We need to talk about inflation

“I spend all day, every day, explaining to people here why getting the same returns for 6% more cost is a good thing right now,” a chief marketing officer said to me recently.

It’s a very common conversation because our clients are under a pressure we’ve not witnessed before – they are being asked to play their part in controlling surging input costs.

My reaction: “At 6%, I’d take confidence in the media mix, we’re helping clients mitigate against much larger forecasts.”

The view from Dolf van den Brink, chief executive of Heineken, is telling. “There’s no model that can handle this kind of inflation. It’s off the charts. So it’s anybody’s guess . . .  what the impact is going to be on volumes due to all these price increases,” he told the Financial Times.

It’s not just the challenge of rising prices, it’s the uncertainty around when the increases will tame.

With January UK inflation at a 30-year high, we are clearly long past a transitionary environment and into an unpredictable inflationary hold. I’d wager this is uncharted territory for all agency leaders right now. There has always been a need to control costs for clients, but never against a backdrop of such entrenched price increases.

How will the consumer react as the cost of living ratchets up? Right now, we don’t know. It’s been a very long time since there has been a comparable situation. We need our collective ears to the ground on this matter more than any other.

It is changing the dynamic of every client conversation. I sense a hesitation creeping into the new-business market – is this time to move, or is it time to lock in and be sure in your commercial terms for a longer period? Last year’s challenge was the fight for talent in a market full of options. This year’s is the need to suppress the effect of rising costs.

As ever, the clients that adapt quickest win. A little bit of inflation can be a sign of vibrant demand, too much can lead you to reassess your options. This is precisely the dynamic under way in the AV market. At the same time as linear viewing habits continue their downward trend, many a new digital entrant is driving into AV for its proven effect of accelerating growth.

The longer this volatility continues, the more we look to mitigate – with our commercial broadcast partners but also by testing access to audiences elsewhere. Clients that are econometrically modelled to a required level of TVRs have never been so willing to try something different.

The other major adaptation is to embrace a talent base throughout the UK and across borders. The agencies that are testing new models of collaboration are the ones that have the best chance of retaining quality while managing cost. Many of us have been doing this for years, then increased adoption of the model through the pandemic.

In this I always look with admiration at Procter & Gamble. For a decade or more, it has looked unfavourably at any commercial proposal that doesn’t embrace nearshore and offshore centres of excellence. It’s a standard requirement for a global business that reaps the benefits of connecting great teams no matter where they are based.

If you’re working with an agency that’s 100% centred in the capital, you can access some amazing talent but will they be best placed to help you manage those input costs? At iProspect, we enter 2022 with 18% of our staff in London, connecting a brilliant team in the capital with brilliant teams throughout the UK and beyond.

As clients approach agencies, they need to be flexible. It’s the necessary behaviour to get great work while controlling cost. Your agency’s profit is not a cost of doing business, it’s the motivation for an organisation to put all their efforts into your challenge. Help them maintain margin by being flexible in how other costs are managed.

Help craft the argument to look at those costs in relation to the returns they generate – the ultimate metric that matters.
Otherwise, this year, you might find agencies are more likely to say no.

James Bailey is UK chief executive of iProspect

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