Johanna McDowell, managing director of the IAS, discusses what moves advertising agencies should be looking to make in these tough times.
At the first of our masterclass sessions earlier in March, we discussed the local and international market in terms of advertising agencies across all disciplines and provided some pointers to assist agencies in becoming ever more successful in their new business efforts.
To set the scene, we talked about the information that we have gleaned over the past three years in South Africa and from our international colleagues, along with the various ad forum summits that we’ve attended.
In South Africa, we estimate that there are approximately 600 agencies of all types operating across all disciplines. There could be more and we come across small operators – one-man bands – all the time.
With this proliferation of choice, how does a client make a savvy selection?
Agencies often do not differentiate themselves enough and we make this a key point in our discussions with agencies. If everyone is providing a similar product, how do you differentiate yourself? If clients have less and less time to make informed decisions, how does an agency facilitate this choice effectively?
There is no question that agency successes – be they awards won, clients won, innovative ideas well marketed – can attract clients. Human beings are drawn to successful people and companies like moths to a bright light. But what is under that light? Is it sustainable, and does the agency have a strong track record? How do they prove their success from a return on investment perspective?
Large clients will often spread their work around a number of agencies as they are unclear about the agency offering – in some instances – or they want to make sure that all their eggs are not in the same basket – as this can have dangerous consequences. Large clients will often look for safety in their choices as they have boards to report to and procurement people who need justification not only for the agency selection and contract but also for the funds spent on marketing to begin with.
Our partners in the United Kingdom, the AAR Group, posed a number of questions to agency CEOs of global agency networks regarding the outlook for 2011 and beyond and some of the answers revealed that nothing much has changed, that an economic recovery is essential in order for agencies to resume the levels of income prior to the recession and that agencies will need to continue to push for better fee structures and remuneration.
Naturally, all agency CEOs want marketing communications to be discussed more frequently in the boardrooms of their clients. Some of the CEOs asked that clients have a better understanding of the complexities of running an agency.
We hold a contrary view. Why should clients have to understand how an agency works and why costs are structured as they are? Of course this helps to understand the remuneration structure that an agency might be proposing but in the end those details can derail a relationship.
We believe that if more focus was spent on idea generation and providing real value at that level, along with the return on investment, clients and their procurement departments would find it easier to understand the role that an agency fulfills.
Asked about their biggest challenges, agency CEOs here and abroad talked about the acquisition of talent, retaining margins and technology in the production process. They also added that maintaining a balance between retainer and project client work is a challenge, along with the lack of significant new business opportunities.
Interestingly, and not surprisingly, agencies have been asked to take on more work since the recession started without necessarily any increase in remuneration. And procurement continues to play an important role, sometimes creating a barrier between client marketing departments and the agencies who serve them.
Some of the conclusions that AAR made from their research are that agencies are not investing as much time and money into their new business efforts as they used to do. There were far less media pitches during 2010 than previously and those media pitches that did take place were won on service related value adds – not only on price.
Our observations for 2011 are that clients will only be increasing their budgets with agencies if they see a real return on their investment in marketing communications and of course if economic conditions improve.
In the meantime, clients have many choices when it comes to the agency partners and we continue to stress the importance of agencies finding real ways to differentiate themselves in a highly competitive and fragmented environment.