The Advertising Agency Model, New Business, Pitches and CMO’s

displayOnce again some great data on what CMO’s think about advertising agencies and the pitch process from pitch consultant Avi Dan. Head over to Forbes to see the article, “What are 10 great ad agencies of 2013 according to CMO’s?”

Avi conducted an online survey in November, 2013 with 1,850 CMO’s to determine their ranking of leading advertising agencies and to get insights into their views on what it takes to win a pitch. While its nice to see my hometown boy Wieden + Kennedy be ranked as the best agency, I don’t find this information that useful. Maybe it is to a top 100 brand but it isn’t to the other 10,000+ clients out there or the other 4,000 agencies.

What is of great interest to virtually any agency is what the CMO’s think is important to the success of their business and agency relationships and what they think of the pitch process. Here are some of the highlights:

The Advertising Agency and Integrated Marketing

Integrated marketing communications is a significant hot button for the CMO’s. I am not surprised as agencies now have to juggle multiple advertising methods across traditional media, online and mobile platforms. Twitter alone is continuously launching new advertising options. The concept of “integrated marketing” has been around since the 1990’s. However, delivering on integration is getting harder everyday with the birth of every new advertising technology startup.

Still, it was astonishing to see that 68% of the respondents put integrated marketing communications ahead of “effective advertising” (65%), when they were asked what the most important thing is that they want from an agency. Integration is also among the top reasons that marketers dismiss an agency and look for a new one, and it is a pivotal factor in selecting a particular agency in a pitch.

Why is an agency’s skill at integrated marketing communications so important to marketers?

The answer has to do with the pressure that CMOs face in a rapidly changing environment. When asked how their job has changed, most, or 54%, point to the fact that marketing is becoming more complex due to the explosion of communication channel options that is making their job more challenging. An agency partner that can integrate messages holistically across channel is at a premium.

Accountability

Its also not surprising that accountability is another key issue for CMO’s. Since we all know that only 50% of an advertising budget is effective, it shouldn’t be surprising that knowing which half is working, or not, continues to drive trust in an advertising agency’s effectiveness.

This is among the top facets of the client/agency relationship and 53% identified it as a key area of concern. This should be worrisome to agencies, as most have no clear framework, methodology or process for dealing with the accountability issue. One CMO summarized it by commenting: “For years agencies weren’t accountable. Now they are and the model is crumbling. Advertising that doesn’t drive business will lead to a quick end to the ad budget and perhaps the agency as well.”

The Agency Model and Efficiency

Avi points out that clients might have begun to realize that cutting fees does not necessarily increase overall efficiency. In fact, as an ex agency owner, simply reducing an agency’s ability to earn a reasonable profit will more than likely result in lower efficiency. Its nice to see that the CMO’s recognize that they are a part of the problem solution.

In a shift from a decade-long practice of putting pressure on agencies to cut their fees, 62% of marketers now believe that the most prudent way to manage the economics of their agency relationships is improving the efficiency of agency operations.

But efficiency is not a one-way street. A third of all clients report that they manage over 50 agencies, and 22% have a roster of over 100 agencies. Rosters of this size can be hard to manage, no matter how big the client is.

For their part, marketers recognize that they can make improvements by writing better briefs (74%) and getting senior client management involved in projects earlier (52%).

The Agency Model

Given the fast pace of change in the marketing universe, CMO’s are paying close attention to how their agencies are integrating new technologies and marketing tools into their business models. The pace of change in marketing communications and how consumers consume media is breathtaking.

When asked to pick up a statement that best describes how traditional agencies are adapting to the Digital Age, 48% say that agencies “[Are] struggling to transition their business models,” while another 26% say that agencies “Are acquiring assets, but are having difficulty integrating digital capabilities.” In other words, almost three-quarters of the marketers are not impressed by the way traditional agencies are transforming themselves to adopt digital marketing capabilities. A typical comment from a respondent was, “I think they have given up adapting and are laying low. I see very little interest in changing.”

The Client Model

Importantly, Avi points out that advertising agencies are not alone in having a slow response to the shifts in consumer behavior.

But marketers too are slow to adapt. While people spend more than 30% of their time online, 60% of marketers allocate less than 20% of their budget to digital, and 19%, allocate less than 10% to it.

The New Business Pitch

Of great interest to agency CEO’s and business development directors, the survey also addressed CMO’s views on the pitch process. Again, I am not sure that the world has changed much. Chemistry and the perception of having ineffective creative have always been the reason for divorce.

When asked what typically precipitates an agency change, three key issues emerge, “Dissatisfaction with creative work” (57%), “Change in marketing leadership” (53%), and “Lack of ability to deliver an integrated approach” (48%).

Asked what is the most important consideration when selecting an agency, 68% point to “Chemistry” with the proposed agency team; 62% decide based on “The belief that the creative presented is likely to be a Big Idea,” while 56% point to an agency’s ability to manage messages across channels as the key consideration.

Same Old Same Old

What goes around goes around. I have been hearing how important the team that actually works on a client’s business is since I worked at Saatchi & Saatchi and had to balance our saying that we were the world’s largest agency with the understanding that only a few agency employees will ever interact with the client.

To this point, Avi (who also worked at selling the wonderful world of Saatchi) points out that clients are more interested in people than mastheads. I am not sure that this is big news but it might be a harbinger that more clients might shift from multinationals to mid-sized agencies. However, we have been hearing about this impending shift for 20+ years. My take is that the big brands, especially the multi-national brands, still think that they need a big agency with lots of offices. I also suspect that it is way easier for a CMO to sell BIG to their CEO, CFO and boards. Remember the rather old saying… “No one ever got fired for hiring IBM.”

As pressures mount, relationships are fraying. A prominent CMO voiced a dire warning, “Agency masthead doesn’t matter. It’s the team of three or four people that makes the difference. Everybody has a hub-and-spoke wheel, everybody has proprietary insights, and everybody has an angle. Who has accountability? It is an industry that is a few short years away from crashing on itself. It is boxing – very shortly a mixed martial arts model is going to come along and, like boxing, ad agencies will largely become irrelevant.”

Finally, I have to, again, agree with Avi’s last point about agencies changing with the times. Frankly, they have no choice. “And yet, if agencies embrace what’s coming rather than preserve what’s been, it does not have to be that bleak.”

g9510.20_Millennials.CoverOne reason that I have faith in the business is that we are seeing a new generation of agency leaders that act like they are startups and are on Adderall. Here are some thoughts on our Millennial future from a Talent Zoo interview I did with the 4A’s Michael Donahue.

Don’t miss any of my brilliant (LOL, but I mean it) thoughts on new business.

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