Snap Inc., the parent company behind Snapchat, says supply chain problems are hitting social media. The COVID-19 pandemic greatly affected the global supply chain, resulting in long-term labor shortages, supply shortages, and increased input costs. This bottleneck has made companies hesitant to spend money in online advertising, according to Snap.

"This impact was compounded by the ongoing macroeconomic effects of the global pandemic with our advertising partners facing a variety of supply chain interruptions and labor shortages," Snap CEO Evan Spiegel said on the earnings call.

"This, in turn, reduces their short-term appetite to generate additional customer demand through advertising at a time when their businesses are already supply-constrained."

This comes at a time when advertisers traditionally ramp up ad spend in anticipation of the holiday season.

Supply Chain Woes

Panic buying, stockpiling, and other changes in consumer spending habits crippled the supply chain. Many suppliers attempted to ramp up production to meet the increased demand while others were unable to do so. Due to social distancing and fear of the virus, many companies operated at reduced capacity for months.

More than a year after COVID-19 hit the United States, manufacturers continued to face labor shortages. According to data from the U.S. Bureau of Labor Statistics, workers are more willing to leave their jobs or switch employment than they were before the pandemic. People are retiring, quitting, and demanding better pay and flexible working arrangements.

The Effect on Digital Marketing

Advertising is a form of promotion, a key element in the marketing mix. Promotion is a persuasive form of communication that attempts to expedite a marketing exchange by influencing individuals, groups, and organizations to accept goods, services, and ideas.

Understandably, advertisers may not want to accelerate sales of products that they cannot stock. According to Credit Suisse Chief Equity Strategist Jonathan Golub, ad spending declines are top of mind.

"If you can't meet demand, why would you advertise, just cut your ad spending," Golub said on Bloomberg.

Stock prices for Snap, Twitter, Pinterest, and Facebook were all down due to ad spending worries.

In the Classroom

This article can be used to discuss supply chain management (Chapter 8: Managing Operations and Supply Chains) and digital marketing (Chapter 13: Digital Marketing and Social Media).

Discussion Questions

  1. What factors have contributed to the current supply chain disruptions?
  2. Describe how supply chain disruption has affected digital ad spending.
  3. In your opinion, do you think ad spending will increase to pre-pandemic levels in the short-term?

This article was developed with the support of Kelsey Reddick for and under the direction of O.C. Ferrell, Linda Ferrell, and Geoff Hirt.

Sources:

Holly Ellyatt, "There Are Millions of Jobs, but a Shortage of Workers: Economists Explain Why That’s Worrying," CNBC, October 20, 2021, https://www.cnbc.com/2021/10/20/global-shortage-of-workers-whats-going-on-experts-explain.html

Kim Khan, "Supply Chain Problems Go Digital as Snap Warns on Ad Spending Reluctance: At the Open," Seeking Alpha, October 22, 2021, https://seekingalpha.com/news/3756498-supply-chian-issues-go-digital-as-snap-warns-on-ad-spending-reluctance

Mark Bergen and Kurt Wagner, "Snap Shortfall Shows Supply-Chain Woes Hitting Social Media," Bloomberg, October 21, 2021, https://www.bloomberg.com/news/articles/2021-10-21/snap-shortfall-shows-supply-chain-woes-hurting-social-media-too