Are You Paying a Tax of 18-23% Before Your Agency Lifts a Finger?
Although the video below was shot in late 2017, it does a pretty good job at capturing the zeitgeist of marketing and advertising for 2018.
As explained, I was asked by Boost Agents to be the host for a dinner that brought together senior marketing clients and CEOs and creative directors from prominent ad agencies. Although entertaining, for me the dinner exposed an even larger rift between agencies and clients than I had previously imagined. And that’s because the landscape is changing so quickly.
In 2017, shares of all the major global advertising companies – WPP, Publicis, Omnicom, Havas, and Interpublic - all dropped sharply. WPP alone cut its forward guidance on financial performance 3 times in the same year. In the first two weeks of January 2018, the New York offices of BBDO, Grey, Ogilvy, and TBWA/Chiat/Day all announced substantial layoffs. In Toronto, DDB Canada laid off 34 employees on one cold January day – almost 20% of its workforce. And the bleeding shows no evidence of stopping.
In his predictions for 2018, Professor Scott Galloway, author of “The Four” a book about the “Hidden DNA of Amazon, Apple, Facebook and Google” states that:
“Large communication conglomerates shed 20-50% of their value when their growth engines, digital agencies, stall as the duopoly (Facebook and Google) begins making online creative and value-added services less …valuable.”
It sounds like a pretty dire situation. And the May 2, 2017 Forrester Report is even blunter. The report is called “The End of Advertising as We Know It” and one of its key takeaways is that “now the model has begun to fray”.
So what’s the best path forward for a time-starved CMO?
First, take a good hard look at where you’re spending your money. If you’re dealing with an agency that is owned by a global holding company then check their books. These network agencies are required to return somewhere between 15–20% per quarter on profit margins, otherwise they are forced to cut headcount. Then, they also charge their agencies a management fee of between 3-5%.
The net effect is that as a client you are paying a network tax of at least 18–23% before your agency picks up a pencil to draw a storyboard.
Time to renegotiate! Or . . . take a look at your options.
In the past few years there has been an explosion of small, technology-enabled, agile, independent agencies and consultancies with digital at the core and an intense focus on results and ROI. These are companies that understand that customer experience in an Amazon world is absolutely critical and that continuous relevance is the new mantra for the relationship between brands and consumers.
In the last few months we’ve worked with an augmented reality company out of the UK that is a global thought leader, a social media analytics company out of Chicago, a video animation studio out of New York City, and a small, independent agency in Halifax.
We deal with owners, founders and entrepreneurs. Their speed of response and deep insights into their core competencies give us a collective competitive advantage and an intense focus that you simply don’t get from conventional communications suppliers whose sole purpose is maintaining their stock price.
So has the world changed, and is advertising on the edge of extinction?
Well – yes and maybe. But the more likely scenario is that this is a period of rapid transition. And in this transition, according to Forrester, it’s the CMOs who move from an advertising interruption model to a new era of branded relationships that will ultimately win. It’s not all or nothing. But it does require a level of calculated risk, a keen, continual grasp of where technology is taking us, and a relentless focus on metrics and constant adaptation.
The world is moving faster. So it may be time to lace up those sneakers and put those dinosaurs far behind you.
