By Tim Williams
Viewing entries in
Business Models
Since the turn of this century, the “Agency of Record (AOR)” concept has died a not-so-slow death. With new channels and technologies born every day, marketers no longer have the expectation that any one agency can stay up with it all. Instead, they assign a federation of “best-in-class” resources not only to help solve marketing problems, but more importantly, to identify new opportunities.
Peruse virtually any contract between an advertising agency and its clients and you’re likely to find the language “work for hire.” Essentially this means that any work the agency produces is owned by its clients. Not only are there no contractual provisions for agencies to retain ownership of some of the intellectual property they create, there’s not even room for discussion.
If you were looking for a person to spend the rest of your life with, is it more likely you’d find him or her at a bar (where you’re likely to find a little bit of everything) or on one of the new matchmaking sites designed to pair interests and personalities? The bar hopping approach might yield the desired result – eventually – but using eHarmony or OK Cupid will get you there a lot faster, and arguably with a much better match.
Is your firm a one-stop shop? If so, you’re likely experiencing a decline in revenues and an even steeper decline in profits. Today’s sophisticated buyers of professional services don’t expect to find “all your legal needs under one roof” because they’re smart enough to know that no single firm can be good at everything.
What’s the logical way to grow your business this coming year? Expand, right? Add more lines, serve more markets? Seems like common sense. But for the most part, business strategy is not common sense.
Advertising agencies have been walking in fear of the giant tech companies like Google and Facebook ever since these disruptive new players arrived on the scene. And for years, Google and Facebook have been insisting that agencies are their business partners, not their competitors. These complicated relationship dynamics led one high-profile agency executive to famously refer to Google as a “frenemy.”
Now that most national marketers employ the services of at least a dozen or more agencies, it should be increasingly clear to the marketing services industry that there really is no such thing as an “Agency of Record.” Instead, agencies serve as specialists in a constellation of service providers, and the trend toward specialization is increasing as the marketing environment continues to grow in complexity.
How are cosmetics able to command such premium pricing? It’s not that the ingredients are expensive; their actual cost is quite minimal. Cosmetics are perhaps the ultimate example of the power of selling outcomes, because women aren’t buying the chemical compounds that comprise a powder, rouge or lipstick. They’re buying the promise of looking young and beautiful. As Revlon magnate Charles Revson once said, “We sell hope.”
What makes a great restaurant? The things that are not on the menu. The world’s most mediocre restaurants famously have virtually everything on their menus, making them average at everything and excellent at nothing.
Before the world was flattened by the personal computer and the Internet, most of the services provided by law firms, accounting firms, architectural firms, and even advertising agencies was considered to be highly specialized and valuable.
Marketing is foundational to the success of a business and is represented by some amazingly talented and experienced people. But is marketing a profession? In articles and books, I have often referred to advertising and marketing people as “professionals” and advertising agencies as “professional services firms.” I realize I’m indirectly stating my belief that marketing is – or at least should be – a profession in the same league with law, accounting, or architecture.
Today’s advertising agencies might be surprised to hear that there is just as much money being spent in marketing today as there ever was (as a percent of sales). In some categories, marketing spending has actually accelerated. It’s just that less and less of this marketing spend is making its way into the coffers of advertising agencies.
As professional service firms like advertising agencies begin to experiment more with the concept of outcome-based compensation agreements, it’s essential to understand how to measure what matters.
When major brands face a situation where low-cost competitors are stealing share, many smart companies don’t try to fight low-cost competition head on; instead they develop a second brand—a “fighter brand.” This allows the original brand to retain its customer base and its premium price.
It’s quite unsettling to look around the advertising agency industry and see that it’s populated with 50-somethings at the top, 20-somethings on the front lines, and virtually nobody in-between. So many agency leaders lament their firm's lack of “bench strength” and are worried about not having a clear second in command.
