Agencies put faith in revival strategy

Agencies put faith in revival strategy

There has been the virtual office, the boutique, the full service ad agency, the fully integrated communications agency. And any day now we can expect to see the virtually full service integrated communications agency, which will pick you up at the airport and give you discount points to redeem against your final bill.

But all are variations on a theme. Advertising agencies have, since time began, tried to reinvent themselves and what they do in the same way they have sought to invent or reinvent client brands. Often they apply inappropriate criteria.

But the ad agency world has remained remarkably static.

Until the late Eighties most full service advertising agencies were structured in the same way, with account handlers, creative and media departments to devise and sell a campaign, and a traffic department which co-ordinated the whole process. The addition of new business departments was a reflection of the high turnover in clients and planning departments – which some argue have grown in importance beyond their real significance – which were added to bring more “science” to the offer.

But the ad industry has been in a state of crisis since that time – unable to deliver what it previously promised, unsure about its effectiveness and trying to redefine its role with companies. A combination of widespread structural shifts in Western economies away from industrial production towards the service sector; a long-term crisis in consumer demand; a shift towards deregulation; and recession have all contributed to the change.

It is not meltdown time and it is not a simple restatement of the “death of the big agency” theory: but the agency world is facing another period of uncertainty. Some sources suggest annual growth in the agency market is as low as one per cent and there is general surprise that more agencies have not gone bankrupt in recent years.

In the past two years there has only been one significant UK start-up, M&C Saatchi, and that had more to do with internal politics at old Saatchi than any great desire to recreate the wheel.

“The core product that agencies are offering is becoming increasingly marginalised,” says Gareth Coombs, director of the Cambridge Strategy Centre and until April a director at McCann-Erickson. “Agencies are driven by overheads. The level of remuneration will fall and fall, the level of service will follow until agencies become less important and prestigious. They will be used to plan and execute ads and be kept out of strategic marketing, which in turn will make it impossible for them to have an input in fully integrating campaigns.”

This week’s Marketing Week agency reputations survey supports Coombs’s view. A significant minority of the marketing directors polled (26 per cent) say their agencies have less impact on marketing strategy than was previously the case. The implication is that companies are looking elsewhere, to external consultants, for strategic marketing advice – the area that many ad agencies see as providing the best future margins.

More than 40 per cent say that strategy is now filtered through non-agency advisors. And 58 per cent of those surveyed say that in terms of marketing strategy, their agencies now play more of a tactical or executional role than a strategic one.

Bob Willott, who as a partner at accountancy firm Willott Kingston Smith works for many of the top UK ad agencies, believes that regaining the role as strategic advisor is the greatest challenge for agencies. But he is not as downbeat as Coombs about their future prospects.

“The agency sector is seeing better times – clients are spending more and accounts are moving around. The better agencies are doing well. But the real success story in the year 2000 will be those agencies which regain control of the strategic marketing issues. If clients believe they are not getting the intellectual input, they will look elsewhere and fees will diminish.”

In response, more agencies have looked towards integration as the best hope of future growth. It is not new, it can be traced back to the Sixties at least, but is now seen as the way forward. One of the few recent successful cases of integration was last year’s Honda Civic campaign through Collett Dickenson Pearce. “Multinational agencies will survive in their current forms but most of the other agencies unable or unwilling to change will be buggered,” says CDP senior account director Johnny Hornby.

However, not all senior agency people are convinced: “I am under pressure to talk about integration and say it is the future because of below-the-line resources within the company. But it is not true – there is no overriding demand or clear pattern about how it will develop.”

Others admit they are offering more and more free services. “We are expanding our range of services to include sales videos, or new media information or conference materials to shore up our prices,” says J Walter Thompson managing director Stephen Carter candidly. “We are spending more and more time in areas where we literally get no credit.”

But agencies, even JWT which is again top of the agency reputations league, can only afford to do that and pick up the bill while its business is growing.

Ammirati Puris Lintas executive creative director Andrew Cracknell offers a dissenting voice, believing agencies should concentrate on doing what they do well rather than expanding into other, non-core activities. “I believed ten years ago that there would be fewer agencies by now, but in fact there are more. There are always new people wanting to redesign agency structures and agencies spend time defining differences for their clients, either real or imagined.

“So when it comes to ourselves, we say we must have a point of difference – but that only comes with the quality of the creative work. But that is never enough and we have to draw all these social, economic or political differences that don’t exist.”

It is a view echoed by Foote Cone & Belding chief executive Chris Rendel. “I don’t agree that advertising is in some sort of terrible decline. This is a very flexible industry. It always finds a place for itself.

“Advertising currency is ideas – it always has been and always will be – not pounds and pence. It’s not about building on all sorts of services and charging large amounts of money. Why, if these agencies are so integrated, are these different services’ separate profit centres fighting for budgets?”

At the root of the problem for many agencies is the fact that they are wedded to the commission system. Most admit that if faced with a client spending 10m and being asked how best to spend the money, the idea of a ten to 12 per cent commission flashes across their mind and usually stays there long enough to recommend an above-the-line campaign as opposed to below-the-line activity. That partially explains why integration is still a struggle.

The industry is poised to go through a renewed period of merger, takeover and closure. Already tight margins will be further squeezed and agencies will again be looking to reinvent themselves.

Cover Story, page 40

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