The Last Word: Managing Agencies in the Digital Age

The Last Word: Managing Agencies in the Digital Age

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In a recent survey I conducted among CMOs, there is noteworthy frustration among marketers regarding agencies’ inability to manage integrated marketing communications, as well as the view that agencies have not adjusted their business model to the digital age.

Integrated marketing communications has turned into the area of the greatest importance to the CMOs, who desperately seek a holistic approach to engage consumers.

Still, it was astonishing to see that 68% of the respondents put integrated marketing communications ahead of “effective advertising” (65%), when they were asked what the most important thing is they want from an agency. Integration is also among the top reasons that marketers dismiss an agency and look for a new one, and it is a pivotal factor in selecting a particular agency in a pitch.

Why is an agency’s skill at integrated marketing communications so important to marketers?

The answer has to do with the pressure that CMOs face in a rapidly changing environment. When asked how their job has changed, most, or 54%, pointed to the fact that marketing is becoming more complex due to the explosion of communication channel options that make their job more challenging. An agency partner that can integrate messages holistically across channels is at a premium.

Accountability
Accountability and measurement are clearly keeping marketers up at night, as the economy continues to be sluggish across industries and as marketing budgets come under greater scrutiny by the CEO and the board.

Accountability is among the top facets of the client/agency relationship, and 53% identified it as a key area of concern. This should be worrisome to agencies, as most have no clear framework, methodology or process for dealing with the accountability issue.

One CMO summarized it by commenting: “For years agencies weren’t accountable. Now they are and the model is crumbling. Advertising that doesn’t drive business will lead to a quick end to the ad budget and perhaps the agency as well.”

Efficiency

In a shift from a decadelong practice of putting pressure on agencies to cut their fees, 62% of marketers now believe the most prudent way to manage the economics of their agency relationships is improving the efficiency of agency operations.

What’s going on here is, I believe, a growing realization among these marketers that you can’t cut fees forever. Something’s got to give. Forcing agencies to work at a razor-thin margin is likely to boomerang on the marketers’ ability to remain competitive. At the same time, there are redundancies and practices that, if streamlined, could benefit both parties.

The Agency Model
When asked to pick out a statement that best describes how traditional agencies are adapting to the digital age, 48% said that agencies “[Are] struggling to transition their business models,” while another 26% said agencies “Are acquiring assets, but are having difficulty integrating digital capabilities.” In other words, almost three-quarters of the marketers are not impressed by the way traditional agencies are transforming themselves to adopt digital marketing capabilities. A typical comment from a respondent was, “I think they have given up adapting and are laying low. I see very little interest in changing.”

But marketers too are slow to adapt. While people spend more than 30% of their time online, 60% of marketers allocate less than 20% of their budget to digital, and 19% allocate less than 10% to it.

As pressures mount, relationships are fraying. A prominent CMO voiced a dire warning: “Agency masthead doesn’t matter. It’s the team of three or four people that makes the difference. Everybody has a hub-and-spoke wheel, everybody has proprietary insights, and everybody has an angle. Who has accountability? It is an industry that is a few short years away from crashing on itself. It is boxing, and very shortly a mixed martial arts model is going to come along and, like boxing, ad agencies will largely become irrelevant.”

And yet, if agencies embrace what’s coming rather than preserve what’s been, it does not have to be that bleak.

Avi Dan is the founder of Avidan Strategies, a marketing consulting firm that specializes in business and marketing advice, managing agency search and compensation, and advertising strategy. Before founding the firm he spent 30 years in senior management and board positions with top global ad agencies.

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