It’s emerged that Unilever (ULVR) is instigating an evaluation of its global media planning and buying account, a process that will be closely monitored by advertising agencies across the globe. The personal goods manufacturer has consistently been one of the business world’s biggest advertisers, so the ripple effects of any substantive changes could be profound.
Figures involved in the change aren’t yet available, but we know that Unilever increased its brand and marketing investments by around €500mn (£428mn) in 2022. Perhaps the most telling point was that media investments, which constitute the lion’s share of the marketing budget, increased as a proportion of revenue across the group’s beauty and wellbeing, personal care, and home care categories.
The last such global media review was conducted by Unilever in 2021, and most of the media planning and buying duties were retained across the UK and US by GroupM’s Mindshare, which falls under the corporate umbrella of WPP (WPP).
Analysis from UBS (SWX:UBSG) indicates that Unilever was one of WPP's top 20 clients in 2022, so any related contract losses would be “a headwind to growth at GroupM”. The Swiss investment bank went on to point out that “GroupM's scale advantage may be becoming less relevant as advertisers search for global media buying partners based on strength in first-party data”. In essence, this is an intrusive process whereby data is collected directly from a given company’s interactions with its customers and audiences on its own digital channels. This can include website activity, demographics, purchase history and mobile app data. The ability to collate and synthesise these types of attributes is being enhanced significantly through artificial intelligence.
It may be the case that the increased focus on first-party data could reduce barriers to entry across the industry, but scale must surely still make a difference if you’re looking to build meaningful corporate partnerships. Consider that last year WPP and Spotify (US:SPOT) struck an agreement to provide the advertiser with new levels of access to the audio-streaming platform’s ad products and data. With over half-a-billion active monthly users, an entity like Spotify has unique insights into consumer behaviour relating to music, podcasts and other media, so the potential for profitable symbiosis is not difficult to appreciate.
WPP is engaged in what it describes as “creative transformation”, a somewhat nebulous term, but perhaps one that simply acknowledges that the old ‘agency’ model is now outdated – a broader scope is preferable in the digital age. So, towards the end of last year, FGS Global – majority owned by WPP – acquired the Canadian communications and public affairs advisory firm Longview Communications and Public Affairs. FGS Global is a leading advisory voice on M&A and shareholder activism. And it’s interesting to note that shareholder activism increased through last year, despite a slump in corporate deal-making and a faltering global economy. Indeed, Lazard’s annual review of shareholder activism shows that new campaign activity in 2023 represented a 7 per cent increase year-over-year and a record for activity in Europe and the Asia Pacific region. Does this help to explain why private equity heavyweight KKR & Co Inc (US:KKR) bought a 30 per cent stake in FGS Global last April?
It’s doubtful if WPP’s founder, Martin Sorrell, is looking on wistfully, particularly given that when he held the reins the agency was occasionally criticised for being late to the table in acquiring novel digital agencies. Not so S4 Capital (SFOR), although Sorrell’s latter-day foray into the industry is still being hobbled by slower spending in the tech sector, whatever its digital credentials. The market initially reacted favourably to a fourth-quarter trading update this week, although by midday sentiment had reversed. Trading was in line with expectations, but it needs to be set in the context of November’s revelation that like-for-like net revenue for 2023 was going to come in below that of the prior year. The executive chairman opted for a suitably guarded outlook, stating that the board is “not expecting 2024 to show macroeconomic improvement, and client caution on marketing spend will likely persist”.
To return to Unilever: we can’t be sure that its marketing budget will again increase as a proportion of group revenue, although it would be loath to give up market share to the likes of Proctor & Gamble (US:PG) and/or generic brands in the marketplace, and has been struggling on this front in recent quarters. It doesn’t always follow that advertising budgets shrink during economic downturns, and any pessimism on this score doesn’t necessarily tally with the findings of the latest Bellwether Report from the Institute of Practitioners in Advertising (IPA). As the trade group’s director general, Paul Bainsfair, makes clear: “Marketing spend is indeed an investment not a cost.”
