Tuesday, 22 November 2016

It's Tough To Sink The Boat When You're In It...2017 Could Be Traumatic For Agencies

8 MIN. READ  It's difficult to witness the tortured musings and machinations of my colleagues labouring within the now defunct ad agency business model. They pay their house, car and private school payments from the meager and ever diminishing proceeds from it, so how can they approach the issue of shooting the aged Triple Crown winning horse with the broken leg and decide upon the only humane solution with emotional detachment? They have to put it out of its misery, but doing so heralds the reality of financial hardship, uncertainty and change -- and there's nothing most humans hate more than change.  Sadly their salary depends upon them not understanding the solution.
"It is difficult to get a man to understand something when his salary depends on his not understanding it."
Upton Sinclair from ‘I, Candidate for Governor and How I Got Licked,’ 1933

Having read so many new articles on this topic recently, it feels mean spirited to point out that the ad agency model that industry insiders are discussing a repair for is not unlike the newspaper business model today. Both were born in a bygone age wherein the fundamentals were vastly different and they then lived in symbiosis for 200+ years, creation of advertising campaigns paying the salaries of the agencies' staff and the ad placements paying that of the newspapers. It's clear today to see that no matter what the newspapers attempt to do in terms of shifting to an online business model, most of them will go belly up because there is simply no longer any need to maintain several teams of journalists with slightly different political bents in every city of the world, printing news stories on paper and hand delivering them door to door. The newspaper biz is vastly overstaffed for today's swiftly evaporating demand. The 300+ year old daily newspaper business model is well and truly dead (The Daily Courant was first published in London on March 11, 1702).

My Year One in the ad agency business was 1986 (coincidentally the world's first agency, William Taylor, was formed in 1786) at McCann Erickson in Toronto. Profitability was in the low 20's% to 30+% range at 17.5% commission. We 'gave away' ideas that turned brands into global profit machines just for the pleasure of working in a creative business. We began doing the same with strategic thinking that put these brands on steroids through the 80's and 90's. For a decent salary and reasonable profit margin we were largely responsible for the concepts that our clients continue to make billions in profit from. We were tickled pink to help out and hand over our IP, never tying compensation to results for fear our steady, and healthy, salaries might be cut.

Procurement Broke the Model

Those same clients, especially as more and more went public and were merged and went global (under the steady pressure of the inane stock market demand for 10% minimum growth per year or we'll divest in your firm and go elsewhere), brought in Procurement and set about dismantling the 200 year old ad agency business model, gutting it swiftly in the mid 90's by surgically removing our media departments. The rest is history with regard to profitability (skim off the cream...).

With the end of profit came the exodus of the brilliant and aggressive 'young turks' who powered the best of what we did. The best and brightest no longer saw the agencies as lucrative enough and, having been weaned on 'Wall Street' and 'Gordon Gekko', stated their careers in finance and used their creativity to invent the derivatives market and high risk mortgages. We all know how THAT went -- and all those derivatives are still out there, waiting to be 'repackaged' and snuck back into the market.

Businesses, Even Agencies, Are Powered by Incentivization

What every client, from Brand Management to Procurement to the C-Suite need to recognize is that, just like their firm has to make a decent return to continue to be able to produce a quality product, so do the 'idea people' who generate strategically creative concepts to super-charge their marketing efforts. Without an incentive above and beyond a 'decent salary', the talented strategic and creative people will not be working at the agencies, they'll follow the money elsewhere. Well then clients should simply bring the agency people in house! Often what humans forget is that humans are complicated.

Every single effort to bring other humans who are by nature highly creative into the hierarchy of a client's office has demonstrated that these types of personalities die in captivity. It has never worked and never will, like trying to get a group of Finance Directors to generate a new Snap Chat gimmick, creative people are simply birds of different feathers and don't work well ensconced in a milieu that is steeped in minimizing risk by analyzing everything. The insides of a manufacturing firm, by its nature, is filled with people who are empowered to say no, while creatives need "YES! Try something new and risky and 'out there'!".

Now we have all of these "Grand Hotels" (to quote Eoghan Nolan, his article on this topic linked here), these "dinosaurs", fat with 'new capability' departments that are underutilized, yet need to be paid for. Yes, some clients still like the notion of having all those capabilities under one roof, but the reality is that this business model is flawed. If asked how to strategically design a business model to provide MarCom services given today's modern reality, no one would design a 'department store model' wherein the highest spending shoppers only use ALL of the departments occasionally, leaving the full-time employees in many of these departments to do 'busy work' in return for a weekly salary.

The Problem Cannot be Fixed From the Inside

So if the business model is fundamentally broken, inappropriately designed for this day and age, the solution cannot lie in the dinosaurs getting together to negotiate how to eat less of the plant foliage that the climate is gradually reducing the quantity and quality of. The dinosaurs, faced with a changing climate, were too big to survive in the new environment. Only the small, lean and adaptable survived, and in our human environment, I'd add that only the wise, experienced, clever and creative will survive, based upon a model that is best suited to today's climate.

"Flavour of the Moment" Marketing

There is no such thing as "Fill In The Blank Marketing." There never was. The past 20 years have seen an extended Snake Oil Hustle, constantly moving the goal posts to keep the clients frantically running down the playing field with bags of money that Procurement (and each clients' shareholders) have been cutting larger and larger drainage holes in, steadily decreasing the formerly bloated TV-based budgets that were never rooted in demonstrable ROI in the first place (why do Superbowl ads REALLY cost what they do?).

All we witnessed for the past two decades were evolving tactics, not any fundamental change to how marketing is accomplished. We've seen new agencies pop up constantly who claim to specialize in:
  • "Experiential Marketing" (enhanced product demos/sampling),
  • "Digital Marketing" (ads placed on websites),
  • "Virtual Marketing" (product placement in virtual games/experiences like the long-forgotten 'Second Life'),
  • "Location-Based Marketing" (coupons delivered via GPS location),
  • "Mobile Marketing" (ads on smartphones),
  • "Social Marketing" (contests promoted on Internet-based communication software),
  • "Big Data Analysis Marketing" (consumer research data in much bigger data bases on ever more behavioural actions),
  • Now we have "Content Marketing" (enhanced public relations via Internet-based communication software).
Makes me shake my head in amazement thinking back to all the hyperbole we've all had to wade through since the mid 90's. All of the above examples of "Fill in the Blank Marketing" have been proven to simply be new tactics unworthy of their initial breathlessly enthusiastic hype.

It's ALL 'Content Marketing'

Yet ALL marketing communication has always been "Content Marketing" -- the difference was that the content of the past wasn't all that relevant, valued, authentic, one-on-one or custom-tailored. Once we moved away from benefit-based communication to emotional and insight-based content after McCann Erickson's "I'd like to buy the world a Coke" spot in 1971, the content became highly vulnerable to shrugs of indifference. Some folks got the joke or insight others didn't, yet we only produced one ad and ran it endlessly to everyone. What the new consumer-demanded, Internet-empowered shift from 'push efforts' to 'pull efforts' has led to is merely a move from an above-the-line media-weighted focus, to a PR, one-on-one, experiential strategic platform. The latter is what consumers actually wanted all along, versus what marketers want them to want.

The Solution

The ad agency business model solution today is to become as entrepreneurial and 'start up' in nature as all of the new departments or divisions that the clients are developing (in-house content creation, VC-like innovation labs, etc.). Agencies have to push back on clients to be paid a decent, profitable compensation (certainly more than is currently the norm, which P&G's Pritchard has acknowledged, but done little to address it, saying, bizarrely: "...the focus of his talk (was) on 'Raising the Creative Bar.' But he said it's time to lower pressure on agencies – which has included P&G cutting its agency and production fees the past two years by $570 million to $1.4 billion."

Um....cutting the agencies' spend by ANOTHER 25% somehow helps them feel less pressure?). The agencies have to ensure that they're managed by wise, mature, hands-on 'sages' who know what mistakes not to make and who can get the job done in a fraction of the time that it takes the underpaid recent grads who staff most of the agencies today. And this new agency business model will need to make do with a skeleton staff, zero in-house capabilities (outside of strategy, data analysis, project management and great HR), and a ton of eager freelance suppliers to be brought in for a gig as needed. They also need to bring media planning and buying back in house -- the new media mix has killed the old media firms and they must die along with the other dinosaurs. But most importantly...

Why Bother? 

Because the 'big ideas' that the agencies generate are the IP that makes the clients the really big bucks. This fact is born out by all the start-ups created and run by smart, creative people of every age today (meaning there are still a lot of old farts in successful agencies). When the concept leads to incremental sales volume, the agency earns a decent commission. A few points on a billion dollars isn't chump change -- it's worth working for nothing more than a decent salary on a day-to-day basis if once in a while you get a big cheque!

This is the single biggest issue that no client really wants to acknowledge and have been sweeping aside forever -- the MarCom campaigns are what create brands and global success, not R&D, great flavours, distribution, brand management, pricing, packaging, shelf presence, merchandising, etc. Yes all of that is essential, but at the end of the day, it's the magic of the marketing communication and insights that drive the big wins, and the creators of the MarCom have always been paid peanuts and never reap the breakout rewards that their strategic-creative ideation brought to the party. If their client-approved efforts fall flat, okay, they only get their salaries, but if the brand does better than similar efforts have empowered before....

The Really Terrible News...

None of this is good news, however, for the five global holding companies that own all the dinosaurs. When the next global crash hits (and it cannot NOT hit as the US is in perilous financial shape and is about to ignite a people's revolution with the toxic tax cuts for the rich that Trump and his team of Pence-led deplorables are about to enact, the net effect of which will be to bankrupt the American government -- lower taxes = lower revenue to pay back an already mindboggling debt load carried both by the government and households and the ensuing negligible global confidence in the US dollar), I would not want to be holding a lot of stock in those five holding companies.

The ensuing bankruptcies of thousands of global agency offices is going to flood the market with desperate, experienced agency people with nowhere to take their skills other than back into the market, forming tens of thousands of new, lean, agile and adaptable agencies with no in-house capabilities and a willingness to work for nothing more than a bare minimum salary and commission on incremental sales (if that).  The revolution is coming whether we start it now, willingly, or not. End of rant. ;-) #BigIdeas2017

• • •
The Future of Marketing Experience
I have a 60 minute interactive discussion to share with you and your team that many Canadian industry execs have had their minds opened by.  I adapted my original material to Brand Momentum's unique business model while I was consulting with them, but the content is relevant to the marketing industry as a whole and the presentation can be customized for any vertical.

Contact me to book an hour for The Future of Marketing Experience (presentation takes about 30 mins plus another 30 mins of discussion). KevinLenard@Gmail.com

Slide #7 from The Future of Marketing Experience:

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