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In-house Business Models In-housing

IPA: Agencies should ‘embrace’ in-housing to remain relevant for clients

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By Sam Bradley, Journalist

July 5, 2023 | 7 min read

A new report from the trade body says internal ad agencies should not be seen as a threat and that their business model can be borrowed from.

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Look, there’s just not that many ways of visualizing houses and models / Unsplash

Ad agencies should cease viewing the brand in-housing model as a business threat and instead “embrace and respect” the practice, according to the Institute for Practitioners in Advertising (IPA).

A report published by the group, which lobbies for and advises the marketing sector in the UK, argues: “Agencies that wish to grow existing client business or unlock new business opportunities must relinquish the idea that in-housing is a threat.”

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In-housing – when an advertiser invests in an internal ad agency in order to pursue cost savings or greater creative control – is a practice that has gained momentum in recent years. Some of the largest advertisers to build up in-house units include Unilever, Three, Heinz and Frito-Lay.

Though some operations, such as The Lego Agency and Specsavers, have acquired a reputation for strong creative output, most are focused on providing production services or below-the-line material at a cheaper cost than third-party agencies, according to a recent survey by the In-House Agency Leaders Club (IHALC).

The practice usually means diverting investment away from agencies as suppliers. But the IPA’s report, released today (Wednesday, July 5), suggests agencies change their stance in light of prevalent industry trends.

Changes in media spend priority away from standalone campaigns and towards constant, brand-led messaging – an evolution suggested by recent PwC data – as well as client demand for agencies to be “integrated partners” rather than singular sources of expertise, have altered the landscape agency businesses operate in, the report argues. And as in-house units have become more mature and acquired more capabilities, advertisers are becoming less focused on their ability to deliver financial efficiency.

Christian Byron, chair of the IPA’s commercial leadership group and chief operating officer of OMD UK, said in a statement: “For agencies to ensure they remain critical players in the marketing ecosystem of the future, they must continually assess the changing requirements and indeed capabilities of their clients – so as to better deliver complementary services, expertise and essentially incremental value.”

The report concludes that agencies must consider a role closer to that of an in-housing unit in order to meet advertiser needs and “shift from being suppliers of marketing services to becoming truly integrated partners, ones with an inside-out understanding of their clients’ businesses”.

Should agencies be replicating in-house setups?

Sharon Whale, deputy global group chief executive at Oliver, tells The Drum that client demand for in-housing services is growing beyond pure efficiency: “Over the past two years in-housing has changed beyond all recognition. In the early days, it was purely about bringing cost and speed benefits to clients. The model still offers all of these advantages, but there is now much-improved performance through more sophisticated solutions. Clients seek these solutions to blend people, processes, and technology in ways that allow data, creativity, and technology to come together to drive high-performance, always-on, marketing at scale. To do that you need deep expertise and global presence, otherwise, the full benefits are nearly impossible.“

She adds that in-housing has matured to the point where it’s a necessary part of the brand arsenal, rather than a nice-to-have. “The biggest message that we can take from this report is the recognition that in-housing has evolved significantly. We are definitely in the second age of in-housing. Clients that don't have this as part of their marketing capability run the very real risk of being left behind the competition.“

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On the other hand, IHALC co-founder Patrick Burgoyne tells The Drum he’s unsure whether agencies should aim to replicate the service provided by in-house suppliers. Despite the number of brands that have invested (in 2020, Forrester estimated 72% of advertisers had done so), he notes that in-housing capabilities are unevenly distributed. ”There is huge variety among in-house agencies, with many different remits and responsibilities – each one is different according to the needs of the business. Rather than try to compete with what in-house agencies do well, agencies should concentrate on the creativity that in-house agencies can struggle to replicate.

“In our recent survey, we asked in-house leaders at 50 major brands what they value most from external agency partners: the results should be music to the ears of creative agencies. ‘Access to skills and talent’ is what in-house agencies value most from the relationship. Second is ‘a fresh perspective’ and third ‘expertise in specific sectors’ – surely all offerings that agencies would pride themselves on.

“When it comes to creative agencies, most in-house agencies view their external peers as partners with whom they want to build a collaborative relationship based on clear responsibilities and shared goals. As one in-house leader told us recently: ‘Agencies need to learn to be better friends and make a partnership with the in-house agency, with a common goal for the good of the brand. If they do this, they will thrive and succeed… otherwise in-house will take everything from them and bring in big-thinking support when it’s needed’.”

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