Regional Market Outlook on Creative Advertising in Australia

Industry Outlook – Opportunities and Challenges in the Australian Advertising Industry

Opportunities

  • The increase in digital video advertising and mobile has created a significant surge in the Australian online advertising market. The spread of digital and social media in recent years, as well as changes in patterns of consumer behaviour and the evolution of technologies, will all change the relationship between companies and consumers in the area of marketing

Challenges

  • Given the numerous technological advances and changing consumer demand have posed difficulties for many buyers to achieve the required results from their campaigns. This, in turn, increases pressure on the suppliers, as they are looked upon for expertise in attaining the desired output 

Industry Trends

  • The major trends in the Australian creative industry are rising digital spend (38–46 percent), production decoupling, and increasing customization of advertisements
  • Suppliers are improving their supply capability by adopting performance-based metrics for evaluation and monitoring their performance

trends-creative-advertising-in-australia

Australia Advertising Drivers and Constraints

Drivers

Advertising expenditure

  • The overall advertising expenditure is expected to increase by 2.4% in 2019. This presents ample opportunity for the overall industry to grow, with various digital channels, like mobile, digital display, social media, experiencing highest spend allocation by buyers across various industries

Major Events expected to drive ad spend

  • The NSW election and Federal election is believed to raise the numbers for the advertising industry in Australia

Constraints

High Margins and Lack of Transparency

  • Network agencies continue to enjoy high profit margins, due to their billing rates, which are skewed towards senior personnel
  • Therefore, clients face pressure, since budgets are decreasing, but agencies are unwilling to accommodate the reduced budgets

Dominance of Select Network Agencies

  • The top network agencies have dominated the market through strategic mergers and acquisitions, leading to a situation where the clients have less bargaining power


Porter’s Five Forces Analysis – Australia
 

Supplier Power

  • Reduced level of differentiation in the service offerings of the suppliers
  • It is observed in Australian market context, a significant portion?of supplier’s revenue comes from a limited number of large clients and the net loss of one or more of these clients have a material adverse effect on company. This lowers down the supplier’s bargaining power quite significantly
  • Rise of in-house capabilities : A significant increase, as comparatively in 2013, 58% of marketers were involved in some form of in-house advertising, which is now expected to reach around 65% by 2019

Barriers to New Entrants

  • Capital investments: New entrants will have difficulties investing in technology. They definitely can set up shop within a niche market, but cannot match the global player’s services, as high expectations are set in terms of innovation and creative quality
  • Most of the engagements are based on long-term relationship between the agencies and advertisers. For instance, customers, like Harvey Norman, Woolworths, Wesfarmers, etc. New entrants may find it difficult to make inroads

Intensity of Rivalry

  • High competition in retaining clients: Huge competition exists between the agencies in retaining client accounts and gaining new accounts worldwide
  • Agencies building digital capability: By 2020, the digital industry is expected to account for almost 50 percent. Holding companies and traditional agencies are enhancing their digital capabilities through mergers, acquisition, and expansions across the globe. This will lead to an intense competition between traditional and digital agencies

Threat of Substitutes

  • Increasing freelancers : The number of full-time and part-time freelancers in Australia is extremely high. They are hired from the market through a crowdsourcing platform. Apart from the developed markets where the freelancers’ presence is high, there is no strong substitute for creative agencies

Buyer Power

  • Account attractiveness : Major spending clients, especially those in the B2C space, are viewed as attractive accounts because of their budgets and high frequency of launching new advertising campaigns. To overcome this, several other buyers try to engage agencies through regional/ service bundling to increase the attractiveness of the account by accumulative volume spend
  • Increase usage of the procurement team : Lately, marketers are employing their strategic procurement teams for scrutinizing and benchmarking the price to industry standards. In a highly competitive and fragmented market, the bargaining power of the buyer is high, since the prices are benchmarked