Comment on Jean Marie Dru’s article in Advertising Age entitled: Endless Pressure on Price Traps, Agencies, Clients in Death Spiral, published January 25, 2010.
Odd title, odd article.
Dru’s final call to action: "That 2010 be the start of a new era where the subject of agency compensation be addressed both objectively and calmly." And that is? During his lament he identified the problems with little in the way in developing viable solutions.
There was a lot of whining by Dru, with very little in the way of practical solutions to what he had identified as a problem.
The Advertising Business has always been competitive and always there have been opportunities to displace complacent agencies that have gotten too routine in their solutions and less strategic with their creative products. If it works why fix it, is too often the mantra of agencies that have become comfortable and complacent with their client relationships and business.
What surprises me is that Dru identifies media fragmentation as partly to blame. The split between creative and media is obviously the most distressing to him. The good old days of receiving an account with a defined creative and media budget that he could dissect and routinely pilfer to ensure his bottom line are gone. That gone, one is left vying for business with clients where the advertising big guys clout he once enjoyed is now routinely viewed by clients as synonymous with being gouged. The concept of our businesses are matched by our similar size is no longer in vogue as marketing services have become more and more specialized and fragmented. The one size fits all dogma of the Large Agency pitch is gone forever.
"That 2010 be the start of a new era where the subject of agency compensation be addressed both objectively and calmly." This is the question being posed to whom, competitive agencies or to business people, or both?
Winning and losing accounts in advertising is so routine that accounts up for review are now regular features in publications. Increasingly businesses are not content in viewing what you have done for others and are now more interested in what can you do for them. Review fees help to offset the costs of speculation work but the ad biz is so competitive that it is rarely done. This is the business routine that agencies have created themselves.
It’s a buyers market for businesses when it comes to advertising agencies. Agency loyalty is defined in the non-compete, confidentiality agreement given to them at the onset of their business relationship, and that’s it. My question to Dru is why has it has taken this long to discover that you are a gun for hire and that media fragmentation has resulted in agency fragmentation?
The advertising business is the same now as it has always been: we sell creativity that results in strategic advantages for the clients we serve, consulting with them on their promotional choices and opportunities; but now it is more fragmented and more competitive then ever before. This is what we sell, our time, our expertise, and creative ideas. We sell our time, and market our effectiveness to potential clients. As long as our work achieves this end, we continue to serve the client and secure new business. We use to sell more services, including media, but specialization has increasingly splintered these services into highly specialized and competitive shops. This shouldn’t be surprising because it is happening to all the businesses around us, specialization that is; and increasingly it is becoming global.
Competitive forces in our client’s business means that their brand is continually being challenged by competitors and advertising agencies are expected to keep them in their category position or to move them up. Strategic creative created by agencies that advances brands is what businesses buy, not price. Superior and effective creative, and having advertising and promotional expertise, is not a commodity.
Is it so unexpected that these competitive forces that make clients hire us, are in play in our industry as well? Agencies work in a category and have a strategic position within it, whether they are aware of it or not. Once agencies were ranked by size, and it was thought that size equated to industry prowess and their ability to advance clients. Our business has always been competitive and dynamic, but a rapid shift in media changed everything. The speed at which cable TV, the Internet, and other new media products were accepted by consumers, had fragmented traditional media products and surprised everyone, not just agencies. The result was a fragmentation of the Large Agency Model as well. Suddenly, smaller specialized agencies and creative boutiques were making inroads into turf once held exclusively by the agency giants.
For businesses the largest marketing expense is advertising and promotion. The era of specialization had been underway for many decades prior to the fragmentation of the “Full Service Agency;” it has been occurring well before the fragmentation of media. Astute marketers have been increasingly more knowable about the workings and underpinnings of Advertising Agencies, and required to find both strategic and cost-efficient agency partners. The business bean counters demanded it.
The explosion of promotional agencies in the last two decades has only hastened the fragmentation of the large agency model despite all of their efforts to acquire more business through the acquisition of New Media Agencies and smaller creative boutiques. Increasingly businesses declined the full service agencies in favor of smaller specialized shops that were local. Being there is everything.
So to answer Dru’s question of "That 2010 be the start of a new era where the subject of agency compensation be addressed both objectively and calmly." It isn’t going to happen because of the era of specialization and a highly competitive environment caused by the fragmentation of the Large Full Service Agency model.
It’s a buyer’s market for businesses. The American Marketing Association defines “marketing” as the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods and services to create exchanges that satisfy individual and organizational objectives. This applies to advertising agencies just as it does to other businesses. Marketing is a far broader activity then advertising or promotion. In the end advertising agencies need to remember that they are involved in exchange, to trade things of value between buyer and seller so that each is better off in the trade.
Everyone is looking for value and to satisfy his or her own particular individual objectives. In the end, the real whores in our industry have been media companies who gladly take money from anyone and negotiate on the side while having published rate cards. Where the Large Agency model began to lose its clout is when media companies began to deal under the table and under-selling or bypassing advertising agencies altogether. Ad Agencies supposedly offered media expertise and less bias towards one media over another, like media companies do.
I still remember the day I was told by the Pillsbury Company in 1989 that they now have an in-house buying agency that will place all media, but we will continue to produce it and send out advertisements to the various media companies. Had I refused, someone else would have jumped at the chance to displace our agency of record status with two of their major brands. We offset the loss with higher production fees for sending it out, and hourly fees that had been a part of the mark-up and new business. But in the end, I realized it was the beginning of the end, as they had decided that they were the media experts. In our market we were the first to go digital, and soon we were instructing our clients on digital production and watched the explosion of specialized agencies in our market area all competing for pieces of the same business.
I enjoy the hubris of Admen. But in the end it was just this, our own hubris that was our very downfall. So to answer Dru’s plea: "That 2010 be the start of a new era where the subject of agency compensation be addressed both objectively and calmly." It isn’t going to happen. Competitors are now creating new compensation models and methods to gain new business and increasingly New Media companies are working systematically to displace advertising agencies altogether. They view advertising agencies as redundant and unnecessary, providing services they can easily duplicate.
Oddly Dru pointed to consultancy agencies that outstrip advertising agencies on hourly fees. Ad Agencies are consultancies when they operate their businesses correctly. Perhaps that is his real problem.
Marketing is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods and services to create exchanges that satisfy individual and organizational objectives. We are just a small part of the entire process, so get use to what is happening around us. Our business is and always has been dynamic and increasingly specialized. We are seeing the natural progression of things. Those who can predict the future better then the next guy, or adapt to it quickly, will win in the end. Advertising Agencies need to live on the cutting edge, on the cusp of change, for if they become complacent with the status quo, they quickly become obsolete.
The price trap is the advertising agencies own doing.
– Daryl J. Orris, January 25, 2010
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