Transformations are tough. They put organizations between the proverbial “rock and hard place.” Last month, MarTech Advisor explored the digital transformation challenges facing agenciesOpens a new window from the revenue perspective. Now as agencies embrace digital transformation, they need to understand the new challenges arising as a result and how to address them.
The digital skills gap and the ever-growing chasm between the needs of employees of different generations, consumer expectations, the technology stack and legacy infrastructure have put a downward pressure on agency revenue. At a time when there are multiple variables apart from the traditional “creativity” at play, how can agencies bring value to the table?
The Digital Disruptors
There are many examples of technology disrupting business models, from Uber to Airbnb to Dollar Shave Club, these companies have fundamentally changed how we think of traditional services. Look at Dollar Shave Club – they realized they could market using channels like YouTube and Facebook effectively by providing people value by selling razors and blades made in the same factories as Gillette, without the overheads of Gillette’s advertising. Through responsive customer service and piggybacking on the e-commerce boom, Dollar Shave Club managed to capture over 15% of the US cartridge share. Similarly, cab services that were previously expensive and unreliable have now become one of the most convenient modes of city transport.
Historically, ad agencies would manage different media channels for their clients and pool their clients’ resources to get the best deals for them. With this ‘media network’ advantage, ad formats like digital should have been a significant business opportunity for agencies. However, in reality, the proliferation of digital advertising has had quite the opposite effect. This is primarily due to:
Disintermediation by digital ad platforms like Google and Facebook
Agencies’ inability to respond adequately to data-driven marketing
How Booking.com cut out the middleman
A few years ago, Booking.com, a hotel e-commerce site owned by Priceline, worked closely with a media-buying agency to figure out where to allocate its ad budgets. “We’d have meetings where we’d sit down and say, ‘We should put this much on YouTube, this much on other sites,’ etcetera,” …. But Booking.com is about to cut out that middleman, and it could have big implications for the advertising industry. In recent months, Booking.com has hired data scientists and researchers and other digital-media-buying experts. By the end of the year, all Booking.com’s digital-media buying will be done in-house.
– Source: USC Marshall Blog
While digital advertising has witnessed exponential growth over the past couple of years, over 60% of that growth was captured by just two companies, Google and Facebook. Like traditional ad formats, a sizeable chunk of digital advertising spend is generated by agencies’ money pool, for instance, WPP spent close to $5 billion of their clients’ money with Google and over $1.7 billion with Facebook. However, with platforms like Google’s Doubleclick marketplace and Facebook’s Facebook Audience Network (FAN), it is becoming easier for advertisers to cut out the middlemen and directly interact with consumers over advertising marketplaces.
‘I Like’ has changed to ‘How many Likes?’
Brands today are increasingly focusing on data-based conversion quantification. In the past, an ad campaign was deemed “good” if a key client executive liked it, or if the campaign found favor with a focus group. The key criterion remained likeability. For ad campaigns today, quantifiable metrics such as click-throughs and total impressions have become the industry standard. Michael Farmer, Author of Madison Avenue Manslaughter, writes in his blog “Ad agencies and advertisers are victims of the belief that ‘creativity’ is the basis of their current relationships, and that ‘more creativity’ will give them more of what they need. Ad agencies have promoted ‘creativity’ since the days of Bill Bernbach, more than 50 years ago, when agencies were at the top of their game. Advertisers, as their clients, continue to hire agencies for their perceived creativity, provided costs are rock bottom. However, “creativity” is no longer delivering improved brand performance or increasing shareholder value.”
In 2017, digital advertising overtook television advertising for the first time ever in the US, and the trend is only set to grow. However, as advertisers increasingly get directly involved with digital ad buying and content creation, agencies need to up their game to stay relevant and competitive in a digitally disruptive world.
Here are 3 ways traditional agencies can embrace digital transformation:
1. Provide data-based conversion qualification:
Just focusing on the “big idea” won’t cut it anymore. Gone are the mad-men days of copy and art duos hammering out gut-feeling creatives to sell products and services. Clients today demand business results. Agencies need to help their client with how they approach technology, social media, and sales. Just as marketing teams themselves are under pressure to participate in and take accountability for lead generation and ROI tracking, so are the Agencies that traditionally worked in tandem with the marketing guys.
Global consultancies such as Accenture, McKinsey, Deloitte and the like have already begun taking on creative assignments from their clients. In the past, consultancies had focused on providing industry-specific business and management advice to brands. Now, thanks to digital disruption in the advertising space, they’ve created studios and digital agency arms meant to attract business that traditionally went to advertising agencies. The advantages that consultancies like Accenture Interactive and Deloitte Digital have over agencies include industry expertise, global consumer insights, dedicated resources that can produce large volumes of content, and a better understanding of how digital marketing can fit into an overall business strategy.
For agencies to thrive in the rapidly evolving digital ecosystem, they need to be prepared to innovate their own business model. By focusing on delivering quantifiable results, agencies can close the gap between themselves, ‘indie agencies that are more flexble and digitally savvy’, and consultancies, which have traditionally enjoyed access to a client’s senior leadership team and boardrooms.
Today’s agencies are under more pressure than ever. Pressure to prove value to clients that are tightening purse strings, working with consultants, and bringing services in house. In order to survive, agencies need to rethink how they use data. For years, data has been a reporting asset. After the agency does it’s creative work, it proves the value of that work with data. Today’s agency needs to take a more integrated approach, using data to fuel that creativity, to better understand their client’s audience, market, and opportunity, and then build campaigns that fuel the entire funnel. Technology has evolved to the point that we can track the impact of content across every channel, and connect all the way through the funnel, down to revenue. Agencies need to do the same.
– Kevin Shively, Head of Marketing at Simply Measured
2. Integrate and consolidate Creative, Media and Technology capabilities:
Brands today seek effective and quantifiable creative marketing solutions that demand media consolidation. Cross-channel, integrated or omnichannel marketing – whatever you wish to call it – is headed toward convergence. Clients have started thinking about who’s best positioned to execute their overall creative messaging in digital, and are looking for a partner that has the capability to do it all. In digital marketing, creative and media need not necessarily be two distinct concepts: often, the media can be the creative; and creatives can be custom-made for one particular media or channel, instead of generic creatives adapted to various media platforms.
Susan Marshall, Founder and CEO at Torchlite says,
Agencies have to adapt. They don’t have a choice. Marketing has become more technical than ever before and if they don’t enable their clients to successfully leverage the power of data and the growing sophistication of marketing technology, they will lose them. But to be a true partner, they need to adopt a software development mindset, and consider the needs of their clients above and beyond the current capabilities of the technology. The most powerful marketing technology vendors offer the ability to easily connect and share data between systems. Agencies need to take into account the business needs of their clients and then work with them to build and integrate a marketing technology stack that works specifically for them. Adtech is just one of those solutions. This means they need a wide range of technical and marketing talent to better serve their clients.
Although there are a lot of creative agencies trying to cope with digital and similarly, a lot of media buying companies looking to scale and automate their operations with big data and the like, there aren’t a lot of agencies that can do both well – and that’s what it will take to be effective in the digital world.
One way that Agencies have been trying to get around this challenge is to acquire several ‘indie’ digital agencies and technology startups that help them build out a full spectrum of solutions. Checking all the boxes in the list of new-age capabilities, though, doesn’t mean Agencies can actually deliver the promised digital competitive advantage to clients. Getting all these acquisitions to work in an integrated manner, to really connect the dots between each set of capabilities and deliver a seamless customer engagement solution to Clients is still far from the current reality.
Speaking about how agencies can stay relevant in the digitally turbulent times, Kevin says, “Agencies need to stay ahead of the curve, leveraging cutting-edge tactics and technologies that add to their expertise. As CMOs bring more in-house, the things they’ll look for externally are the answers they don’t have. Agencies can push the envelope and maintain expertise and tools that the in-house team doesn’t have. A data-driven strategy is something many in-house teams still struggle with, and agencies can provide a ton of value by bringing that to the table.”
3. Hire and retain the right talent:
In the early 90’s IBM was headed to insolvency – their proprietary mainframe business had nearly halved between from $13 billion in 1990 to about $7 billion in 1993 due to an industry-wide disruption caused by the advent of modern computing software. The IBM board turned to an outsider – Lou Gerstner, to lead the company. Although Gerstner had little experience in an industry that was in the midst of a seismic change, he reluctantly accepted the position. Once on board, his biggest fight was with the existing IBM culture – he understood that the existing culture was failing in the marketplace. He transformed IBM from a computer company to an integrated consulting service provider, but not before overhauling all “cultural elements” that stood in the path of change.
What about agencies today? Well, most of the agencies today are led by experienced industry insiders who have lived through the golden era of advertising and have witnessed the ravages of digital disruption. However, unlike Gerstner, they tread a fine line between continuity and change while trying to live up to the demands of a digitally driven world.
Agency leadership that will lead the transformation need strong new allies, new talent, and skills. Susan feels,“Marketing needs to take an agile approach to how they go to the market and continually iterate using the data that is at their fingertips to continually improve the overall ROI. Too many marketers are still waiting too long to analyze the results, and by the time they have the information they need to pivot — it’s too late, and too much money has been wasted.”
To find and retain the right kind of talent, agencies will need to hire for the future and invest in training. One area where consultancies have always excelled is at training and if agencies want to compete, they’ll have to do the same. How else will a legacy creative agency bring strategists, analysts, scientists and engineers to the table?
Every journey starts with a single step. Agencies embarking on the transformation path need to begin by looking inwardly to assess how they’ve responded to digital transformation so far, document and measure the impact of current strategies, develop all-around digital capabilities and then finally, step up to the plate with consolidated media offerings.
Sushman, a graduate in Communications and Journalism, learnt the ins and outs of B2B content marketing at his first job stint, where he worked closely with global thought leaders across industries including Finance, Marketing, Human Resources and Cyber Security. At MarTech Advisor, Sushman writes on cutting-edge ways organizations can harness marketing technology to drive growth. When not writing, Sushman loves his motorcycling holidays. A traveler, who has clocked nearly 50,000 miles on his motorcycle since 2014, Sushman has his eyes set on completing a cross-Asian biking expedition by 2022.
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