Monday, 13 February 2017

2017: The Year The Ad Agency Died

3 MIN. READ   


The ad agency business model has been on life support since the mid-90's when Procurement torpedoed it by forcing the media departments out. Profitability has been gradually bleeding out ever since due to the on-boarding of 'new capabilities' (increasing overhead) and ever more billing model changes (slashing profit further) foisted upon the industry by the demand for 10% annual growth by client shareholders.


Long live the lean and agile MarCom Agency Model: an eclectic squad of proven strategic/creative thinkers who outsource the varied capabilities needed for any given client project, incentivized by a commission 'bump' on for sales that exceed an agreed target.


The Marketing Industry is at a tipping point:
  1. Consumers have been demanding something that traditional marketers have been VERY reluctant to give them: a return to the kind of marketing that simply works best, a return to human nature. And our fellow humans have never stopped begging for this since day one.
  2. The strategic future of the Marketing Industry was laid out 20 years ago. It was exactly what consumers wanted, but most marketers have spent the intervening two decades distracted by 'shiny and new' instead of heeding the simple's The Experience Economy, stupid! (Pine & Gilmore, 1997)
  3. The new Social Media (the first electronic 'social medium' was the home phone) have led to a breakthrough in what has always been marketing’s ‘holy grail’ — a shift in focus from ‘push’ efforts to ‘pull’ results. People love the latter....the former not so much.
  4. A ton of successful new business models emerged from 'push-pull disruption,' but not at the traditional ad agencies. Sadly they've just continued plodding and have grown into ever larger dinosaurs. (Like newspapers, they were built on a platform that has gone extinct and their business model of 'we do it all in-house' has led them to grow far too large to adapt to the new climate.)
  5. There has never been a more urgent need to bridge 'The Traditional Sales-Marketing Divide' in order to leverage the increase in efficiency and effectiveness that comes with better aligned Sales and Marketing efforts, but few CEOs have proven sufficiently visionary to mandate it. 
  6. P&G, arguably the marketer with the single most influence on ad agencies globally, has just announced that they will further 'squeeze' agency contracts in 2017 to eliminate any 'wiggle room' with regard to extracting revenue by 'cost-plus-ing' items under the table. Along with impetuous decisions at the top in the US that will likely spark the next Great Depression that the US credit bubbles are setting the world up for, this will very likely be the year that the first major global agency goes bankrupt. More will surely follow, likely preceded by media firms.
(What gets forgotten in the shareholder-driven push for 10% annual growth is that if any business cannot make really substantial profit, the best and brightest will not work in it, shifting their career choices to less 'regulated' sectors like, say, inventing the derivative market in financial services.)

Ad Age, in this May 2016 article, sort of spoke to what the new business model for marketing 'partners' might look like, but they didn't really spell it out, since it's tough to sink the boat when you're in it. Ad Age depends on a good will from their dinosaur agency clients and isn't about to eat crackers in bed, but the answer is in this article if you ignore most of what the dinosaur agency execs are saying.
"It is difficult to get a man to understand something when his salary depends on his not understanding it."
Source: Upton Sinclair from ‘I, Candidate for Governor and How I Got Licked,’ 1933

The new "MarCom Agency" business model is simple:

  1. Divest of ALL those in-house capabilities other than superb thinking (including data analysis), project management and human resource recruitment and outsource as required (including creative)
  2. Insist on a bonus for higher-than-expected sales (it was the agency's IP that drove the volume!)
  3. Remind the client that the smartest, most agile minds WILL NOT thrive inside a client office (a hypercritical environment by nature) AND that they need to be incentivized with high pay (higher hourly fees)
  4. Focus on superb brand experiences (one-on-one engagement) as the primary in-going strategy
  5. Bring media planning and placement BACK in-house (there's virtually no ATL anymore)
  6. Collaborate with clients -- but be a true 'one stop shop' to reduce their current time spent coordinating with a dozen different agencies for content, social, shopper, experiential, digital, media, promo, etc.
  7. Keep the teams lean and adaptable.  

Essentially: break up the old network model and create fluid, lean and adaptable teams who work on different brands as demand rises and falls.


'The Future of Marketing Experience' is a 1 hour long interactive discussion designed for marketing decision-makers that I can do for you and your marketing and sales team, and even your agency!   While I was consulting with Brand Momentum I adapted my original content for their unique business model, but the message is relevant to the marketing industry as a whole and can be customized for your vertical.  Book a slot today to get a very different perspective on where marketing budgets need to shift next:

Slide #7 from "The Future of Marketing Experience":


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