Prices for integrated advertising services have been increasing at an estimated annualized rate of 1.4% in the three years to 2017. Rising overhead costs for suppliers have been partially responsible for the increase in price during the period. Increasing demand stemming from growth in total advertising expenditure and the number of businesses has also contributed to price growth.
Total advertising expenditure has risen in response to rebounding consumer spending, which has compelled companies to invest more in their marketing efforts. As companies have spent more on advertising overall, they have increasingly required integrated advertising services to manage their advertising campaigns. Furthermore, as the number of businesses has expanded, the pool of potential buyers of market services has grown. Collectively, this demand growth has contributed to a surge in overall demand for integrated advertising, which has empowered suppliers to raise their prices and reduced their dependence on each individual buyer’s patronage.
Aside from price growth, the current pricing environment has been beneficial for buyers. Low price volatility has mitigated the harmful effects of rising prices. High competition has cultivated low price volatility by pressuring suppliers to keep their hourly rates within market norms to avoid becoming uncompetitive. Stability in most price drivers has also fostered low price volatility by limiting the extent to which demand and input costs vary, thus reducing suppliers’ need to change prices year over year. As a result of low price volatility, buyers can enter into contracts with suppliers without worrying that average prices will fluctuate greatly. Buyers should consider this option to lock in low rates soon before prices rise further.
Prices for integrated advertising services are projected to grow an average of 1.8% each year from 2017 to 2020. Overhead costs for advertising firms are forecast to continue rising during this period. For example, costs associated with renting office space are projected to increase through 2020. As a result, suppliers will increase prices to compensate for their higher expenses.
Demand growth will also bolster price increases in the coming years. Total advertising expenditure is projected to grow further as mounting consumer spending pushes companies to invest in advertising to differentiate their offerings from those of competing firms. Rising corporate profit is expected to increase, expanding companies’ budgets and giving them more capital to spend on integrated advertising services. Furthermore, the number of businesses will continue to increase and add to the potential pool of buyers of integrated advertising services. Altogether, these factors will encourage suppliers to raise their prices without fear of losing business, which will temper buyer power.
With that being said, low price volatility will continue to aid buyers in the three years to 2020. Fluctuations in most price drivers will be minimal, diminishing suppliers’ need to change prices in response to spikes or dips in demand or input costs. Low price volatility will allow buyers to more accurately budget for their integrated advertising service costs. Therefore, buyers can delay purchasing services without risking significant future jumps in suppliers’ hourly rates. Even so, given that prices are forecast to increase, buyers should consider entering a contract sooner rather than later.