The world of Mad Men looks like a chapter from Game of Thrones. The kingdoms (global advertising holding companies) are fighting each other while at the same time, being threatened by the White Walkers (new competitors like consulting companies, frenemies like Facebook and Google who lived beyond the wall). Some are facing existential threats, lingering on to the last remnant of the golden era. Others are forming alliances. But unlike Game of Thrones, there is no iron throne, just a bunch of mad men trying to coexist with the White Walkers who breached the wall while the Night’s Watch were sleeping.

Perhaps the intro is a bit dramatic, but there is no doubt that the future of the ad agency model is at stake. To quote Kimberly Doebereiner, Director, Brand Building Integrated Communication, P&G, from a recent event in the US: “The consumer hates advertising right now. That doesn’t mean they aren’t willing to watch it... but the experience is not good. Our industry, both the media and companies like mine, are helping create that bad experience.”

Reacting to the new marketing world order, some agencies have restructured while others are in the process. Over the years, most ad agencies have acquired capabilities rather than growing them organically, but they have been poor at integrating these services. An analysis in share value price over two years (October 2016 versus October 2018) shows almost little or no change for Dentsu, Interpublic and Omnicom, while share price for Publicis shows a drop of 20% and WPP of almost 50%. During this time, ad spends globally continued to grow. So if ad spend has grown, why have ad agency holding companies not become more valuable?

New trends are impacting the fundamentals of the business. The change is not linear, it is quantum. It is driven by constantly-evolving consumer behaviour responding to disruptions caused by changing technology. The new world is a network where people are interacting in fluid roles, seeking information and pushing for rewarding experiences.

Customers are constantly challenging the status quo, forcing the incumbents to change their ways and reward new ones with quick success. In two decades, Google has reached a market value of $700 billion, about 6.5 times the value of IBM, an over 100-years-old technology company.

FMCGs continue to face disruption with new threats from smaller, online brands and the growing power of etailers like Amazon with a potential threat of private label brands. While some are cutting spending on advertising services to improve margins, others are building capabilities in-house. The latter shift is probably the biggest threat to the old ad agency model and will systemically change the business.

Technology is at the heart of these dramatic changes in fortune. The top three most valued companies by market capitalisation are in the technology space or driven by technology – Apple, Microsoft and Amazon. In many industries, technology is ‘disintermediating’ and cutting out the middlemen. Google and Facebook provide platforms and tools which are making it easy to buy media irrespective of scale. The lion’s share of the growing spend on digital is with them and as frenemies of ad agencies, they are strengthening their relationships with clients.

While technology so far has driven better efficiency and greater transparency, future AI-driven platforms will improve effectiveness by dynamically speaking to different audiences using the relevant creative based on the customer, their mood and the context of the interaction. A press release for IBM Watson states: “With its ability to unlock big data, AI has teased a future full of exciting transformations for marketers. AI promises better campaign analytics, hyper-personalisation, predictive audience segments, reallocation of valuable time saved and more.”

Reallocation of time? Whose time? Elements of the value chain that become automated could be managed by the client in-house or through in-sourcing. An AI-driven programmatic buying platform can be used to create, plan, buy, place, measure and optimise advertising with fewer resources and greater agility (the latter being a key driver to compete in the lightning fast, interconnected digital space).

The promise of determining which 50% of the advertising budget is working could finally become a reality. While this is good news, it also means that clients could do more with less money.

According to a recent article in AdAge, P&G posted their strongest organic sales growth in five years last quarter, despite spending six percent less on marketing. The CFO, Jon Moeller, cites media efficiency as one of the reasons: “Our total reach and frequency were probably up in the quarter. The total marketing spend required to achieve that reach and frequency and deliver that growth and market share gains was down.”

Although P&G had a successful quarter, there is constant pressure on sales and margins. FMCGs continue to face disruption with new threats from smaller, online brands and the growing power of etailers like Amazon with a potential threat of private label brands. While some are cutting spending on advertising services to improve margins, others are building capabilities in-house. The latter shift is probably the biggest threat to the old ad agency model and will systemically change the business.

What will be the impact of all of this on Pakistan? Let’s break it down by the impact on core traditional agency functions.

In the near term, large advertisers will continue to depend on agencies and media buying houses to provide these services but will demand greater agility, transparency and accountability. Measurement and optimisation capabilities with greater integration with strategy and creative will be critical.

Strategy

Strategic work for most agencies in Pakistan has been limited to a few, large local and multinational clients. The capability is underutilised and as a result, not well-developed; it has typically been more qualitative-driven. However, in an increasingly data-driven world, strategic insights are drawn almost real-time, requiring skills in data analytics. Most agencies in Pakistan have not invested in this area. The vacuum is currently filled by clients building in-house capabilities with some taking help from consulting agencies. Clients are also concerned about sharing customer data with agencies that lack the ability to manage it.

Creative

In Pakistan, barring few exceptions, creativity has been largely execution-driven. There are a few clients who value creativity and invest in it. The rest continue to drive down retainer fees for creative or engage on a project basis. Pitches increasingly seem more like hackathons, where clients invite half a dozen or more agencies and require them to develop complete strategy and creative ideas against vague briefs. Most decisions at the end boil down to price. Bargaining power favours the clients because low barriers to entry and exit have fuelled a growing number of service providers, including freelancers and production houses offering creative services. However, creative thinking will still continue to be a key differentiator for agencies but it will require going beyond purely campaign-focused ideas. Digital offers unique opportunities by combining creativity with data analytics and technology to create new and relevant experiences. Agencies will be able to earn more but it will require a different skill set. While clients will rely on external partners for creative ideas, basic digital content development could move in-house. FMCGs such as Unilever are experimenting with in-house content studios. Early results have shown that they are able to produce work faster and cheaper than external agencies.

Media

In a recent survey of US marketers conducted by the Association of National Advertisers (ANA), social media, search engine marketing and programmatic buying were among the digital media capabilities most frequently brought in-house. Cost efficiency and greater transparency are reasons cited for this shift. In Pakistan, the availability of expertise will determine if and how quickly this trend is adopted. At least in the near term, large advertisers will continue to depend on agencies and media buying houses to provide these services but will demand greater agility, transparency and accountability. Measurement and optimisation capabilities with greater integration with strategy and creative will be critical.

The ad world is being massively disrupted. Times are exciting if one is willing to keep up and embrace change rapidly. In the fourth industrial revolution, the lines between digital and physical will blur even further. Technology that addresses pain points will be adopted quickly irrespective of the maturity of the market. Case in point is the growth of ride-sharing technologies such as Uber and Careem filling in the gap left by the lack of public transport, growing traffic and poor parking facilities. AI will destroy legacy systems and accelerate the birth of new opportunities. The creative nature of our industry will be the enduring feature only if we are willing to learn and change.

** Jon Snow, Game of Thrones*

Amin Rammal is Director, Firebolt63, The Brand Crew and APR.
amin.rammal@firebolt63.com