This post is by Michael Farmer, Chairman of TrinityP3 USA and author of Madison Avenue Manslaughter: an inside view of fee-cutting clients, profit-hungry owners and declining ad agencies, which won the Axiom Gold Business Book Award for the best marketing / advertising book of 2016.
Advertising is a business game, played with great intensity by advertisers, agencies and holding companies in competition with one another. Forget about partnership; that’s a myth from the past, when everyone focused on creating great work that drove growth in media spend and gains in brand market shares.
How quaint the industry used to be! That’s before CMOs became utterly confused by digital and social media and before the blood combat among procurement, agencies and holding companies drove out all the profit, talent and fun from the industry.
Winning was redefined to match the new corporate emphasis on “shareholder value.” Holding companies “won” by squeezing out growing profits; advertisers “won” by driving down fees, and agencies “won” by delivering profits from downsized operations and in finding new clients to replace the dissatisfied clients they just lost.
What a terrific definition of “winning!” It’s like the U.S. Army’s statement during the Vietnam War: “It became necessary to destroy the town to save it.”
How hard would it be to turn back the clock? Agencies will have to develop new marketing strategies for their clients’ stagnant brands. This will require business analyses and skills that agencies do not have, significantly improved Scope of Work (SOW) planning and long-term partnerships that agencies have not enjoyed for decades. Their clients will need to empower them and pay fairly for jointly-planned Scopes of Work.
Trust and fairness will need to be restored, which will require a complete re-education of procurement, who have long forgotten about the value of long-term strategic supplier partnerships. (Hey, procurement, why not read The Machine That Changed the World, about how the automotive industry was saved through strategic supplier partnerships and good procurement practices? You might learn something from your own history, long since forgotten or ignored!).
What about the holding companies? If they help to strengthen agency organisations and SOW operational practices so that their agencies can become more effective on behalf of clients, they would reap future benefits. Their successful agencies could grow and become profitable in a healthy way, and this would benefit holding companies and their shareholders. The current strategy of squeezing the life out of agencies to generate the appearance of growing profits is a doomsday approach.
The major decline of holding company shares in 2017 ought to be a signal that new strategies need to be very quickly developed. I doubt that this will happen, though, since holding companies would need to announce a pause in profit growth while their agencies invest for the future. This would require a degree of candor by holding company executives and a degree of investor sophistication that we have not yet seen.
There has been too much industry emphasis on winning in strategically bankrupt ways. Holding companies, advertisers and agencies have been seduced by the concept of shareholder value, and this has led to short-term thinking that has had losing as the outcome.
We might be at a point where most of the shareholder value has already been squeezed out of the industry and the future will be grim and dramatic, except for the financially healthy management consulting firms, which have the skills and capabilities to restore advertisers back to health. If this is the case, then advertisers and consulting firms will be the future winners in the industry and agencies and their holding company owners will be the losers.
Cartoon credit: Peter Steiner, The New Yorker, The Cartoon Bank. With permission
This post was first published at Media Village
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