Wednesday, December 5, 2012

The iceberg is melting

Advertising agencies aren't paid as much as they've been paid in the past. One could easily blame the economy. Perhaps the clients are just tightening the belt. Maybe it's something that is just temporary and as soon as the numbers look better, the billings go up as well.

I don't think so.

I think there's a fundamental shift in how much clients value agencies and the output they have. The role of creative partner is simply worth less in a world that is more transparent, quicker and leaner. Actually, playing devil's advocate, one could ask "Why should I pay my agency millions for a few ideas?"

In the olden days, it was a type of insurance against bad creative - and bad business results. Surely paying the hottest shop top-dollar is the best way to ensure that our stuff sells, especially in Q4. You only had one chance to get it right. And you were ready to pay for it. You weren't going to risk your sales because you cheaped out by selecting a cheaper agency.

But that was then.

Now you can test and react quicker. You can reach customers directly with social media. The magic and mysticism of making ads has disappeared, because you now know how well it did or didn't do, by the wonder of accurate analytics. And besides, what does it matter what sort of tv commercial you make, because no-one will see it anyway. If your stuff is good, consumers will find it on their own. And share it with friends. Big brand advertising is a smaller part of people's lives in today's world. Mostly due to technology.

Are you at a digital shop and you think you're safe?

I have some bad news. You're getting screwed even worse.

Digital production, which is the bread and butter of any digital shop, is becoming a commodity. Why would I pay you millions or even hundreds of thousands of dollars to make a brand site for me, when I can get it for $8 / month from Squarespace. The tumblrs of this world are eating your lunch.

The iceberg is melting.

Everybody's business is getting smaller. What do you do? Go to higher ground, of course.

This means finding a domain of value you can easily pivot to. In my opinion there are four distinct domains of value a marketing services company can be in: awareness, retail, ownership and CRM. Essentially this means that any agency, digital or otherwise, is in the business of life-cycle management. So you have to, for example, go from selling ads (aka awareness) to focus on retail promotions and find things that directly help sell the product. Digital or otherwise. There's still value in that. And more importantly, it's immediate and measurable.

Ok, fine. But what's the best place to pivot to?

I think the most untapped potential is with the ownership part of the continuum. A great product is easier to sell than an OK one. So my guess is that agencies will more and more be in the business of helping companies tweak, pimp, shift, polish, reimagine, repackage or enhance their products to be more attractive, rather than trying to come up with great ads for an unremarkable product. Who knows, you do a good job in improving the product and you might get to do the ad too... if you're interested.

In this realm, digital will have a huge impact, as I believe that consumers don't distinguish between "real" or digital attributes of products. It's all just one and the same thing - e.g. your camera takes great photos and stores them online for free. Both attributes, digital and physical, are just part of the package.

This shift will require that agencies are better at coming up with marketable propositions, not just funny tv-scripts, quirky little apps or retro-looking advergames. This is a quantum shift in the business that we're in.

Can't wait to see what happens next.

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