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Are agencies irreplaceable?

Yesterday we wrote about a new breed of competitors who are quickly adding capabilities that could potentially enable them eat into the agencies’ pie of marketing dollars.

(Read more here: Competitor alert: Agencies, are you ready?)

In this article we figure out what agencies need to do, to not only survive but also thrive in such an environment.

THE NEW AGE MARKETING AGENCY

As marketing becomes more and more of a science than art, can agencies with the current structure of operations take up this challenge or is the agency model dysfunctional?

These professional services firms such as Accenture, Deloitte and the likes have data analytics and metrics management at their core, something which other mainstream marketing agencies lack.

Apart from analytics and scale, genuine business consultancy, and strong reputations for being “serious” about business, are huge pluses for them.

On the other hand, a typical marketing agency comes across as still grappling for digital solutions and extremely cost-focused, experts say.

“It’s interesting to watch how media agencies will often have data analytics offered as an additional service to their core offering,” says Darren Woolley, managing director and founder of TrinityP3, adding that analysts and data management capabilities is what the media agencies are only just beginning to build.

“The agencies need to become more results-focused and less cost-focused,” he says.

According to Richard Bleasdale, regional managing partner at The Observatory Asia Pacific, the marketing agency industry has been trying to move “up the food chain” to regain the business-focused strategic role at the top table that it used to enjoy, but hasn’t for a long time.

This has had limited success, largely because most fail to have the depth of understanding of a marketer’s business that is required, and “focus on being ‘creative providers’ with work being bought by the metre, rather than having deep insight into a marketer’s challenges”, he says.

“It’s interesting that, with this inside knowledge, professional services firms or other tech service providers have in effect moved down the chain to eat the agencies’ lunch.”

Bleasdale suggests agencies hold on to their unique talent by offering a culture and environment that nurtures that thinking, but is based on greater business understanding and insight.

“Then they need to develop revenue models that benefit from the premium they should be able to command from their quality of insight, thinking and output.”

The emphasis is on agencies to adapt their offerings to technological changes so their business model remains relevant in the new media age of big data. This will require agencies to take a number of different actions.

“First and foremost, it means investing in technological expertise, both at the individual staff level and in terms of acquisition,” Clark says.

Agencies are already buying and building new technology platforms for trading and analytics, but they also need the understanding of this technology to permeate through the entire organisation. The traditional creative culture of the advertising business needs to develop and embrace a more analytical future, from top to bottom.

“In the age of Apple and Facebook, these two cultures are not mutually exclusive,” Clark says.

But marketing agencies have their plus points. They have that deep brand and consumer understanding, and the creative flair to generate consumer engagement and brand loyalty, which these professional services providers don’t.

Moreover, Woolley points out these services firms do not have the local relationships with the media owners and their sales teams “that create those ‘media first’ and ‘money can’t buy’ opportunities for their clients”.

But if they can crack the creative talent aspect of their offer, then they’ll be well placed to do so.

“However, this in itself is a potential mountain to climb. Great talent is attracted by agencies with great culture, reputation and historical work, not just large salaries,” Bleasdale says.

According to him, these large firms are known for – among other things – deep data and deep pockets, but not necessarily creative judgment or heritage. But if they can bring the rigour of their analytics to consumer insight, and somehow lure great creative talent, then they’re onto something.

“Overlay that with the strategic vision they possess to look across the whole business rather than just marketing, and agencies should be nervous.”

The other issue going against these professional services providers, according to Jeffrey Seah, CEO, Southeast Asia/chair for the Asia digital leadership team at Starcom MediaVest Group, is the lack of a client-servicing culture, which has always been the strength of marketing agencies, be it media or creative.

Seah raises another point – traditional media.

“While they can get some traction with clients who spend a majority of the budget in digital, they will have issues with traditional media such as print, TV and outdoor,” he says.

As such, for many companies in Asia, digital is a small portion of their overall marketing budget and for such clients, integrated marketing will always take priority over pure-play digital campaigns.

However, what goes in their favour, says Seah, is the fact they have direct relationships with the CFO because of other services such as audit or business consultancy, as opposed to a marketing agency whose first point of contact is generally the CMO.

“This generally creates the perception of them being professionals while marketing agencies being a bit more personal or distant,” he says.

ASIA UNTOUCHED?

If you think this is just a trend in the west and that Asia is untouched, think again. It is a fact most of these companies are largely US-centric, but that will change in the near future.

In July this year, Deloitte Digital launched three new studios, one of which was in Japan, marking its entry into Asia. Its team of 20 people was formed in part by the acquisition of the Nekojarashi Inc., mobile application team. Its clients include Mercedes-Benz Japan, Fred Perry, Raica and others.

Accenture Interactive recently hired Jason Chau, previously from SapientNitro China, as managing director of Greater China. Chau spent nearly 12 years with McCann WorldGroup subsidiary MRM before joining SapientNitro for two years.

While these may seem small moves initially, as Asia takes centre stage on the global economic map, these large firms are bound to tap the booming market.

Some may argue that in a relationship-driven market such as Asia, these firms may find it tough to break into the market, but what also gives them a head start are the global relationships they already boast. And that alone is a good enough entry point for them. Given such a development, it would be naïve to think this won’t affect Asia. However, this change isn’t going to happen overnight.

THE END-TO-END GAME

Nearly all of these professional services firms claim to offer end-to-end solutions to marketers and that’s a compelling proposition as far as digital is concerned. Marketers need assistance from experts who can address different challenges regarding digital, with a one-stop offering, a position marketing agencies have been trying to occupy for some time now.

These services firms come from a data and analytics standpoint, truly believing digital is the core of any business going forward and the old model of working with multiple partners from strategy to design to execution no longer works. And they are not wrong.

“Another route for marketing agencies to meet the challenge of IT services firms entering their territory is to form strategic partnerships. Why shouldn’t large advertising holding groups tie up with IBM or Accenture to develop market-leading solutions for clients that leverage both party’s particular expertise,” Clark says.

Take a quick look at this study by Gartner. It predicts by 2015, 25% of organisations will create the role of a chief digital officer as part of the business unit leadership, which will become a new seat at the executive table. Nearly 12 years ago, technology spending outside of IT was 20% of total technology spending; it will become almost 90% by the end of the decade and much of this change will be driven by the digitisation of companies’ revenue and their services.

Organisations are digitising segments of business, such as moving marketing spend from analog to digital, or digitising the research and development budget. Secondly, organisations are digitising how they service their clients to drive higher client retention. Thirdly, they are turning digitisation into new revenue streams.

Gartner analysts said this was resulting in every budget becoming an IT budget.

“To address these changes the chief digital officer will prove to be the most exciting strategic role in the decade ahead, and IT leaders have the opportunity to be the leaders who will define it,” says David Willis, vice-president and distinguished analyst at Gartner.

With so much emphasis on digital, coupled with the rise of these new age-competitors, every marketing agency should ask itself this question: Are we ready, in a real sense, to embrace this challenge?

This is the second part of the two-part story. Read the first story here. Competitor alert: Agencies, are you ready?

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