DW: I think on a weekend and at an event like this, designed to recognise and acknowledge creativity, it is worthwhile taking some time to consider the value of creativity in our industry.
You will often read and hear marketers talk about how they value the big idea, or how important the creative idea is to their marketing, but you have to wonder is this simply lip service or do they really value it.
Their behaviour suggests that they don’t.
If you believe that the value of anything is what somebody is willing to pay for it, then consider this:
When you look at the spend by marketers with their content producing agencies, then the actual amount that is allocated for creating the ‘big idea’ is between 5% – 7%. The rest of the spend is for account management, administration and production. But the fee component for conceptualisation is just 5% – 7%.
If you include media spend into the mix than the percentage drops to less than 1%.
Albert Einstein said “Genius is 1% inspiration. 99% perspiration.”
But it appears marketers are willing to pay for your perspiration. But not a cent more for your inspiration.
Less than one cent in every marketing communications dollar spent is on creating the big idea.
And yet here we are, a room full of people taking two days to consider, reflect discuss and celebrate the importance of creativity in advertising and marketing.
I am not saying that creativity isn’t important. It is. It just it appears to have no value in financial terms for marketers.
But in the words of the late great Professor Julius Sumner Miller, “Why is this so?”
It is easy to lay the blame at the feet of procurement people and consultants like myself, and I know that many of you do. But this problem has existed from the very earliest days of advertising. Well before procurement and consultants even existed.
You see, in the mid eighteen hundreds when the Commodore J. Walter Thompson and his cronies in the US came up with the idea of offering advertising content it was simply as a way to help sell more media space.
The cost of the creative was built into the media commission and service fee. It wasn’t valued then and nothing has changed. The skills of the copywriter and art director where simply applied to encourage advertisers to buy more media. The more media they bought the more money the agency made.
No one was actually paying for creative, it just came with the media buy.
Is it any wonder as we watch Mad Men today many in the industry, marketers and agencies alike, look back on those days fondly?
In many ways they were the halcyon days of the industry and I am sure there are still a few old timers around that can tell tall tales about the excess of those times. Like the art director who would cast models in his size so he could keep the Amarni wardrobe or the television producer who furnished their holiday home with shoot props.
But then almost 20 years ago there was a fundamental change in this country and one that is continuing to spread around the globe. With a move away from media based advertising and a desire by management for marketing to be more accountable, pressure was applied to the media commission model and accreditation was disbanded.
In this country the AANA, led by Bob Miller from Toyota and Robert Koltai from Colgate Palmolive, successful moved to dismantle the system that had successfully held for so many years. A move that I believe Bob Miller now regrets.
Don’t be mistaken, I am not advocating the media commission system as the ideal. It’s clear its time had come as is proven time and again as we assist marketers in other markets go through the same transition.
At the time, advertising agencies fought the change, much like King Canute the Great trying to hold back the tide. Rather than resisting, a much smart strategy would have been to develop a better model. Instead, as in most markets, they let a model “evolve” under market forces.
So here we are today with the resource cost based model that has become the most common remuneration model around the world.
This is the best an industry full of creative intellectuals, both marketers and agencies, could come up with.
It is the same methodology that is used for accountants, lawyers and other professional services.
In fact here is a riddle for you.
Q: What does a lawyer, accountant and creative director have in common?
A: Well the lawyer and account would like to think they are creative, but the answer is you can get one of them for less than 500 bucks an hour.
Okay, not funny huh?
What about this one?
Q: What does a film producer, music composer, author and creative director have in common?
A: Well they all think they are creative but only the creative director gets prostituted out by the hour.
Hmmm. I can see you are a tough crowd.
All right try this one.
Q: What is the difference between a merchant banker and a creative director?
A: Well both use creative thinking to create potentially millions of dollars in value for their clients, but only the merchant banker gets to share in the wealth he creates.
I agree, it is not funny.
But it is true.
As an industry the best model we have come up with for being rewarded is based on cost, not our value.
At this point people are starting to think that it is not the agencies fault alone. And you are right.
Marketers are as complicit in this travesty as the agencies.
They have their budget and in lieu of getting more budget, they want to get more stuff done for that budget. So if an agency is willing to do more for less then why should the marketer reject this?
And you see, this is the next thing wrong with the current remuneration model. It is based on volume, not quality or value.
The more the marketer does, the more they spend, the more their agencies make. It was definitely like that with the media commission system and it is just the same now.
If a marketer does more campaigns across more channels then the agency level of resources used increases and therefore the agency can justify charging a high fee.
If the marketer buys more media across more channels then the agency resources used to plan and spend that media goes up and so the agency can justify a high fee.
It is a symbiotic relationship between marketers and their agencies because deep down many marketers still believe that success is linked to volume. The more they do the more likely they are to be successful, or at least justify their position on the basis of volume of activity because often it is just too hard to justify it on the basis of financial success.
The fly in the ointment here is that ten years ago the average person was seeing 1500 commercial messages a day and today that is reported to have doubled. The biggest issue facing marketers today is clutter. Yet we have a remuneration model that encourages volume.
There is a quote in Marty Nuemeier’s book Zag that goes “Fighting clutter with more clutter is like trying to put out a fire with gasoline”.
Of course, for marketers who have established a direct relationship between their advertising activity and their core business driving metrics, the situation is different.
They could use these metrics to shape the execution of the creative concept to drive increased returns and possibly reward the agency with a share of the business value they create. But then why would any marketer do that when the agency is willing to do the same work for an hourly rate or fixed fee or worse, a discounted fee.
Now a volume based remuneration arrangement may work between marketers and agencies but it doesn’t work when you get to the CEO and the CFO, who interestingly are the people who unleased procurement onto marketing.
Procurement started looking at marketing to see if there was a way to drive efficiencies and drive down costs without impacting on effectiveness. But when they get there, in most cases they can’t find a substantiated measure of effectiveness. A fundamental failing of many marketers has been to spend the budget rather than invest it. This leads them to focus on cost and not value.
It is any wonder that ROI and effectiveness awards have become the favour of our times.
Without proof of effectiveness, procurement look on the agency cost as just that, a cost. And in business if you are not adding to the top line, you are taking away from the bottom line and so need to be minimised.
Advertising agencies have been under the pressure of a cost reduction process for at least the past 5 years and it will get potentially worse before it gets better, if ever.
Ironically some agencies responded in the worst way possible, by reinforcing the perception that they were over charging by heavily discounting as a strategy to win business.
The problem is that this behaviour, especially in the pitch process, simply reinforces the perception with marketers and procurement that the agency is over-charging. It also creates an expectation that there are more reductions to be had.
In one case the agencies provided proposals 30% below our benchmark level which led the marketers to question the validity of our benchmarks and the procurement lead to say “If they’ll go that low up front, then a little pressure and we will get it for half the price”.
And interestingly where did most agencies discount?
Well let’s just say, old habits die-hard. The main area of discount is the retainers – you guys and your account managers. We regularly hear about agencies heavily discounting overhead and profit multiple in new business while wanting to maintain sustainable levels for their existing clients. Or agencies offering to provide resources such as senior strategy, management and creative resources for free.
Give away the ideas and the thinking and hope like hell you make it up in the production fees because procurement are not around when you are making the ads. They do the deal and move on.
But here is the kicker.
Overseas, production efficiency is the focus of procurement. It is seen largely as a manufacturing process to be outsourced or off-shored to lower cost markets. And many agency networks are responding.
Seeing this trend and realising that they will ultimately lose the margins they make in their production services, there are several companies establishing print and digital production facilities in India, China, Central and South America and Eastern Europe, offering their clients low cost volume based discounts. In one case a marketer told me that they can get artwork from around one dollar US under the deals provided, which would cost more than several hundred dollars in Australia.
Where does this leave agencies?
So you discount your strategic and creative thinking to get the work and then you lose the ability to make the margin on the production.
But it is not just the agencies that are suffering. Ultimately marketers are suffering too.
As agencies are cutting costs (read salaries and people) to maintain margins and stretching existing resources to cover the work at hand, we are seeing an increase in the numbers of experienced and high profile creative people leave the industry as reported in the last few months in Advertisng Age.
The agencies also do not have the resources or the funds to bring in and develop new talent and so the quality of thinking and therefore the quality of the marketing suffers.
So what is the solution?
I don’t know but here are some suggestions.
Last month at Spikes Asia in Singapore I ran a workshop with about 50 agency people from around the region. We were looking at the issue of how is creativity valued?
Quickly we came to the conclusion that for a creative industry, advertising is not particularly creative when it comes to getting paid. So we looked to other creative industries for inspiration on how they are paid, including music, publishing, motion picture, architecture, photography, fashion, arts and more.
It was an interesting exercise because while I know the sceptics in the audience will quickly see the differences between these industries and advertising, the fact is there were many insights that apply equally to advertising.
The workshop came forward with four essential insights:
1. In almost every case creativity in the areas of music, publishing, motion picture, architecture, photography, fashion, arts, etc is seen as a product and not a service and therefore value the creative product not on the number of hours it took but on what the market was willing to pay or the value it created. But as we have seen advertising creativity is charged by the hour. Do you think Dan Brown charges his publisher by the hour? Or that Matt Damon charges for shoot days?
2. Next, in each of these categories the more distinctive, and the less a commodity the creator, the greater the premium they can charge. An unknown actor will charge less than a proven star. Yet most agencies are not distinctive or even well known within their target audience – marketers. Most marketers know three agencies – the one they are with, the one they left and one other.
3. When creative people in other fields create a work of intellectual property they value it and protect it, not just as a way of ransoming it to the highest bidder, but to establish the value in the product they have created. While agencies are more than happy to give away their IP for the chance to add to the billings. Rather than give away IP in totality why not just for work commissioned or for the territory it is commissioned for?
4. Finally creative people in all these fields recognise they are not equipped to negotiate in their best interests and so have agents and managers who are directly incentivised to maximise the realisation of the value they create. Who in your agency is responsible for that? Because there are not many examples of them doing it particularly well.
This is a weekend of celebrating creativity and recognising and acknowledging the pursuit of creative excellence.
Or perhaps it is just a great opportunity to stick our heads in the sand and ignore the commercial pressures that are continuing to drive down prices and fail to recognise the value of creativity.
Looking around the room, how many marketers are present?
Okay, how many marketers that were not invited to speak are here this weekend?
Perhaps the truth is that while marketers are happy to talk about valuing the big idea that could transform their brands and drive financial success, the truth is that their actions speak louder than words.
They are largely not interested in creative awards unless it includes a trip to the south coast of France, and they do not want to pay for creative ideas and concepts either.
But then again, who is at fault?