In the space of two weeks the ad agency world has had 55m worth of business pinched from under its nose.
In truth, the 55m represents only two accounts, but many see the decision of Cable & Wireless Communications, followed swiftly by Legal & General, to reject ad agencies for their advertising and media accounts respectively, as evidence that above-the-line agencies can no longer take for granted that they will handle clients’ advertising.
In recent months ad agencies have been helpless and aghast, as management consultants and branding agencies have inveigled their way onto advertising pitch lists, by offering high-margin strategic advice. “Management consultants have not had a creative idea in ten years,” Kevin Roberts, boss of Saatchi & Saatchi Worldwide, said last month about the threat to ad agencies (MW June 19).
But the agencies are now even more affronted that the venerable upstarts of the marketing world – direct agencies – are taking their core business. In effect, ad agencies are being squeezed at both ends.
These are not the first advertising accounts to move to direct marketing agencies but they are the most significant.
J Walter Thompson is one of the few major league players without a significant direct marketing division. But chief executive Dominic Proctor says: “Our strategy is to broaden our skills. We are developing capabilities in direct marketing, sales promotion and consultancy in-house. Any agency that fails to recognise the threat from direct marketing is itself under threat.”
Heinz, Unilever, Safeway and the Telegraph Group are among the companies which have already diverted major portions of their marketing budget below the line.
What is changing is the profile of DM agencies themselves. Impact FCA! went as far as buying ad agency Kelly Weedon Shute last week to change its profile. It already handles some advertising for clients, including AT&T and Siemens
This month below-the-line shop Rapier Stead & Bowden, with annual ad billings of only 3.2m, was appointed as the principal agency for the 45m consumer launch of Cable & Wireless Communications (CWC). This decision came on the back of its corporate branding press and cable TV campaign, which broke in June.
The brief, following a pitch against above-the-line agencies ranging from Saatchi & Saatchi to Bartle Bogle Hegarty, is to create a major TV campaign.
The agency’s chief executive Jonathan Stead says: “It is the pragmatic attitude of DM agencies which is seducing clients. We did not go in as either an advertising or direct marketing agency – we went in as an agency with a different perspective. But our heritage as a DM agency gave us a unique position in our commitment to thinking beyond advertising.”
Ironically, CWC marketing director Ruth Blakemore, who hired Rapier Stead & Bowden, quit last week – only two weeks after making the appointment. This created speculation the account will be moved.
More remarkable still, the insurance company Legal & General hired WWAV Rapp Collins for its 10m media buying business after a pitch against The Media Centre. It previously employed up to six agencies to buy media.
So just how big a threat are these agencies to the above-the-line industry? L&G group marketing director Kate Avery believes ad agencies should be worried. She says WWAV was shortlisted not only because of an existing relationship with the insurer – the original shortlist contained other below-the-line agencies – but because it understood the customer base.
“The key reason I appointed WWAV is because I think that communication with customers is linked into what customers actually need,” says Avery. “DM agencies have the vital skills to tap into what people want to buy.”
Implicit in her comment is that other advertising and media agencies do not have those skills. However, it should be stressed that much of the media L&G buys is for direct work as it increasingly sells its products directly.
The blurring of disciplines has led to some ad agencies tapping into the benefits of direct response mechanisms to produce DRTV advertising. Ironically HHCL & Partners, one of the losers on the CWC pitch, was one of the first above-the-line agencies to collect data, through its Apple Tango ads back in 1994, which attracted over 2 million responses.
But it has taken years for many advertising agencies to realise the potential threat from the direct marketing agencies, and react. Both BMP DDB and Foote Cone & Belding have only recently announced in-house direct marketing divisions.
BMP DDB managing director Chris Cowpe says: “The lines are blurring between different marketing disciplines, but for the right reasons. There is a trend – marketing organisations are realising that the customer must be at the centre of everything they do.” He says BMP’s direct division has been set up in part to attract the below-the-line spend of existing clients.
One of the first tests for BMP’s direct operation could be the pitch for an estimated 5m below-the-line campaign for its client Vodafone, which is preparing to spend upwards of 20m on a new advertising branding campaign.
Alliance & Leicester, another ad client of BMP DDB, spends 60 to 70 per cent of its 45m annual marketing budget below the line. But head of group direct marketing Simon Knibbs thinks it unlikely that direct marketing could ever replace brand-building advertising.
Considering DM’s smart new image, it is strange that some agencies are still keen to distance themselves from their below-the-line heritage. Ogilvy & Mather Direct had one of the best names in the business but switched to Ogilvy One.
One former O&M Direct staffer says: “The change in name was a real slap in the face for the direct industry.” He says had the agency really wanted to go for integration, it would have folded the below-the-line agency into the above-the-line operation.
But Ogilvy One chairman Nigel Howlett defends the decision. “In 25 years of being called O&M Direct we have failed to convey the broader meaning of what direct is,” he says. “Research told us that people still thought it was just direct mail and mail order.”
Which raises the possibility that, if the line between direct marketing and advertising agencies continues to blur, below-the-line agencies could lose their point of difference.
Barraclough Hall Woolston Gray chief executive Simon Hall says no. “We don’t want to become just another advertising agency. We have a number of skills, such as getting people to behave in a certain way. We don’t want to become another me-too in a sector in decline.”
It is also worth noting that the industry is still centred on the traditional tools of the direct marketing trade. Of the 6bn spent on DM in the UK last year, only seven per cent went on DRTV, one per cent on radio, 14 per cent on national newspapers, 11 per cent on magazines and one per cent on outdoor.
Telemarketing, however, accounted for 21 per cent of spend, while direct mail absorbed 20 per cent, with the remainder going on new media, inserts, door to door, database marketing and the regional press, according to figures from the Direct Marketing Association.
If Rapier Stead & Bowden and WWAV Rapp Collins can prove to clients that they should be considered for other non-direct marketing activities, the DMA might have to introduce new spending categories – to include advertising and media buying.