Over the past few months I’ve checked in with a number of current and past colleagues and acquaintances who work at a variety of marketing services agencies — PR, ad agencies, social-media firms, brand consultancies, etc. In addition to the usual pleasantries, our discussions could not help but touch on the state of the industry. I’ve also seen and commented on a growing critical mass of news articles and blog posts on the future of advertising and PR firms.
What has been interesting about all of this dialogue, both online and off, is one consistent theme: The business environment for ‘traditional’ agencies is changing … radically … and overnight.
“I hear death is imminent for your business model, in fact I’ve heard the industry itself might be beyond repair,” commented Kyle Flaherty, a former PR agency professional and current tech-industry marketing director (now on the ‘client side’), in a December post on his Engage in PR blog.
What is causing this ‘plague’ of Biblical proportions throughout the agency world, and how can agencies overcome this situation by preparing for the next-generation of client expectations?
The current environment is being shaped by a myriad of factors: the advent of social media; the emergence of Web 2.0/3.0 infrastructure and applications; the power shift from brand-company to customer; the slow death of traditional print/broadcast media; the increasing enterprise focus on ROI/quantitative metrics; a growing client-side demand for integrated marketing communications campaigns; Recession-era chaos inside corporate America; a disruptive technology environment; more disruptive technology … I could go on.
But this myriad of factors all boil down to a single factor: Many agencies are out of touch with their corporate clients’ current needs. Marketing is becoming more sophisticated, and its agencies need to, as well.
This reality has hit the agency world hard. In mid-December, Adweek reported that bellwether BBDO laid off approximately 5% of its 3,700+ North American staff members. It also noted that BBDO’s parent, Omnicom Group, which is a holding company for dozens of advertising and PR agency brands, “… is trimming [close to] 5 percent of its worldwide staff of 70,000.” Many of its cuts are in ‘traditional’ PR and advertising brands, while ‘digital’ and ‘interactive’ agencies are garnering increasing investment. And this follows a previous hiring freeze across the Omnicom portfolio.
“This may be the perfect storm for big agencies to find ways to transform themselves,” commented Idea Couture CEO Idris Mootee, shortly after the BBDO news, in a piece on his Innovation Playground blog titled, “Big Advertising Agencies Are Needing Bailouts Too. Bailout Is Never Any Real Solution. This Is Part Of An Industry Evolution.”
There is indeed an opportunity for the agency world to right itself and to deliver on the needs of the next generation of clients, but that requires developing the next generation of marketing services agencies.
What are the key pillars of a next-generation marketing-services agency?
I believe there are five key characteristics that will mark successful marketing agencies in the near future:
> Holistic focus on both brands and brand community: Any good athlete knows you need to keep your eye on the ball. The core objective of any agency’s set of services is to support the marketing of brands. This means that agencies need to be hyper-focused, as never before, on the impact of their programs on both brand equity and on brand revenue; moreover, agencies need to act as an extension of their clients’ organizations, giving marketers and brand managers leverage in their own effort to maintain a holistic view of their brands.
“I need an agency to create, manage and monitor our online brand, alerting me to the communications landscape every morning,” wrote Kyle Flaherty in the same blog piece cited above. “Currently I spend 2-3 hours each morning performing this function … time I would gladly transfer to your agency.”
Brands also exist at the center of brand communities — a phenomenon identified by Professor Tom O’Guinn, a marketing researcher who heads the Center for Brand and Product Management at Wisconsin. I highlighted O’Guinn’s insights and the importance of understanding brand communities as a strategic component of improving brand marketing programs in a past blog post on this site, so I won’t go into more depth here. What is important, though, is that agencies are in a unique position to help bridge what is often a highly inwardly-looking perspective of marketers and brand managers with the outside world — helping to better connect brands with their brand communities.
Thus it is important for next-generation of marketing services agencies to focus on, and ideally be the expert on, how best to connect with and engage in two-way dialogue with these brand communities. This means not only proactive engagement via promotional activities but also reactive listening and understanding that leads to key customer insights and that supports continuous evolution and growth of the brand.
> Integrated, multi-channel suite of marketing communication capabilities: The legacy of the agency world is of firms that built a practice around being an expert in the medium — advertising firms, direct marketing firms, media relations firms, etc. … you get the picture. Over time agencies have become diversified, but their diversification was always about adding additional mediums. The problem? Effective marketing communication must be medium agnostic.
Marketers must understand the combination of mediums that are most effective for reaching their target customers and brand communities; marketers must also realize this will change over time. This means that marketers need agencies that can execute campaigns across an ever-changing combination of mediums and do so in a coordinated fashion; moreover, it means that recommendations for the ‘marketing mix’ need to be driven by real client/brand needs, not agency agenda.
Tim Hurley, former managing director for PR agency Porter Novelli’s Boston office, a few years ago came to this realization, which he shared in a recent blog post:
PR should be thought of as a key part of an effective, integrated marketing strategy. However, other critical marketing functions including corporate and product positioning and messaging, awareness and lead generation, sales support, events, marketing strategy and increasingly, social media and Web marketing must be part of the mix. And it really makes no difference, whether these functions are executed in house, through an agency, or as is most often the case, through a collaborative effort between client and external resources.
This realization led Hurley to partner with Alison Moore to build what is rapidly becoming a very robust and forward-thinking integrated marketing services agency, BluePoint Venture Marketing.
Business and innovation strategist Idris Mootee, cited above, believes the large agency holding companies, such as Omnicom, Publicis and WPP, are already feeling pressure from their clients to integrate in this fashion. He discussed this in another blog piece he published a year ago in January 2008:
The Web has fueled marketers’ frustration with the lack of collaboration inside the ad holding companies that dominate the industry. Many advertisers complain that ad executives too often push agendas that will most help their own bottom lines and tend to favor certain types of media, such as TV. Advertisers want a “media-agnostic” approach, one that picks whatever medium is best for the ad campaign.
Some bigger marketers have taken matters into their own hands during the past year. Procter & Gamble, Dell and Johnson & Johnson each have tried — working with ad holding companies — to create new types of ad groups that blend different functions.
> Balance of strategic capabilities with strong tactical execution: I do not enter this third point as a ‘new’ idea as much as a reminder that this is a critical component. Agencies are often asked to manage scale campaigns while ensuring that they are executed at every point and via every channel with perfect, ‘ground-level’ tactical execution. This means that successful next-generation agencies must have a blend of talent — both communication medium experts and business/marketing/brand strategy experts — that can make sure the complete spectrum of a client’s business needs, from the highest level down to the lowest, are fully covered.
> End-to-end results measurement and closed-loop client analytics integration: “… [C]losed-loop analysis is the process of tying all aspects of your company to financial data and creating metrics,” explains JT Buser, a senior product manager with lead-generation firm Bulldog Solutions, in a post on his company’s website. “[Closed loop analysis] allows you to follow each department’s impact on each other and ultimately, gain insight into your company’s financial well-being.”
Getting to this level of closed-loop analysis is a priority for marketing organizations because it helps to tune their marketing mix and better understand how marketing investments impact both brand equity over the longer-term and brand revenues over the shorter term. Agencies, thus, must become better partners in supporting their clients’ closed-loop analysis efforts — eventually playing a key role in enabling real-time measurement and dashboards.
Moreover, the same factors that are driving marketing organizations to achieve new levels of cross-channel integration are requiring a new level of sophistication when it comes to measurement: “There is a significant movement toward integrated campaigns and the focus on development of metrics to support that integration will help you measure the overall impact of integrated campaigns and the individual components,” comments IBM executive Sandy Carter in her new book, The New Language of Marketing 2.0. (Note: We will be featuring a Q&A with Sandy about her book in an upcoming post on this blog.)
Next generation agencies must be fully integrated with their clients’ information systems and be able to supply real-time marketing performance measurement data, across mediums, directly into their clients’ closed-loop analytics platforms.
Measurement and analytics also need to be focused. I discussed in a past blog post on this site how important it is to develop a simplified and proportional ‘top-five’ group of metrics. Most marketers and brand managers are drowning in data, and as agencies become more sophisticated in their technology infrastructure (discussed below), they likely will be, as well. The key is to cut through it all and to focus — in concert with clients — on the metrics that are most important and that will allow you to assess real impact and success of marketing efforts.
> Sophisticated, underlying technology platform: Whether it is for driving execution management for integrated campaigns or it is for improving measurement and integration with closed-loop analytics platforms, a sophisticated, underlying technology platform is a critical component of next-generation marketing services agencies. In fact, technology infrastructure must be as much a priority as hiring smart people at agencies.
Some of the critical capabilities that agencies must embrace include:
- Business intelligence/analytics infrastructure – to better structure, organize and analyze the myriad of data points developed each day
- Cross-channel marketing execution management platforms – to effectively manage execution across channels and to ensure consistency of personalization to brand communities and in the representation of the brand, as well as to support measurement and data collection (Note: As I discussed in a previous blog post on this site, I am in the process of building a list of ‘top’ vendors in this emerging space.)
- Dynamic, Web-based content management/delivery expertise – especially via open source, blogging and social-media platforms such as WordPress/CSS, MySQL/PHP and now Twitter
- Enterprise-grade data centers – to operate on a truly peer level with clients and their service-level expectations
- Multi-channel ad and content serving– especially via emerging mediums such as the mobile channel, as well as better tying together online and offline advertising
- Semantic analysis of both structured and unstructured data – to better develop customer insights and to monitor brand dialogue, especially via traditional media and now new social media channels on the Web
- Web services/cloud computing orientation – to enable efficient ‘tie-ins’ to clients systems and to efficiently feed data, in real time, into closed-loop analytics platforms
What are the major barriers to the success of next-generation marketing services agencies?
What I’ve described above is certainly an ‘ideal’ world, but we hardly live in an ideal world, nor ideal times. Being realistic, I must admit there are certainly barriers to firms succeeding in the new context I’ve described above. Yet, I see these barriers more as opportunities and would suggest that firms focus on how to not only overcome them but also to make doing so help better position them for future success.
These key barriers include:
- Legacy, marketing channel-specific silos inside corporations: Agencies find their greatest success when there is a clear, demonstrated client-side champion within a company. For example, advertising agencies in the past have been able to prosper when their client is a sophisticated (and dedicated) advertising ‘department.’ As agencies move to an integrated marketing communications context — even if this is what their clients say they really want and need — they will find it difficult to sell into client organizations that have not yet organized into cross-functional, integrated teams focused on a specific brand or business unit. It’s simple: It’s a lot harder to sell to a group than to an individual. If client-side departments such as advertising, branding, direct marketing and public relations operate in silos, they will not be able to effectively engage with next-generation agencies that are organized around delivering integrated, multi-channel marketing communications, nor fully realize the critical value from them.
- Technology phobia of many agency folks: Much of the traditional leadership of agencies comes from a background rooted in either client-account management or ‘creative’ development. In fact, I would be surprised to see any critical mass of agency leadership that is actually proficient in HTML, CSS or PHP or that can talk knowledgeably about business intelligence technology. I’m not advocating that agency people be at a CIO level of technology knowledge, but they do need to be comfortable and proficient with technologies related to content management, brand tracking, marketing program execution and marketing program analysis — especially those capabilities listed above. Integrated agencies need staff members who can build next-generation technology platforms for managing and measuring integrated campaigns, both online and offline, and for better interfacing with and supporting the emerging needs of their clients.
- Ongoing issues of normalization and evolution of performance metrics: Marketing data faces two problems. First, the format of data on marketing-program performance differs wildly, depending on the medium — making it difficult to make side-by-side comparisons for an integrated campaign across multiple online and offline mediums. Second, the quality of these metrics — e.g., concepts such as ‘impressions’ — are a continuing issue. Improving end-to-end, holistic brand insight and analytics, especially from the agency’s side, requires greater normalization and evolution of performance metrics — something the marketing world continues to wrestle with.
- Figuring out how to pay for it: A key piece of the economic logic for many agencies is figuring out how to pass as much cost directly onto their clients as possible. Less agency-side cost means more profit; I get it. Yet investment in some of the pieces cited above, especially technology infrastructure, is tough to assign to the needs of any single client; thus, one might argue that could potentially cut into agency profit. This mindset may be the single greatest barrier in agencies’ evolution. What is the payoff? Survival. This is the price of admission to next-generation client opportunities; moreover, for smart agencies, it can eventually lead to labor efficiencies and rationale for changing how you bill clients … changing the economic logic. Ultimately that means agencies that can be more profitable, not less, and that are more in demand.
This the first in a two-part series of posts on next-generation marketing services agencies. On Monday, the next post will present snapshots of several, specific firms I’m watching and that I believe are representative, forward-thinking leaders in the next-generation marketing services agency world. Stay tuned for more …
What’s next? What do you think?
As always, this dialogue is just beginning.
- What are your comments on my five key pillars, above?
- Do you think this is the right direction for the agency world?
- What are specific technology capabilities you believe next-generation agencies must possess?