Having worked for agencies for the last 20 years (almost), from the beginning I have been struck by how absolutely broken the model is. From clients blaming you for business failures, to ego-driven management with no sense of commercial profitability, to innovative creative ideas dying under client scrutiny, to chronically dissatisfied and overworked agency staff, to the miles of red tape and admin it takes to implement even the most simplest of tasks. I have worked at large full service global agencies, independent boutique digital agencies, and small agencies serving the SME sector. And every single one was broken in some crucial aspect. With the demise of my previous agency, I have since been thinking a lot about the failures I have seen inf this industry and where we are headed.
In the early days of advertising, and even as recently as the 90’s, advertising benefitted from deep pockets and retainer models that covered multiple layers of staff and support. You look at Mad Men with very highly paid management sitting around drinking whiskey all day. Their one job was to generate cool jingles, catch phrases, and pithy ideas. The modern day advertiser watches this and thinks “as if.” But, this may not have been far from the truth, back then. One pithy catch phrase and you have millions in income that can support a full staff for years. This has changed significantly. With a crowded agency market and clients paying less and less, we are in a race to the bottom. Agencies are now doing way more for much less in a desperate attempt to retain existing business and attract new clients.
In my humble opinion, the state of the industry is worse than it has ever been before. But why? What has happened? How did we face such a significant decline in such a short amount of time. Below I have explored the top 11 issues facing the industry in 2020
In the old days, the media model was simpler, there were three main media channels and a limited amount of networks. The big media agencies had a ton of leverage to get the best costs for their client’s money as they were buying high volume. Because of this, these agencies were seeing a very high profit margin. But, not only has this changed, it has been turned on its head. It is now less about size and scale and more about targeting quality leads. With the advent of programmatic buying and the takeover of Google and Facebook, businesses are now impeded by the media agency middle man and buying from platforms directly. With this, we are seeing less need for the big media agency model as this role is being taken in house more and more.
Decline of TV advertising
Based on a report from Magna Global, TV ad sales are collapsing at a rate not seen since the Great Depression. With viewers moving toward streaming platforms such as Netflix and NowTV and increased competition from the digital advertising space, broadcast media is quickly losing ground. Also, the future of advertising will have more to do with reaching the right customer at the right time, as opposed to broadcasting to the masses. In the past, campaigns were built around the almighty TV spot. While that may still be the case for the few big budget US campaigns, it is no longer typical. The future is digital and all campaigns will be built around engaging online content.
Move towards personalised communication
At the opposite end of the spectrum of the broadcast model is personalisation, which is key to any successful marketing strategy. To resonate with consumers today, you need to know them to some extent. The key to this is collecting meaningful customer data and then knowing how to use it. But, that is much easier said than done. For many of the more traditional agencies, this would be very far from their area of expertise. While they can hire data scientists to collect the data, they need to understand how to translate this data into customised campaign efforts that meet clients needs, stay in scope, and fulfill the creativity that agencies crave to create. While it has been done successfully by some, many are still way behind the curve when it comes to creating innovative and personalised campaigns.
Failed cross-channel Integration
A recent trend in the last decade has been the need for many agencies to become full service and cross-channel. I think this makes a ton of sense. In an integrated model, the client is able to interact with one main agency as opposed to 10-12. But, one issue with integration is that the bigger the agency, the less nimble they become. Expediency goes out the window and with the large overhead from staff, often profits do as well. Also, in terms of digital as an “add-on,” I have seen agencies hire a digital department that is often underskilled (because traditional hiring managers do not know what good looks like in this space). As a result, clients are not getting the level of digital marketing consultation they deserve. The other issue I have seen with traditional agencies expanding to include digital is the lack of integration where digital is kept siloed, which defeats the whole purpose. Because of these reasons, former traditional agencies who are now “integrated,” often will offer sub-standard digital consulting solutions when compared to actual experts in the field.
The market is overcrowded
I recently read that there are approximately 250,000 marketing agencies in the UK alone. We are getting to a point where supply exceeds demand. You do not have to be a financial advisor to know that, in this scenario, rates will be driven down. This issue has been said to be a key driving force to our race to the bottom. The fallout is disastrous. Agencies are taking on new business that often cost them money as opposed to gaining profit. Project teams are inadequately staffed as agencies hire less experienced executives who are overstretched. Also, lack of project funding forces agencies to cut corners in ensuring quality assurance, innovation, and strategic thinking. And from the client perspective, recent studies suggest that they are losing more and more confidence in agencies in general.
Efficiency Issues on agency’s end
I have seen both ends of the spectrum; agencies with so much process that they strangle themselves in inertia to agencies that run around with their hair on fire to make things happen. I honestly cannot decide which is worse. But, what I can say is that both have severe repercussions when it comes to overall agency reputation and client relationships. The former prevents quick project turnarounds, impacts their ability to make crucial deadlines, and sometimes even delays an answer to a simple and direct client question. The latter often results in lack of strategy and long term thinking, sloppy work, poor client communication and project tracking, and a mismanaged scope. The answer is to have a nimble process that ensures quality output without getting in the way. From my experience, very few agencies are able to execute on that.
Agency selection based on procurement
There was a time, the good old days as some may call it, when clients selected work based on the best and smartest work presented. Back then, agency selection was marketing led and clients were looking for quality and intelligence. But, that tide is turning. Now, many clients are making decisions based on who offers the most for less. Agencies, in a move to become competitive, are taking the bate and reducing their rates and project fees to win business. As this trend continues, the profit margin for the industry as a whole will continue to shrink.
Bloated agency model
One of the key issues leading to many ad agencies of late folding is the bloated agency model. Many agencies carry with it a finance department, IT, creative, client services, HR, management, production, media, digital, strategy, and the list goes on. While this is fine if you have the income to support it, it is less fine when your business model is somewhat vulnerable like it is in advertising. Clients can walk out the door at any time and, if and when they do, this massive structure will fall. Also, with profit margins shrinking, it no longer makes sense to carry the weight of this overhead. Agencies need to look more to outsourcing based on project needs in order to alleviate the weight of the costs they carry. But, again, many have not made this shift.
Agencies are not providing added value
According to the 2018 “Up to the Light” survey conducted by DBA, 73% of clients believe their agency should be providing more added value. While clients may not always love all the creative presented to them, they are reasonable enough to know that creative is subjective and will often not hold this against an agency. What is important is a show of proactivity, understanding of their business and what they are trying to solve, and their ability to put forth innovative solutions to this problem. But, I have seen many agencies fail in this aspect. Client service, in large part, have turned to a tribe of yes men. They are focused fully on making sure the client gets what they asked for and not thinking about what they really need. Any fast food worker can take orders, clients should not have to pay good money for this, and they won’t. I have seen agencies lose accounts and ultimately close for this very reason.
Inability to prove ROI
One thing that I have not seen executed at all in any meaningful way by an agency is ROI. In fairness though, calculating ROI from traditional channels would be quite hard as it is impossible to assess attribution. The best way to prove the success of a traditional ad such as a TV is by consumer research data. And, even then, just because people like an ad or say they would buy a product based on the ad, does not mean they would. I find this type of qualitative data very flawed. People often do not do what they say they will do, they often speak about themselves in an aspirational way, which has very little to do with the reality of their behaviours. This aspect makes it hard for clients to understand how traditional advertisers are impacting their sales funnel and bottom line. But, of course, from a digital perspective, we can look at quantitative data based on customer actions already taken. While this is much more measurable and meaningful, most agencies do not focus their energy on these analysis.
The decline of the retainer model
While one of the last on this list, this is not in any way least, it may very well be one of the top reasons. The dying retainer model is key to changing the profitability model for most ad agencies. Retainers are guaranteed income by which you can plan staffing needs and confidently assess profit margins. With payment moving toward project-based, it is becoming difficult for agencies to plan for guaranteed revenue more than a quarter ahead. Without retainers, agencies cannot and should not pay yearly salaries, as they don’t have one. This is why again, many agencies should be thinking about engaging highly skilled freelancers and partner agecies based on projects that have been secured.
Content is king
Back in the day, most major brands would plan two big campaigns a year. These campaigns would revolve around a big TV spot, some radio, and some print. But, as previously noted, those days are long gone. We have seen a shift in the last 20 years from big campaign ideas that revolve around TV to the need for digital amplification. And in the last few years, this digital amplification has come to be centered around quality content. Every day, we watch more than 100 million hours of Facebook video content alone, and there are over 800 million people looking at Instagram stories. As a result, as opposed to cenring on this one big idea, there is a need for varied creativity and engaging ideas to allow for this constant and consistent digital consumption. needs to be constantly developed in order to keep audiences engaged. Few agencies are built for this type of ongoing content production. And, more and more, big brands like Red Bull and Pepsi are building brand content studios in house.
So, you may be thinking, if the agency model is so flawed, why did you just launch a new one? That is a very good question. The decline of the industry has saddened me as of late as I have, like it or not, dedicated almost half my life to it. And I am not ready to give up, or at least would like to go out swinging. For MR Digital, we are looking to play the role of strategic partner for our fellow agency colleagues. We are focused on digital optimisation through SEO, Content Marketing, PPC, social media marketing, and overall digital consulting only. All of our recommendations are strategic led and research based. We are committed to not carrying large overheads and we will not execute on projects outside of our area of expertise. We do not wait for clients are partners to tell us what to do, we conduct analysis and offer expert opinions. We are looking to right the wrongs of agencies past. We are looking to build a strong network of strategic agency partners who together form a strong integrated network that can support any client’s needs. And we are looking to do good work at competitive market rates and still make a decent profit through reduced overheads and project efficiencies.
Well, that is the dream anyway...