How will the COVID-19 pandemic impact digital agencies?

The COVID-19 pandemic marks a key inflection point for digital agencies

24th Apr 2020
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As the entire world shelters inside, digital has become far more than a new form of outreach. It is currently the only method of reliable communication between people in the absence of face-to-face interaction. While the pandemic might not last for more than a couple months, its disruptive impact on digital communication and marketing is far more profound. Our relationship with digital communication has been transformed in a number of ways, possibly forever. What are the impacts that digital agencies can expect to see in the short term? And what are some of the key opportunities and challenges in the months and years ahead?


A depressed economy means lower marketing budgets across the board


Research indicates that the global economy is currently experiencing a crisis that makes the Great Recession of 2008 look like a “dry run.” Economic activity in all sectors requiring face to face contact has completely ground to a halt. In the United States, six times as many people are claiming unemployment benefits than the previous record figure. In India alone, the economic impact of the 21-day lockdown is expected to be in excess of $120 billion. Indian firms tend to be highly leveraged to start off with, limiting their resources for investment. In the current scenario, however, other departments like marketing will also experience budget cuts at most major companies. This has a knock-on effect for digital agencies: Long-term clients might scale back their portfolio requirements. Some might pull out of agreements entirely. This has a tangible effect on the bottom line: most digital agencies should be prepared to make less this fiscal. However, counterintuitively, lower client marketing budgets might also serve as an opportunity for digital agencies. Due to budget cuts, companies will almost certainly spend less on expensive, conventional marketing approaches like television ads, sponsorships, and product placement deals. This will shift focus to cheaper communication approaches with a higher ROI: digital agencies are a natural fit for addressing this need.


Competition increases as everyone goes digital



Today, going digital is not an option: it is a means of survival for most large businesses in the country and in the world. With face-to-face communication no longer possible, digital offers the only viable means for internal coordination and reaching out to customers. This means that digital-centric industries can expect to face increased pressure. Everyone needs digital today, but budgets have shrunk considerably across the board. This will make competition in the digital space far more heated than before.

Digital and social media agencies will have to use innovative thinking to deliver comprehensive, multifunctional communication solutions at lower price points. Margins will be tighter than before, but what’s at stake here is survival itself. Digital agencies will also have to contend with the possibility that clients might rationalize existing engagements and attempt to address digital functions in-house.

Digital agencies will have their work cut out for them: they’ll need to remind existing and new clients about the value they bring to the table and their experience in navigating digital waters.

 

Survival of the fittest: not all digital players will survive

This is a harsh truth about the present situation: there are going to be business failures and the industry, alongside every other industry, is expected to shrink considerably. Because of the critical role that digital communication is to play in the years to come, this contraction won’t impact all players equally. We expect to see significant consolidation take place in the digital space over the coming months. A limited number of digital agencies—those with the cross-functional expertise to become change leaders—will survive leaner, more competitive, and more innovative than ever before. For the survivors of this crisis, opportunities are expected to balloon once the world economy recovers. To maximize their chances of survival, all digital agencies need to invest in outreach and client retention strategies.

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