Agency makeover

This is a distinct period in human history when change is so rampant and happening at the speed of light. What we knew yesterday and were familiar and comfortable with suddenly appears very different, affecting businesses and careers. These changes are also affecting advertising; not only is the profession undergoing a rapid transformation, the lives of all associated with it – their dreams, aspirations and expectations – are radically modifying.

Look at what is happening at P&G. One of the world’s biggest advertising spenders are reducing their ad budgets by a further $400 million, in addition to a recent cut of $750 million. They are reducing the number of their communication agencies by 50%, going down from 2,500 to 1,250. The plan is to bring more of their media planning and buying in-house. Speaking about the rationale behind these cuts, Jon Moeller, CFO, P&G, stated that: “We need the contribution of creative talent and are prepared to pay for that. We don’t need some of the other components of the cost. We will move to more ‘fixed and flow’ arrangements, with more open sourcing of creative talent and production capability, driving greater local relevance, speed and quality at lower costs.”

Mainstream advertising agencies are competing with unconventional entities, such as Accenture and Deloitte (consulting companies) and Google, Facebook and Amazon (technology, social networking and e-commerce companies). The reasons behind this include availability of online data and a more professional application in analytics. All this has given rise to hitherto untapped communication and integration opportunities. Marketing communication agencies, in their quest for specialisation, are diversifying, but at the same time, they are creating a huge vacuum in terms of integrating their diverse offerings and creating synergies for their clients.

The big communication houses such as WPP initially tried to approach integration by forming integration teams and hiring professionals from relevant disciplines from their group companies. This approach did not work. Sir Martin Sorrell’s resignation, in the wake of an investigation into his remuneration, signals that all is not well inside the Group, not least because the amounts involved in the investigation are not ‘significant’ according to sources within the Group. WPP’s share value dipped to an all time low in 2017, well before Sir Martin’s resignation.

To imagine a future for advertising agencies, we need to take a stock of how they evolved. Consumer advertising made a comeback in the 1950s, when the scarcities arising from World War II gave way to a period of intense economic activity, leading to rising incomes and an abundance of consumer products. As a result, the need to introduce differentiation in the product offering became vital and it fell to the full service agency to take up the task of brand creation. In those days, agency compensation was in the form of a 15% commission paid by the media, while clients paid for the creative work largely at tariff rates. This continued without significant change until the late 1970s. Then, as media fragmented, brands proliferated and bargaining power moved to the retailers (they had more choice about which products to stock and started dictating terms), two events took place. Firstly, the full service agency split into several communication agencies (PR, activation, consumer relationship marketing etc.), usually under the umbrella of a large communication group. Secondly, full service agencies evolved in that as well as being advertising agencies, they became integrators of communication campaigns involving multiple disciplines (advertising, PR, activation, direct marketing), in effect making them ‘lead’ agencies (Ogilvy,Y&R, DDB). However, lead agencies were not able to achieve true integration for several reasons.

Consumer advertising made a comeback in the 1950s, when the scarcities arising from World War II gave way to a period of intense economic activity, leading to rising incomes and an abundance of consumer products. As a result, the need to introduce differentiation in the product offering became vital and it fell to the full service agency to take up the task of brand creation.

1 Because they remain fundamentally ad agencies, the advertising component overwhelms the rest of the mix. They are specialists in advertising, but generalists in other disciplines. As a result, most lead agencies do not involve strategists from other disciplines in their planning processes and therefore exclude a 360-perspective and end up with a less-than-optimal strategy. Furthermore, their service structure supports client-agency-supplier coordination to the exclusion of other agencies.

2 Creatives force the big ideas developed for advertising onto other disciplines, without taking into account that (for example) an activation or experiential idea is very different in nature.

3 The notion of a media-neutral creative idea is flawed; for example, an interactive digital experience is very different from passive consumption of TV advertising. As a result, when a creative idea is designed to cater to both, it is inevitably compromised and therefore, less effective.

4 Due to their less than effective ability to integrate brand communications, clients face unnecessary complexity in coordinating with multiple service interfaces. Many MNCs have appointed media directors to better integrate the creative with the ever fragmenting media channels.

What has happened is that the core offering of the creative agency (briefing, insight generation, idea development, concept development and execution) is faced with competition from production houses, planners and freelance creative talent. The resulting fragmentation of the creative product into constituent parts has not only led to a lowering of price, but to a loss of integration even within the strictly advertising discipline; often the TVC is made by an independent production house, print ads are designed by freelancers and billboards by a vendor. Added to this, there is dwindling integration with other disciplines such as PR, digital, CRM and direct marketing.

A brand is made up of a meaningful collection of associations and not disparate bits and pieces. However, what is now taking place is adversely impacting this holistic entity, resulting in unrelated or even conflicting associations. It will also affect the achievement of marketing goals with different messages that pull consumer behaviour in different directions. The emergence of new technologies has further complicated matters. Marketing must now be managed across devices as well as serve customised ads to specific audiences based on real-time analysis of constantly changing data; data that must inform creative, CRM and media buying strategies. In the future, integrated 360 communication agencies are likely to include in their service portfolio brand strategy, brand consultancy, brand identity, communications strategy, analytics, data and research and expertise in professional services marketing.

A brand is made up of a meaningful collection of associations and not disparate bits and pieces. However, what is now taking place is adversely impacting this holistic entity, resulting in unrelated or even conflicting associations. It will also affect the achievement of marketing goals with different messages that pull consumer behaviour in different directions.

Although it is still hard to imagine how this new advertising entity will shape up, certain characteristics in the structure are becoming increasingly obvious.

1. The concept of a lead agency will fade away and functions will operate as equal partners in a more fluid structure. Capabilities such as creative, media, influencers, digital, production and shopper marketing will be re-bundled on an as per needs basis for separate clients.

2. The emphasis will be on creating great work cost effectively and at the pace the market demands. Clients will not be required to deal with people from different communication functions, thus reducing both the complexity and the necessity of employing a large marketing staff.

3. The agency will act as a hub to open source talent and skills rather than compete with them. It will pull in creative talent from other sources and collaborate with distribution platforms such as mobile, social media and OOH. It will operate more like a content shop, working in a modular way with specialist teams from different disciplines rather than in silos. There will be greater integration of content creation and distribution and greater in-house content publishing resources.

4. It will make increasing use of technology and data to track the impact of creative on sales. Budgets will be based on analytics and ROI computations. The agency will be led by people expert in creative technologies. On every account, the team will include a techie, a distribution expert and a storyteller.

5. It will integrate all communication disciplines through 360 communication planning and present solutions that are neutral to any discipline. It will evaluate the role and effectiveness of every channel by studying consumer behaviour and carrying out a rigorous analysis of online and offline data.

6. It will allow for differentiation of their service offerings, employing different strategic approaches in the communication strategy, competing to create greater value for their clients.

Khalid Naseem is Head of Strategy at Firebolt63. khalid.naseem@firebolt63.com