Financial headlines are not good.
The headlines with WPP quarterly like-for-like net sales growth falling, causing the sector including Interpublic and Omnicom to fall also, indicates as commentators are noting, that the advertising sector is not growing.
@Avi_Dan, a consultant has written a piece for Forbes noting that the sector “focus has been on acquisitions … and … the emphasis in client/agency relations [shifting] from creativity and service to finance”.
The result has been that “relationships [have become the new] commodity and relationships these are becoming frayed, so “agencies [are becoming] less competitive” because of this significant change from the big idea to hours on time sheets.
The sector profitability is reducing and the recent Report from The ANA Production Transparency Task Force (August 2017) highlighted that there are “transparency issues … in the production ecosystem” concluding:
- Transparency concerns exist at multiple agencies and holding companies
- The use of agency in-house production resources is not always transparent to the advertiser
- Production business processes … is sometimes dysfunctional and conflicted because the buyer can also be the seller of the services
- [The] non-transparent agency-controlled bidding can lead to [a] … the financial impact to marketers [that] can be significant
- Where non-transparent practices exist… [it] may jeopardise … competitors in the … ecosystem
- The … system is often not transparent … and therefore advertisers may not be receiving the financial benefits they are due
The result is agencies being forced to undercut competitive bids during the procurement process to win the business on price, and agency margins – and sector margins – being reduced further.
The word “procurement” may strike fear into the hearts of agencies,
but … with understanding and an inclusive approach, you can
make procurement work for you
I’ve written previously on how agencies should proactively develop a relationship with the client Procurement team. Contracts, standards and best practice, and margins are and will be on the agenda going forward.
Chris Ross @chrisrosscmo followed up the Forbes piece on Gartner, noting that agencies are selected because of the four very specific offerings clients/brand require:
“There is no agency business. There is an expertise, capacity, perspective, geography business. These are the core agency services”. Whilst not all these can be addressed by all agencies – especially geography – agencies should have … “must have clear stories about how you support those areas better or differently than other options”.
And I’ve written previously about agency size not being the issue – collaboration is – so the article also points out that “playing nice with others [should be] a priority and differentiator” as collaborative agencies can “end up getting a larger role in the business”.
That said, the article goes on to mention what I term the ever-changing agency landscape: with “a host of players are all in your house now … [with] … new competitors [so] and need to be prepared”.
My take is for an agency CEO is to look at the past, look at the funnel, and consider the future. For the agency, three things:
- What is working now – and how does that team sustain, protect and create for the future? Can we create IP?
- What has worked in the past that has since been overlooked – what (likely) small number of activities can we re-engineer for today and tomorrow?
- Remove the internal perceptions that tie the agency down – being big/small, worrying about protection against collaboration, worrying about new entrants into the space. There is a new market model: change now, today and be ready for tomorrow.
He is Founding Partner at Metropolis Partners