Agencies should be having open and ongoing conversations with their clients to ensure the message of resilience through media investment and spread is understood and actioned.

Zaid Al-Zaidy, group chief executive officer, The Beyond Collective

With UK inflation at its highest in 30 years, people are rightly cautious, focused on saving. We mustn’t be disconnected from audiences or out of touch with consumers’ needs.

Brands always need to be clear about the value they bring. In today’s climate, this absolutely needs rooting in tangible product benefits. But creating irrational desire remains key, especially in a world saturated with me-too offerings. As the famous saying goes, “The head is bigger, but the heart is infinitely more powerful,” and that’s ever more critical right now.

Chris Jones, managing director, Space & Time

Amid the highest level of inflation we’ve seen in 30 years, consumer motivations are likely to change and as marketers we must be responsive to this. Brands will need to place greater emphasis on communicating their value proposition and underpin their approach to reaching their customers with highly targeted and relevant data. In difficult economic conditions consumer confidence can be undulating, but purchasers will still always fall into a ‘need’ or a ‘want’ mindset. Even with less confidence and increasing inflation, the principles of right person, right time, right message still ring true, and it’s down to marketers to maximize the opportunity that exists.

Scott Harkey, chief executive officer and president, OH Partners

Compensation and the overall health of marketing workers inside ad agencies keep me up at night. When inflation hits, you don’t want to be caught flat footed with your top performers leaving for other opportunities. To prevent this, it’s important to increase your rates for new client project work. Quality marketing can always drive a higher premium than you think, and it’s easier to bring your price down later than to negotiate up. I counsel all marketing service workers to have annual escalators and retainer fees. We’re much more expensive than we used to be, and it incentivizes our team.

Emre Atalay, co-founder and chief executive officer, BcnMonetize

It doesn’t necessarily follow that more price-sensitive consumers cause a problem for agencies. Many of our brand clients are simply asking us to focus campaigns toward their products with lower price tags, while emphasizing that price as a benefit in the creative. The current climate also provides an opportunity for agencies that have smaller brands on the books whose appeal might be prices more modest than some of the bigger household names. In many cases agencies will need to adjust to increased inflation and the resulting changes to consumer preferences, but it isn’t a major cause for concern.

Jason Cobbold, chief executive officer, BMB

Inflation has a habit of creeping into the psyche of consumers’ buying behaviors. There’s little doubt that as household budgets are squeezed in 2022, price will play an increasing role in purchasing decisions. More retailers and brands will compete aggressively for the mental label of ’great value.’ And more businesses will seek to level with the thrifty mindset of the UK consumer. But consumer responses are not just rational. Inflation also has a nasty habit of unsettling and removing confidence. Maybe life’s smaller luxuries will trump the long-haul holiday for a while to come.

Tom Harvey, co-founder, YesMore

For drinks marketers, a recession or cost of living crisis can be a tricky thing to navigate. In traditional recessions, alcohol sales don’t drop because people invest in small treats – an extension of the famous ’lipstick effect’ – and alcohol falls into this category. But this cost of living crisis may be different – we may see some sales drop, especially for premium offerings. And then, as many people find themselves in personally difficult situations, it’s essential that marketers, retailers and venues act responsibly to protect vulnerable customers.

Greg Ricciardi, president and chief executive officer, 20nine

Inflation is non-discriminatory, and it is having a direct impact on our agency, specifically with staffing. As the Great Resignation continues, costs associated with recruiting and salaries have drastically risen due to cost-of-living increases everywhere. The challenge is managing these new increases while still maintaining client engagements that were estimated prior to the impact of inflation, as well as planning profitable future engagements. Obviously agency fees will be affected eventually, but we are currently looking to manage our current expenses to help offset the increase in fees.

If you’d like to join future debates, email me: sam.bradley@thedrum.com.