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76% of marketers plan to slash their advertising budgets this year, and ad holding companies could bear the brunt of the cuts

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  • CMOs are planning long-term budget cuts to stay afloat, and ad agency fees are their top target, with paid media close behind, surveys from Gartner found.
  • The big holding companies' media buying agencies will be hardest hit because their services have been commoditized, according to Gartner.
  • The pandemic could create opportunities for firms specializing in services like ecommerce, data management, and product development, though.
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Most marketing executives plan to slash their ad budgets in the coming months, and ad agency contracts are the first place they'll look for cuts.
Research and advisory firm Gartner shared two recent surveys of its marketing clients.
In the most recent one, 76% of 250 marketing executives said they expected the coronavirus to significantly or moderately affect 2020 spending — a number that increased as the scale of the coronavirus became clear.
Gartner VP Jay Wilson said media-buying firms and traditional creative agencies will be hit hardest.
But he thinks the pandemic could create an opening for agencies whose services tie directly to clients' business results, such as product design and customer data management.

When the pandemic hit, marketers were most concerned with tweaking their messages

In the first survey, conducted on March 19, 348 CMOs and other marketing leaders responded to questions about what they'd done to address the pandemic by focusing on short-term goals.
Most said they'd ended in-person events, while 63% developed coronavirus-specific content and 34% altered existing campaigns to fit the circumstances.
gartner graph 3
Wilson said marketers' first priority was making sure their brands addressed health and safety concerns while avoiding missteps in a media environment dominated by coronavirus coverage.
He also said that they were quick to pull ads; while only 26% said they had completely cancelled a media buy, 45% delayed the launch of at least one campaign.

CMOs see agencies as the most obvious targets for cuts as they anticipate a drawn-out recovery

After the immediate crisis passed, marketers identified agency fees and media budgets as the top target for cuts as they anticipated long-term budget changes.
Gartner also surveyed 250 CMOs and other executives March 27. When asked which aspect of marketing spend would take the biggest hit due to COVID-19, 36% said agency fees while 32% said media buys.
Gartner graph
Wilson called agencies "an obvious, immediate target" for cuts. He said few CMOs have fired their agencies outright, but that he expected marketers would most likely reduce the amount of work assigned to agencies on long-term retainers and delay or cancel any non-essential standalone projects.
Gartner is advising its clients not to go overboard when looking for savings.
"An account person who has been working on your business for three years shouldn't be part of the cuts," Wilson said. "You will need them when things do return to normal."

Agencies have a chance to stand out with specialty services

Between March 19 and March 27, the percentage of executives who said their 2020 budgets would be significantly or moderately impacted went from 65% to 76% as the pandemic grew more serious.
Gartner graph 2
This marks a dramatic turnaround from mid-2019, when 63% of CMOs participating in Gartner's annual spending survey expected their spend to increase this year.
The trend looks bad for agencies — especially the media-buying networks that are concentrated in major holding companies. But Gartner sees opportunity.
For example, the rapid adoption of remote work has challenged a long-held belief that top talent comes from metro areas. Wilson said this means CMOs may reconsider agencies based in smaller cities like Atlanta or Salt Lake City.
Most importantly, those specializing in areas like ecommerce, consumer data, and performance marketing, which are more directly tied to sales and other business outcomes, could gain an edge while filling the gaps left by clients' in-house teams.
If clients do take more work in-house because of the coronavirus, it will be commoditized services like search engine optimization and social media advertising, according to Wilson.
"This is less about a reduction in agency work and more about redirecting agencies toward product, service innovation, business consulting, and big creative ideas," he said.
SEE ALSO: Here's how Burger King, Chipotle, Domino's, and Subway are adapting their marketing as customers move to a delivery-based future
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