As the Russian economy braces itself for a recession in 2015, belt-tightening measures by Russian businesses are set to include significant advertising budget cuts. In a much more result- and value-oriented advertising environment, companies will look more to online and contextual models, rather than traditional mediums such as TV.
According to a report by Goldman Sachs, advertising sales across all media in Russia may drop by 15% in 2015, leading to the lowest contribution of the sector to GDP since 2001.
Another research by contextual ad agency Blondinka.ru illustrated this trend by revealing that 61% of 200 surveyed companies (in segments that are especially active in marketing activities such as FMGG) were planning to decrease their ad budgets this year.
However, innovative ad channels and the online segment are expected to hold up much better than other mediums.
Goldman Sachs reports that the biggest casualties will come in the cinema/outdoor segment, with a decline of 30%, while TV advertising will fall by 20%. Meanwhile, online and contextual advertising are the only growth areas, set to expand by 4% and 10% respectively (though both represent a significant slowdown on the previous growth rates).
This was enough for Goldman Sachs to forecast a significant drop in the Yandex’s earnings this year and cut its stock to sell. As a result, the stock sank to a record low on the NASDAQ last month.
Meanwhile, the Blondinka.ru survey reports that only 5% of companies are planning to cancel contextual ads and 7% will reject RTB, while a sizable 39% of firms will decrease traditional ad models like TV and print.
Russian ad market growth in 2001-2015
2015 growth outlook by market segment Sources: AKAR, IMF, Goldman Sachs Global Investment Research
Bargains in the midst of despair
As ad offerings could become more competitive, there is also greater value to be had on the market.
“It’s a well-known and predictable tendency that in crisis times the marketing spend decreases. Hence, due to laws of supply and demand, the advertising rates are dropping,” said Bas Godska in an exchange with East-West Digital News.
An international e-marketing expert, Godska founded Moscow-based e-commerce and e-marketing consultancy firm Acrobator.com.
“However, as a performance marketer I agree more with Henry Ford’s adagio; ‘A man who stops advertising to save money is like a man who stops a clock to save time.’ In the crisis of 2008, we saw similar market behavior which, on a unit economics level, led to cheaper acquisition costs in a number of channels. Therefore, times like these can help the counter-cyclical-thinking advertisers to get ahead of their more fear-driven, conservative competitors. It all depends on the cash reserves a business has and its growth versus survival mode. Interestingly, due to both the ruble drop and decreased pricing due to dropped demand, I see a spike of interest currently among some of my Western clients who target the Russian market. Bargains can be found currently in the midst of all despair,” the expert concluded.