After long and illustrious lives, there are many who are ready to write the Global Ad Agencies’ obituary. And they do have a point - they’re facing some existential challenges, not least from the global technology giants. Richard Pook, general manager of Amplifi New Zealand, writes about the recent quarterly reporting season and demonstrates just how powerful these tech companies have become.
Google posted Q2 advertising revenue of $49 million NZD, up 21 percent year on year, while Facebook reported 28 percent growth with revenue of almost $26 billion NZD for the quarter. Those numbers are despite bad press about brand safety, privacy breaches and fake news. Compare that to results from the top five agency holding groups, which grew a handful of a percent and whose combined revenue was less than a third of Google and Facebook’s haul.
This online juggernaut shows no chance of losing steam in New Zealand either. It’s growing at close to 20 percent per year, fuelled by a self-serve model that talks the language of small business, the lifeblood of the NZ economy.
In contrast, the NZ Agency ad market has stagnated in recent years. Despite some bright spots, according to the SMI, total media agency spend has hovered around the $1 billion mark every year since 2013. New Zealand advertisers now spend nearly two-thirds of that amount on search marketing alone, and in large part without any agency involvement.
Clearly, things have changed dramatically. So, how do agencies find their place in this new world and avoid being cut out completely?
Firstly, they need to keep laser-focused on what made them great in the first place.
Agencies have a proven pedigree based on decades of real understanding of consumers. New technology companies have a mind-boggling amount of data, but agencies still have the power to generate brilliant creative ideas and media strategies that truly change the way people feel about a brand.
Platform agnostic, balanced communications planning will always be in demand. Advertisers can’t put all their eggs in one media channel basket; they need independent, experienced counsel to make optimal communications planning and buying decisions.
Agencies are melting pots of knowledge, experience and expertise. They’re fast-paced, incredibly diverse workplaces with myriad connections across industries, media, the market and the world. All this creates an environment that’s difficult to replicate anywhere else; take this expertise out of an agency and it quickly goes stale. That’s why for brands that in-house marketing and media capabilities, talent attraction and retention are cited as some of the greatest challenges they face.
Despite their strengths, which are still just as relevant to marketers today, agencies can’t just keep going to market the same way they have been. They need a radical overhaul of their business model: how they make money; how they charge for work; how they structure their services to give clients what they want.
Agencies must go beyond traditional retainer models, incorporating agile arrangements such as project and ROI pricing in order to deliver more quantifiable outcomes for clients. They need to do a much better job demonstrating the value that they bring through their core strengths, how they are helping clients build their businesses and brands; value, outcomes and outputs rather than costs and inputs. Ultimately, they must be viewed as an integrated partner for growth rather than a supplier adding to the cost base. This is a model that has worked very well for management consultancies, so why not for agencies?
Agencies also have to focus their activity in areas that are more highly desirable in the digital economy: partnering with global tech firms and their technology; reorganising themselves around their clients’ data; doing a better job of delivering integrated solutions that support digital transformation, buying, content and experiences. Clients will pay good money for all these things if they’re done right.
Making these seismic shifts is easier said than done, and it puts significant pressure on agencies to define what’s of value to clients, while boldly ditching what they have no interest in paying adequately for. But they must move away from the model of putting smart people on an account to deliver a loose range of services and deliverables and hoping for the best. They need to be much clearer about the great things that they have to offer and then disciplined enough to package and price it concisely and with confidence.
Agencies still have all the raw materials and are more than capable of building an enduring and meaningful place in this new future.
Don’t write their eulogy yet.