The world of economic forecasting has been expecting a global economic shock for some time. After all, the global economy has enjoyed a long period of 15 years since the last major economic jolt (COVID-19 aside). Fuel Media and Marketing has been prompted by the uneasy mood summarised above as we take time to reflect on some of the key aspects of the communications industry were such an economic hiatus to happen in 2024.
At Fuel Media and Marketing, our focus always involves transactional efficiency and rigorous contractual effectiveness. As 2023 draws to a close what can we recommend clients pay particular attention to? The number 1 Priority is to ensure your PRF agreement deals with deflation, in parallel with inflation. We are strong believers and advocates for the productive effects that well-structured performance-based agreements, PRFs, bring to Client/Agency relationships. We urge our clients to pay very critical attention to contractual details which manage the potential unintended consequences.
The world of business must expect economic regression as an intrinsic fact of economic cycles. Last year we highlighted a piece of analysis that GroupM had produced which tracked the co-relationship between Global Ad Revenue and GDP. Here it is again, a clear relationship.
According to The Economist in its 4th November edition, we must anticipate a GDP blip soon and potentially in 2024.
Without stating the obvious, and assuming such an occurrence, Ad Revenue decline will invariably accompany GDP downturns, and these have historically precipitated media cost reductions.
Our first advertiser recommendation is to review your PRF terms – if you have such an agreement.
#1 Inflation/deflation (these need to be calculated via different methodologies)
#2 Use of value pots
#3 Value equivalence (for example, swapping value delivery between media channels or formats)
#4 Geographical swaps (swapping value from one territory to another)
Don’t be afraid of Performance-based agreements!
The key element in all PRF agreements from the advertiser’s perspective is to ensure competitive value. Inflation is a key element among the factors, though clients must bear in mind that media prices will likely deflate.
We urge clients to balance the likely deflationary effects on media pricing.
With your agency, ensure your joint efforts to ensure competitive value have a focus on the following elements that can count for so much. Make sure your checklist includes:
- Media value definitions:
- A deal clause that makes up value in unspecified media may have absolutely no worth to your brand
- Similarly, consider timing; formats; geography as well as any divergence from strategy that does not work towards your goals and strategy
- Make sure the contract is relevant to your objectives
- Flexibility in your agreement:
- The fundamental point of a PRF agreement is to underpin competitive efficiency – in inflationary and deflationary conditions. Don’t unduly restrict your agency’s ability to take advantage of deflation on your behalf
- Ensure that your contract or MSA is based on the latest globally accepted principles, but that key clauses are tailored to your requirements
Finally, underpinning the whole process must be teamwork. Agencies are in business to please their clients by delivering results. At the heart of their PRFs is flexibility to drive value, relevant value.
Fuel Media and Marketing is a leading specialist communications consulting company. Our teams advise clients in the field of media communications. To find out more on how Fuel can help, contact Oli on +44(0) 7534 129 097 or email oli@fuelmediamarketing.com.