The world’s largest advertising holding company, WPP, slashed its growth forecast for the second time this year amid lower spending by clients. The London based firm singled out ad spending on FMCG products coming under severe pressure. WPP CEO, Martin Sorrell cited a “trifecta of digital disruption, zero-based budgeting and active investors†that is pressuring ad spending from major clients in particular. Advertising companies worldwide are being hit as big clients are pulling out to cope with sluggish global economic growth and technological disruption.
For the first time since the 2009 recession that sent the industry into a downward spiral, advertising’s big four – WPP, Publicis, Omnicom and Interpublic Group – is stalling.
So, is it time that agencies rethink their business model. Shape up to adapt to the marketing world’s digital transformation or ship out!
A major shift in advertising has come about with the consumption patterns changing in a digital world, where users are on multiple devices and operate in an omnichannel world. Digital has transformed marketing as we know it. Agencies, whose largest constituency was marketing departments, now need to realign themselves to the changing needs of the end consumer and their own Clients to stay relevant and not get relegated to only being the ‘creative’ partner. In fact, even the definition of ‘creative’ is transforming. It is no longer a one to many, one-way advertisement but an omnichannel delivery of a conversation, and engagement and experience. This needs new approaches, new technical skills, and new analytical and data marketing skills than ever before.
As such, the major chunk of advertising revenue that comes from TV and print has been on a downward spiral since 2011. Speaking about the WPP announcement, Paul Vincent, CEO at Neuranet and Founder of Flextime said,
Unfortunately, the WPP revenue challenges are likely to be a theme across the industry especially for agencies that have previously generated significant revenue streams from TV advertising. It’s time for an urgent and extensive rethink of the end-to-end Agency Model that focuses on digital, embraces productivity, and optimizes responsibilities between agencies and clients in a way that maximizes the value that they each provide.Â
Clearly, the advertising world needs to accept the adtech and programmatic space as a reality today at an accelerated pace.
So, how do agencies mold themselves to serve their clients’ need to build customer loyalty in such a disruptive environment?
How does an agency stay ahead of the curve in a time when ‘advertising’ in its traditional form is considered uncool?
In a recent event, Marc Pritchard, the Chief Brand Officer of Procter & Gamble, the world’s largest FMCG advertiser, put forth a fundamental problem with advertising today – people don’t want to watch ads anymore, especially on social media. Pritchard points out that the average digital ad viewingOpens a new window (Click on the link to read about, dmexco ’17 a key event for the digital advertising industry) time still sits at a meager 1.7 seconds, with only 20% of ads being viewed for more than 2 seconds. He singled this out as a reason for lower sales growth for advertising agencies despite the $200 billion in digital and $600 billion in broader marketing spending.
Considering this dismal consumption of ads, it is becoming exceedingly difficult for agencies to chart an evolutionary business model course.
Knowing this, agencies today, need to ask themselves – how can they build consumer-brand relationships that go beyond transactional? What experiences are modern consumers looking for?
One way we have seen several large Agency groups keep their head above water is to grow by acquisitions. Several independent ‘digital’ agencies have been acquired by ‘mainstream’ agencies to boost their in-house digital capabilities in a very short time. Unfortunately, digital is hardly an add-on service anymore – it is as mainstream as traditional advertising itself – at least in developed markets. So, what more can Agencies do than just check the box on offering ‘digital services and solutions’ to keep pace with their rapidly evolving Clients and end consumers?
To survive in the current ecosystem, agencies need to acknowledge and work on some ground realities.
The Evolving Customer
The driving factor for the seismic shift taking place within the advertising industry is the consumer. Consumers – both end-users and business buyers are evolving their media consumption habits rather quickly… And, there is no doubt that this disruption will not diminish anytime soon.
The proliferation of social media and digital marketing have changed the dynamics of commercial messaging. New media avenues have paved the way for opportunities that never existed before – programmatic advertising is offering limitless choices and flexibility related to placement, timing, and format of ads and led to multiple layers of complexity. Consumers increasingly choose to receive the commercial messages they want and which they find helpful, and native advertising is often the preferred form for receiving content for them. Savvy consumers expect brands to personalize communication and messages – sending them messages that do not fit their needs, interests or lifestyles eventually erodes their respect for the brand. But this needs equal parts strategy, creativity, and technology.
But these new equations need to also come packaged with flexibility and speed.
So how can agencies bring their skill sets to their Client and consumers new world?
Agility
The traditional agency model was built upon revenue generation based on media placement. That model today has been overhauled with the advent of the self-serve demand and supply-side platforms that allow marketing teams of brands to deploy programmatic media buying for their campaigns. The only way agencies can harmoniously fit into this changed reality is by being a strategic partner to a brand’s needs and take on an agile marketing approach that takes shorter turnaround times to adapt data insights and works on quicker workarounds for campaign success.
Data-driven approach
While agency leadership may rue the fact that creativity isn’t as valued as it once was, the only difference today is the power of a creative idea needs to be backed by data. After Google and Facebook initiated the ease of accessing data from ad campaigns, marketers are now powered to bring science to the art and creativity in advertisingOpens a new window  (Click on the link to read how AI-powered Content Marketing will be a Game-changer) While traditional advertising focused on raising awareness through creative campaigns, agencies today need to help marketing teams to develop deep, meaningful insights from their data to deliver great customer experiences and drive purchase behavior.
Faster, well-tested campaign execution will ensure continuous performance optimization, making it a win-win for both brands and agencies. Accepting data, insights, and analytics as today’s method and madness for marketers can help advertisers move beyond instinct and a “this is how we’ve always done it†attitude.
If you can’t beat ‘em, join ‘em
Digital disruption maybe just one end of the spectrum that agencies need to embrace and adapt to. While being open to digital transformation is the way forward, what agencies cannot afford to ignore are the media and technology giants that are making it easier to operationalize end-to-end marketing initiatives, almost obliterating the need for an Advertising Agency. Take for example Cannes 2017, the biggest outing for the advertising world, which was earlier dominated by advertising stalwarts, today has swanky product launches and tech luncheons by the high rollers of Silicon Valley. Agencies would do well then, to partner with these counterparts to facilitate brands to bring more work to them and thrive in the digital economy today.Â
Think Consumer First
At a time when consumer choices are unpredictable, the one fact that agencies can control is designing strategies that focus on delivering great experiences rather than mere selling tactics. The constant barrage of messages that a consumer comes across on multiple channels every day only confounds their buying decisions. Shar VanBoskirk, VP and Principal Analyst at Forrester note that “Today, 86 percent of all marketing investments go toward advertising when…consumers distrust ads and…creating relevant experiences across the customer lifecycle is a better approach for engagement.†With the wealth of data available to advertisers today, it is important that they leverage these people-based insights to drive hyper-personalized, immersive and real-time consumer experiences
Zeroing in on benefits over banter
While the past decade has been about developing content in the social channels to humanize brands and bring visibility, the next decade will be about advertisers conveying benefits to the consumer. Too many advertisers confuse their messaging to emphasize features over utility. The two are not the same. Creating utility for consumers will drive them to use a product or service on their own accord, they might even pay for it! The bonus for advertisers will be creating something that the consumers can’t live without and the appreciation and attachment that comes from it.
Becoming technology partners
As agencies look to expand their capabilities, they simply can’t afford to ignore the role of technology in the digital world. Agencies must evolve as technology partners for their clients, from recommending third-party tools to integrating their own tech stack to fill in the gaps that the brands have. Ultimately, agencies need to become the glue that holds multiple technology platforms together to serve the clients and consumers at the same time.
The advertising industry is amid its biggest evolution to date. Forward-thinking agencies are moving aggressively to build customer-centric, technology-driven organizations that are competing more effectively. Is your agency ready?