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The Drum

The agency model that can prevail in 2018

2017 was an annus horribilis for the holding companies. WPP has seen its largest share price fall in decades and revenues at the big six fell on average 0.3% during the second and third quarter of 2017.

This is not a short-term blip, but rather a manifestation of structural trends which, in my opinion, will only accelerate in the years ahead. In part, these challenges are linked to brands belatedly taking the ‘media transparency agenda’ seriously. This has eroded the significant income that holding companies have been generating from their media trading desks, which has underpinned their overall revenue and profit growth.

But it is also being driven by clients, especially large FMCG companies such as P&G and Unilever, embracing different communication and agency models. With the continuing shift to a more fragmented, digitally-driven world, they are increasingly recognising that an ability to deliver joined-up customer experiences is now as important as an ability to produce and deliver large-scale brand campaigns.

Much has rightly been made of the range of issues that persist around digital advertising – such as viewability, bots, click fraud and ad placement. Ultimately, however, this has not dented brands’ conviction that an appropriately conceived and executed multichannel, digital-centric strategy now provides them with a more effective and lower cost way to achieve their core objectives. They are recognising that in a digitally-led, tech-enabled world, there is no longer a need for complex rigid agency structures with teams in every operating market. Instead it is more important to have an agile team that can rapidly develop campaigns or content that can be deployed regionally, nationally or globally.

There are two different types of agencies that are benefiting from the changes in this new environment, while more traditional, global ad networks struggle:

Full-service digital and data-driven agencies

An increasing number of clients are embracing ‘performance marketing’ led strategies, leveraging these agencies’ data and programmatic skills to produce highly targeted digitally and content led campaigns. They offer the promise of an entirely personalised campaign that drives greater levels of leads and sales with minimal ad wastage.

This approach has undoubtedly produced strong returns, especially in the short term for many brands. Juniper Networks, for example, recently used automation to build a $4.5m new revenue stream in less than three months. However, it also has its pitfalls. All too often, campaigns are poorly crafted, overly focused on short-term results, and, worst still, poorly implemented. This results in consumers being chased round the web by uninspiring, irrelevant banner ads or pieces of content that provide 30 seconds of amusement, but don’t communicate any form of brand story or promise.

Creative agencies

On the other hand, even in this data-driven and increasingly automated world, the best (and more entrepreneurial) creative agencies continue to flourish. The most notable examples include Adam&Eve DDB and Lucky Generals, who have consistently shown that brands are still willing to pay a premium for real breakthrough ideas that can work across channels and over multiple years. Yet, equally, design-led agencies, such as Fjord, have flourished on the back of world-class design skills, and the emotional connection this can build with consumers in a digital environment.

This apparent divergence has led many commentators to take the view that we need to re-embrace creativity, ideas and craft, and rail against many of the advanced digital techniques that underpin so many campaigns. However, in doing so, they misrepresent the potential power of effectively deployed digital techniques, when combined with a differentiating brand idea that underpins all comms activity and the design of all customer touch points.

Instead, a key to success is bringing together the skills of both the “analyst” – helping them find ways to reach audiences and to understand the possibilities of new technologies to help deliver differentiated experiences – and the “artist” that can come up with a powerful and long-lasting brand idea and has the craft skills to weave this into all communications and across all of their customer touch points.

This in turn suggests that agencies’ future strategies should not be predicated on picking one of the two models that currently appear to offer a path to growth. Instead, it is about finding a model that weaves together these “analyst” and “artist” skills into a culture that helps create transformative, multi-disciplinary campaigns and experiences by combining the best of both sets of techniques. There are some agencies or groups, perhaps most notably RGA, that have made progress in this area but, no one has yet truly cracked it on a consistent basis.

The challenge for holding companies and large agency networks is to find a way to refashion themselves in this image. Experience suggests this will be a challenge, and it is more likely that some of the smaller, more agile groups/networks that can bring together different disciplines in a seamless fashion will emerge as the real winners in 2018 and beyond.

Peter Reid is chief executive of MSQ Partners