Reading the trade press one would think the ad industry has suddenly and unexpectedly fallen on hard times.
It hasn’t. The current shake-out has been a long time coming.
Here are 5 industry features which combined to cause the collapse:
1. Miguided creativity. Many Creative Directors and their ad agencies shifted their focus and that of their staff, away from their real purpose.
They used to produce marketing communications to engage consumers, build brands and help drive sales for their clients. Now one would be forgiven for thinking that they prefer making ads for each other. Scam ads and festivals of self-congratulation have put this into sharp focus, making marketers question the professionalism and value of the industry.
Why did it happen? Ego, bad HR practices, poor leadership and forgetting the essential role advertising is supposed to fill in the marketing mix.
2. Laziness, Fear, Maybe Arrogance. Continuing to use Transmission Model thinking. ‘Brand advertising’, like 30 second TVCs. The industry failed to embrace the digital media era and become truly consumer/user centric; listening to them and letting them search for and find marketers doing the right things in the right places. Failing to be idea-focused and media-agnostic. Too many ad types tried to stick to what they were comfy with. Digital, direct, sponsorship, PR and events remained 2nd class colleagues in silos; afterthoughts to be briefed only once the Big (all too often TV) idea had been “cracked”, or were left out of the picture altogether;
3. Failing to add & track value. Trying to perpetuate an archaic revenue and overall business model with little or no value-based or performance-linked component in their remuneration. An approach where the value added is not tracked, recognized and as a result often not rewarded either.
4. Failure to invest. Take a good look at the holding company model. While there have been some benefits of size, have they improved what the ad agencies within them actually do? Not really. In fact, the holding companies have become distractions for agency management and hindrances to progressing the craft. This simply because they siphon profits from front-line companies which need the money to retain and train the best people, conduct research and pilot new techniques to add value to clients’ business (see 3. above);
5. Strategic blindness. Earlier, ad agency groups un-bundled media planning and buying from the development and creation of advertising which everyone seemed to believe was their main business. That divorced media strategy from brand communication strategy and handed over the data & analytics too.
More recently the industry failed to recognize the impact of online advertising and social media. Ad industry leaders are now under immense pressure. Digital is for them a poorly understood rod with which they are now being beaten. Added to that, marketers made major budget cuts during the downturn, reviewed their approach to marketing and are demanding real results (see Value) whilst Procurement has also become a permanent stakeholder at the table (see earlier post Creative Services & The Vicious Cycle of Procurement). All rather challenging for the old school mentality.
Here’s hope for a brighter future.
Now marketer budgets are slowly rising again. The more sophisticated ones pulled back very little anyway, knowing one cannot cost-cut one’s way to market leadership. The problem for most ad companies now will be how to gain, retain and make money on a share of that re-instated spending because the business has changed substantially.
Here are 5 ways the ad industry can make real changes to evolve into a better professional services sector.
1. Focus on adding, and invest in tracking, the value you create. Ask “how will this improve our client’s business results and how will we track how well it does that?” If you can’t prove a clear connection to improved desirability, higher perceived value or better service perceptions, or to lower costs of achieving the same or better sales and branding scores for your client, think again.
2. Return to deeply understanding the target prospects. If you know them deeply – especially their motivations, communication profiles and online behaviour – and better than your clients, you will be able to lead your clients professionally producing work which truly adds value and justifies a decent margin.
3. Charge, and get paid, for Ideas. Marketers need to pay you on the basis of the ideas you create and implement and the impact of those on their marketing KPIs. Paying you on the basis of the media spend behind your ideas is lazy and unprofessional on both sides. Yes, it has been a long standing tradition that clients get free ideas, but as both sides must finally have noticed by now, the world has changed and the old commission model is broken.
4. Embrace Procurement. Procurement is here to stay in contract negotiations, in getting paid each month and in annual or semi-annual performance reviews. Learn from it and make the most of it. Clients want results, so negotiate with them a data-based way to track your performance on appropriate KPIs and make sure they commit to providing the data needed from their side to do this. Learn, and run your own company with the same degree of attention to supplier costs, results, transparency and fat trimming or frankly, you are doomed.
5. Have fewer, better people who are better paid, better equipped and better led. Yes, there is such a thing as critical mass, but you need to be pragmatic and deal with the realities of your business. Size is not everything. Clients want leadership and service from experienced, quality people and will pay for the value they add. If you don’t have sufficiently skilled, motivated, talented people to deliver on that, you will not succeed, let alone prosper.
Get it right and you will keep the business you have, earn bonuses and better payment terms on it, win yet more business and have future clients and talented potential staff banging on your door.
OK, you may be feeling like you’re sitting in a pile of ashes. Rise from them as something a whole lot better. Good luck.