Industry body the IPA has warned brand owners that rocketing inflation – currently at a 40-year high – will have a knock-on effect on agency costs and will “inevitably” lead to them having to increase their prices or risk losing money.
In a statement issued by director general Paul Bainsfair, the IPA insists that no agency would take the decision to raise their fees lightly but with inflation levels jumping by 9% in the 12 months to April 2022 and potentially hitting 10% in the last three months of this year, such decisions are, unfortunately, inevitable.
He added that like many parts of the economy, agencies have been rocked by the triple whammy of Brexit, Covid and now inflation, and face a myriad of problems and costs that they can no longer be expected to absorb.
The IPA represents 276 UK agencies, from AMV BBDO, BBH, Carat, Havas, McCann and MediaCom to Merkle, Ogilvy, Publicis, Rapp, Saatchi & Saatchi, VCCP and Wunderman Thompson.
The industry body maintains that agencies are encountering a sector-wide skills shortage, coupled with increases in recruitment fees; wage pressures with increased competition for talented people; individuals seeking higher salaries to offset the cost of living; raw material increases; as well as soaring energy and production bills. All of which are hitting agency costs hard.
Bainsfair continued: “After years of responding to the procurement demands of clients there is little or no room to respond with cost reductions, therefore, fees will have to increase.”
This is something that clients – facing enormous pressures themselves and in the main having to ensure that selling prices are moving in response – may not welcome but will certainly understand, Bainsfair claims.
He added: “While agencies talk costs with their clients, it is of course vital for clients to keep the value that agencies deliver front of mind and in doing so assuage a potential knee-jerk reaction of simply cutting spend.
“As the evidence shows, companies that continue to invest in advertising in the downturn fare best in the long term.
“Agencies are not just creative machines but are also effective commercial powerhouses with expert understanding of consumers, including when and where is best to engage with them. Most crucially, they provide demonstrable evidence of the power and return on investment of their marketing communications activity in driving long-term brand growth for their clients.”
Although Bainsfair concedes that it is not for the IPA to tell agencies what to charge or how to operate, he concluded: “As the power behind our practitioners we are here to provide guidance, support and a collective voice.”
The IPA’s warning comes on the back of the Toluna Global Consumer Barometer Study, published last month, which claimed the cost of living crisis is set to hit nearly every UK business, with 75% of Brits saying the financial squeeze will affect their spending plans across the board.
The survey, which quizzed 1,011 people in the UK, revealed that over half of people (51%) believe they will be worse off financially in the next three months and are planning to scale back on spending due to the impact of increased costs and price changes.
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