A client’s procurement team asked me to review their current services contract to ensure it reflected current ‘best practice”. Apart from the usual problems with intellectual property, the clause that jumped out was that the agency would deliver a 5% per annum decrease in costs due to productivity efficiency improvements.
That is that the agreed annual fee would be reduced by 5% per annum over the term of the contract to reflect these improvements in efficiency. I state that twice because I had to read the clause twice before I asked them why?
“Well, advertising is a manufacturing process and with all of our manufacturing suppliers we add this clause” was the overly confident reply.
Firstly, the agency fee was significant and 5% was about $150,000 per annum.
Secondly, there is an underlying assumption that the primary cost of “manufacture”, in this case being people, would not increase in cost each year.
Thirdly, where did anyone ever think advertising is a manufacturing process?
What most agencies produce is bespoke solutions to specific marketing, advertising and communication problems. Each solution will often require a unique execution and therefore if you were to consider it a manufacturing process then it would be one where every production run requires total tooling up from scratch, meaning that economies and efficiencies are difficult to deliver.
But there are some parts of advertising that can be seen as a manufacturing process.
The usual way to identify these opportunities is to look for:
- High volume outputs
- Consistent or templated solutions
- Heavy production requirements
This is usually in categories like retail or financial services or telcos. Areas with high volume, consistent, production heavy outputs like sales catalogues, brochures, flyers, direct mail letters, e-dm and in some cases traditional media production like television, radio, press and magazines.
But to deliver the economies of scale and the efficiencies, be that 5% per year or even more, then the marketing team must be engaged to accept the compromises and changes in process required.
1. Templating: Rather than inventing from scratch each time, templates are developed for the various executions and then the focus is populating these with the required content as cost effectively as possible rather than focusing on strategic and creative innovation each time. eg. Retail price and item advertising or Catalogue page grids.
2. Production Decoupling: Packaging production requirements to achieve economies in production using the same suppliers providing volume discounts. Again, this means limiting options in suppliers used and therefore limiting range of quality. eg. Catalogue photography or video post production etc.
3. Automation: Many labour intensive and therefore often expensive production processes can be automated. There are many tried and proven print management systems that use pre-agreed templates allowing marketers and other end users to select from pre-agreed options and templates to create cost effective outputs. eg. Local area or local store marketing, catalogue production and even video production can be automated.
4. Off-shoring: Labour costs are often the single largest component of the advertising production budget and therefore these can be minimised by moving these services from markets with high labour costs in the west to lower labour cost markets like India, China, SE Asia, Eastern Europe and Russia and Central and South America. The important consideration in management systems and ensuring the appropriate skill sets in these markets. eg. Many companies are offering off-shoring services to their larger clients for both print and especially digital production.
The thing to note about all of these options is that the more you identify the manufacturing component of the advertising process, the more you need to limit the options to deliver the cost efficiencies. As Henry Ford is apocryphally reported to say when he developed the production line for the Model T Ford, “You can have any colour you like, as long as it is black”.
So before you demand efficiencies from your agency, make sure you identify the areas and the limitations you are willing to accept.
What areas can you be more efficient?
Great article. My outfit specialises in the art of 'digital production manufacturing', and the most difficult part is saying no to the wrong projects. As you state, there are quantifiable success conditions required to really squeeze efficiencies out of production, and anyone not clear on what they are can come unstuck in a hurry.
As much as many miss the old days where procurement weren't so involved & deals were less closely scrutinised, the last 4-5 years have forced agencies to be far smarter in their approach to how they cost-effectively get stuff out the door.
Is this a bad thing..? Depends who you ask, really.
Is it ever going back to the way it was, not so long ago..?
Mark I really admire how the industry is creatively adapting to the changes in the market. But I am not sure the marketers or procurement understand the full consequences of the changes they are driving. What do you think?
I agree that the drivers of these changes are perhaps dislocated from the intricacies of what they're asking; unbundling the more subjective creative outputs from the pragmatic production components of an agencies work is very difficult to do.
Efficiencies by nature need to be quantifiable.. and the creative aspect of what agencies do can be equally as hard to quantify. Asking for a 5% efficiency increase across the board might translate to 20% in the area of 'mass' production, and only 2% in pure creative & strategic output.
Finding these numbers is generally beyond most agencies in a far leaner post-GFC world.
Mark, that is why I think it is useful to think of advertising or marketing communications in two parts: the first is Thinking – strategy and creative and the second is Doing – production and implementation. Now before the production and creative people challenge this with the fact that there is creativity in the production and implementation process, there are a large and increasing number of companies at the ANA Marketing Financial Management Conference who are thriving on increasing the efficiency of the production process by treating it as a manufacturing process – companies like Tag, Hogarth and Freedman have set up global advertising production manufacturing networks in the same way you are doing with the Really Useful Crew in digital in Australia. And one of their selling points is that they do not interfere with creativity, just simply execute the creative concept.
At a recent CIPSA Category Week a representative from AT Kearney quoted Richard Woodford, Category Manager from News International as saying "You don't hear Coke saying to consumers that it's not earning as much money, therefore the drink is not going to taste as good this year." Now it was 2 years ago, and it was generally applied to "advertising", but in regards to his quote in PrWeek ( http://www.prweek.com/ ) it is fundamentally flawed thinking because:
1. The analogy he draws assumes that somehow the advertising process is a recipe. just like Coca-Cola. In fact we saw what happened in 1985 when Coke messed with the recipe to introduce New Coke. Where as Richard would realise that every advertising campaign starts from a brief and is built from the ground up.
2. Perhaps the reason you would never hear any manufacturer cut corners in the formulation and manufacture of any human consumable item is that the downside is a long way down. Just look at the damage a recall of an OTC pharmaceutical can do to a brand or a company. But second rate advertising gets approved every day by many marketers.
3. Finally it assumes that advertising ideas are created like a manufacturing process. If that was the case would not every idea look exactly like the last, just as one can of Coke looks and tastes like the next? But I am sure that a sophisticated marketer like the Coca Cola company actually values creative ideas and invests in talent because they know their next liquid idea will only be as good as the people working on it.
So I am interested in why someone who works for a company that relies so heavily on advertising would say something so flawed in regards to the creation of the advertising ideas their clients pay to run in their media?