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Covid crisis – Procurement may be the light at the end of the
tunnel for Media & Marketing services firms

As a true black swan event, COVID-19 took the world by surprise. Many business leaders are caught between a rock and a hard place as they navigate through the crisis and ensure business survival. Media & Marketing services companies (i.e. media owners & service providers, marketing agencies and print media firms) are faced with an impossible choice: cut costs or invest in business resilience?

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What history has shown

As shown in the graph below, economic downturns have proven particularly challenging for the entire media sector due to significant drops in advertising spend. During the 2009 recession, global advertising spend declined by 10% YoY as GDP contracted by 2%. Consequently, media share prices were hit 10-20% harder than cross-industry indices.

Until there is better sense of when and how the current pandemic will be resolved, economists cannot accurately predict the scale and scope of a global economic downturn.

 

Figure 1: Change in global advertising spend vs. change in global GDP from 2000 to 2018

What we see today

Companies are responding rapidly to ensure business continuity through leaner business models and a laser focus on the bottom line. MarketingWeek carried out a study in April 2020 on 849 UK brand marketers indicating that 86% are now delaying or reviewing their campaigns as 69% see demand for their brand’s products and services tumbling.

Impact observed on revenue and cost

  • Ongoing marketing campaigns are under pressure, putting bonus and target-based compensation models at risk
  • Revenue forecast of Media & Marketing services firms are suffering due to marketing and consulting budget cuts in addition to the cancellation of mega sporting events like the European Championship and Tokyo 2020 Olympic Games
  • Revenue streams for Print Media firms are affected due to reduced demand for ad placements, constrained physical sales and a shift to online formats
  • Subscription-based publications are at risk the longer the crisis continues as consumers are increasingly tightening their belts

While variable costs would decrease as activity slows down, operational fixed and indirect costs such as Facility Management services and IT infrastructure remain largely unchanged

Time for action: what can Procurement do to steer organisations through the crisis

This is the time to engage in closer collaboration with your Procurement Business Partners and your supplier base to identify opportunities, increase liquidity and remove non-value add costs. A number of steps can help Finance and Procurement leaders shape a stronger rebound:

Improve cash flows

  • Set-up a cash office to systematically review all expenditure e.g., stop early payment discounts, review payment terms, implement less-frequent payment cycles
  • Introduce supply chain finance measures to enable early supplier payments without parting with the cash until later

Conduct a supplier risk assessment

  • Review your strategic suppliers’ cash and operational position and engage in a 2-way dialogue on how to best navigate the next 3-6 months
  • Focus on Total Supplier Value (TSV) across three dimensions: supply risk / continuity, value delivered and innovation. “Supplier bashing” and continuous cost reduction is not sustainable

Revise category strategies to establish a robust value creation plan

  • Explore deep supplier collaboration opportunities with key partners through value generation workshops and identify short to mid-term business wins
  • Apply a win-win mentality. Share the risk, share the upside. Put non-essential work or services on hold



As Jacob Rosenzweig, BCG Managing Director and Partner, puts it:

“The impact Procurement can have is often underestimated in the Media sector although deep collaboration with key suppliers can bring game-changing results.”

This is an extremely challenging time for CFOs and CPOs, as forecasted revenues take a hit whilst fixed operational costs remain relatively unchanged. Procurement has a critical role to play in driving costs down, ensuring business continuity and building a platform for growth.

To learn more, download our webinar recording to further explore “the role of Procurement now and post COVID in Media & Marketing services firms” or feel free to get in touch with me or my team for any questions.

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