The agency business model; time to adapt or die
Bloated structures and business models that reflect their own interests and not those of their clients mean one thing; it's time for agencies to adapt or die. Clive Armitage writes
The recent slew of disappointing Agency holding company results has led to much debate about what's driving the apparent widespread slowdown in agency growth.
Now, I’ve seen lots of excuses thrown out there as the holding company CEOs desperately try and create a narrative which explains their business’ lacklustre performance; everything from a new trend of clients taking their business inhouse through to the perennial bad news excuse of ‘uncertainty around Brexit’. Puh-leaaassse.
But here’s the thing, as I read through the analysis, nobody seems able to show any overall agency malaise is down to clients reducing their marketing spend. Why? Because, quite simply, clients aren’t reducing their marketing spend.
Instead, they're getting savvy and are asking – very reasonably IMHO – for greater transparency and measurement on their spend. As P&G chief brand officer, Marc Pritchard said at a recent event: “It’s time to disrupt this archaic Mad Men model.”
The language of the CMOs I talk to has most definitely changed over the last few years; if I were to create one of the Word Clouds most beloved of digital marketers back in the last decade, the dominant words today would be ‘agile’, ‘predictive’, ‘outcome’, ‘sales’, and yes, ‘revenue’. This has shifted from previous language which was biased towards ‘creative’, ‘brand’, ‘reputation’ or ‘awareness’.
Marketing expected to deliver more business value than ever before
I’m not suggesting these words have disappeared from the CMO lexicon but rather that, as the sales and marketing function has converged (anyone heard of the CRO?), the demand on marketing to better support and drive core commercials for the business has ratcheted up.
Let’s cut to the chase; marketing today has one main objective; help a business sell more stuff. Anything else that it achieves is nice, but it’s supplementary to that goal.
Addicted to the ‘big creative idea’, the ‘buy as much online inventory as the client will pay for’ and the ‘bill by hours’ mentality, the large marketing groups have been slow to adapt to this change.
They're struggling for meaningful growth as a result. All is not lost though. By listening to the voice of the customer (like, really listening), the opportunity to grab client budgets remains a big one. But it’s going to require a fundamental shift in attitudes and business models for many agencies.
Think about it in this way – when a CMO asks you to be ‘agile’, how exactly are you going to do that? When a CMO asks you to help with the predictability of their campaign, how are you going to do that? Or when a CMO asks you to demonstrate ROI on your use of their budget, how are you going to do that? If you can’t answer those questions with concrete certainty, you may not quite be toast but you’re not likely to get that budget approval you crave, much longer.
Marketing can no longer ignore technology
How can agencies respond to the challenges that face them? Well, there are too many to list here, but there's one very simple thing every agency must do (which I’ll humbly explain now).
And that is, to meet client expectations today, agencies must wholeheartedly embrace the role technology now plays in the marketing process.
Quite simply, agencies must be able to truly meld innovative data and technology products with smart, creative people to produce work customers can confidently invest in, knowing that their budget spend will deliver commensurate commercial impact.
In short, agencies must stop being just ‘people’ businesses and become hybrid businesses where technology and people intertwine. There's no choice in this matter; it's an existential question when considering the future of the marketing agency.
The opportunities are limitless
The good news for agencies is that the martech landscape is huge; there are literally thousands of products out there that can help deliver great solutions for customers.
The opportunity to adopt much of this innovation (or even if you want to be really differentiated, build your own inhouse) and combine it with great, creative campaign execution is a significant one.
And, if agencies get it right, maybe this time next year we won’t see quite so many agency-holding CEOs frantically trying to justify why their businesses are going nowhere fast.