Madison Avenue Makeover: How Can Advertisers use Agencies to Restore Growth and Profitability for their Lackluster Brands?

Madison Avenue Makeover: How Can Advertisers use Agencies to Restore Growth and Profitability for their Lackluster Brands?

Who is suffering the most from Madison Avenue’s manslaughter? Agencies, who see declining fees and growing workloads, and have been downsizing to generate holding company margins -- while slowly destroying their capabilities? Or advertisers, whose brands are languishing, putting CMO tenure at risk? Relationships look like speed-dating matchups that end up as one-night stands with disappointing sex. Something needs to change. Madison Avenue needs a makeover. Advertisers need to kick-start their brands’ performance.

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The Ten Ways Agencies Misunderstand their Deteriorating Client Relationships

The Ten Ways Agencies Misunderstand their Deteriorating Client Relationships
Credit: John Janik, The Cartoon Bank, The New Yorker. With permission

"The good old days are gone, and the bad days are here. We're bullied by our clients, paid less each year, and treated like commodity suppliers. Relationships last only 2-3 years. We spend all of our time competing for new business, which is increasingly won on a 'lowest price basis.' We pitch for projects! What happened? How did this most glamorous of businesses turn into this?"

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Doing it Wrong

Doing it Wrong

Procurement helped to save the US automotive industry (and many others) through innovative strategic sourcing initiatives that improved quality and lowered costs in the 1990s and 2000s. They then turned their attention to media service suppliers, like advertising agencies, but instead of using the successful procurement principles of the past, they engaged in old-school procurement behavior that has all but crippled ad agencies and reduced advertising quality at the same time. Where did Procurement go wrong? What should happen now?

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Good-bye AOR; Hello 'Family of Agencies!'

Good-bye AOR; Hello 'Family of Agencies!'

The 'Agency of Record' (AOR) concept is just about dead, and so are the retainers that funded them. Advertisers have expanded their network of agencies, creating a diverse 'family of agencies' to provide specialized services across the fragmented media landscape. Agency funding has been converted to project-based funding. Workloads are uncertain for individual agencies, and as a consequence, so is expected income. Scope of Work planning is an ad hoc exercise. Uncertainty is on the rise. What does this mean for individual agencies, who have to forecast income and profits for their holding company owners? What does it mean for advertisers, who now have to integrate the members of their 'family of agencies?'

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Shareholder Value, and the Threat to Ad Agency Viability

Shareholder Value, and the Threat to Ad Agency Viability

For more than two decades, “shareholder value” has been the corporate mantra in the Western world. Nothing matters as much as promising and then delivering value to shareholders in the form of profitability, growth, and ever-increasing share prices. CEO and senior executive remuneration was increased dramatically to create personal financial incentives – ensuring that executives had sufficient “skin in the game” to keep the profit machine purring. Procurement departments and management consultants were empowered to slash costs wherever possible. Marketing spend was put to the test, and if it could not justify itself, it, too, was slashed. Where did this leave ad agencies? Caught between their cost-cutting clients and their profit-hungry owners. The outcome has thus far been a strategic disaster.

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The Heavy Burden of 'Shareholder Value'

The Heavy Burden of 'Shareholder Value'

Ad agency clients worship the god of 'shareholder value.' It is the source of bloated executive salaries and bonuses, and the driver of obsessive cost reduction programs. Corporate strategy has become a quaint and outdated concept; what matters today are quarterly earnings. Marketing Departments are looked at with suspicion, because their spend levels do not guarantee future profits; Procurement Departments are celebrated instead because they deliver the goods. Can ad agencies thrive in a 'shareholder value' environment?

Credit: William Hamilton / The New Yorker / The Cartoon Bank. With permission.

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Madison Avenue Manslaughter

Madison Avenue Manslaughter

Agencies are caught between fee-cutting clients and profit-hungry owners. In the meantime, their creative workloads are growing, driven by digital and social executions without a major let-up in traditional advertising. How can profit margins be generated under these circumstances? Through downsizing, salary freezes and 'juniorizing?' Agencies have been disinvesting in their capabilities to earn profits for their owners -- at a time when clients' marketing challenges have never been greater. No wonder clients are beefing up their internal capabilities and changing agencies at an accelerated pace! Is this Madison Avenue manslaughter -- or suicide in slow-motion, one FTE at a time? What are agency CEOs doing about it?

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Are Holding Companies and their Agencies headed in different directions?

Are Holding Companies and their Agencies headed in different directions?

Holding companies are gradually taking over the marketing leadership role once held by their traditional agencies -- offering "holding company relationships," led by holding company executives, buying major digital properties in a race to offer comprehensive digital solutions to clients. Traditional agencies hang on to the pieces of their relationships where they have expertise, but compared to the past, they have reduced client leadership roles. How did this happen?

Photo Credit: Tom Cheney / The New Yorker / The Cartoon Bank. With permission.

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Getting better at getting better is the best option

Getting better at getting better is the best option

Ad agencies face declining performance, as clients cut fees but load on out-of-scope work that is not paid for. Hanging in there by meeting client demands is self-destructive. There is only so much work that stretched creative and production resources can do without compromising quality. That point has already been reached, but because profit margins are still being earned, many senior agency executives do not appreciate the gravity of their situation. How can agencies get out of this doomed situation and begin to get better at getting better?

Photo Credit: Frank Modell / The New Yorker Collection / Cartoon Bank. With permission.

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Boring But Important

Boring But Important

Operational management of ad agency offices is one of those boring but important details that is increasing needed today. If all offices are managed well, then the total agency is managed well.  If not....then the agency is weakened from within. Unfortunately, operational management practices receive little or no attention from top management. All that matters is office profit margins. There is no training of Office Heads or reviews of their operational performance. There is no agency concept of what defines excellent operational management practices. It's time to change attitudes and elevate operational management practices to the important position they deserve.

Photo Credit: Paul Noth The New Yorker Collection/The Cartoon Bank. With permission.

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Bring Method to Mad-ness!

Bring Method to Mad-ness!

CEOs of ad agency offices are the critical agency leaders of today.  They are the most senior agency executives who head actual profit centers.  They either control or supervise all of the agencies' Account Heads -- those individuals who are responsible for client fee income, resources and Scopes of Work.  What challenges do Office CEOs face?

Photo Credit: Jack Ziegler / The New Yorker Collection / The Cartoon Bank. With permission.

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What Ad Agencies Can Learn from Baby Boomers

What Ad Agencies Can Learn from Baby Boomers

Baby Boomers are retiring from work but not from spending. Boomers are the largest and wealthiest segment in the history of marketing, but agencies have done little to bring Baby Boomer insights to their clients. Boomers are not cool, like Millennials. They’re old. Boomers are unfashionable. Why would any agency waste its precious research and creativity on this embarrassing segment?  On the other hand, why not?

Photo Credit: Robert Weber / The Cartoon Bank/The New Yorker. With permission.

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Industry 'Consolidation' is Not the Answer

Industry 'Consolidation' is Not the Answer

During the past year, advertising industry leaders and the trade press have tried to explain the industry's profit problem as the outcome of insufficient scale and excess costs that should be dealt with through industry consolidation, which means either a mega-merger of holding companies or continued acquisitions of individual companies by the holding companies. Whether it's the proposed (and failed) Publicis-Omnicom mega-merger or Elliott Management's promotion of IPG as a merger candidate...it's all the same: a bad idea, strategically flawed, that distracts agencies and their owners from dealing with the industry's real profit problem, which is weak and declining prices for agency services.

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Two Roads for Ad Agencies

Two Roads for Ad Agencies

The road more traveled is a road of unequal partners, where advertisers determine brand strategies, plan Scopes of Work on an ad hoc basis, grow the SOWs in a whimsical fashion, dictate agency fees, manage the integration of their diverse network of agencies -- and think of their agencies as commodity suppliers of creative services.  Relationships are changed every 4 years or so. The other road -- the high road less traveled -- sees a lead agency designated as the client's key strategic partner, jointly working to determine brand strategies and scopes of work that have the highest probability of improving brand performance, fairly paid for the resources required to carry out the work and respected for the strategic and creative value that it brings to the relationship. This road less traveled is the path for long-term success and viability.  

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Paradigm Change

Paradigm Change

Advertising agencies have operated under the Creative Paradigm since 1959 -- you know how it goes, "we're creative; we win creative awards." This is today a tired refrain, devoid of ideas, that neither distinguishes one agency from another nor generates fee premiums . Fifty-five years after the Creative Revolution began, creativity is a commodity, and advertising is being paid for at commodity prices. It's time for a paradigm change.

Photo Credit: Charles Barsotti 2009 / The New Yorker Collection / The Cartoon Bank. With permission.

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The Agency – Advertiser Chasm

The Agency – Advertiser Chasm

How long can we avoid talking about the widening chasm between ad agencies and their clients?  There are no winners in the underlying conflict, but ad agencies are certainly the losers. Fees are cut but workloads grow; AOR relationships are dead or dying; production has been disintermediated; and clients are taking over SOW planning and brand strategic thinking.

How much longer will agencies be able to justify the large cost investment they have in Account Management and Planning, which in most agencies is at least equal to the cost investment they have in Creative?

How much longer will agencies be able to justify their investment in overhead, which is half of their total cost structure, to support a staff that is being eroded, piece by piece, by advertiser initiatives?

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Fragmented Agency Accountability

Fragmented Agency Accountability

Accountabilities within an agency office are very fragmented. Office heads feel accountable for new business. Finance directors are seen as accountable (and blameworthy) for low fees and high overheads. Creative directors are accountable for creative quality. Client heads "own" income, billable resources and SOW workloads, but they are held accountable for none of these things. Their performance is rarely reviewed. They "own" the agency's economics (apart from overhead), but no one examines the decisions they make and the outcome that the office has to live with as a result of those decisions.

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Five Uncomfortable Trends

Five Uncomfortable Trends

Five trends highlight a lack of alignment among three things: 1) agency workloads (in Scopes of Work), 2) agency resources to do the work, and 3) agency fees. It's hard for agencies to be strategic performance partners for their clients with this kind of misalignment. Instead, if the trends continue, the quality of agency work will deteriorate. This should be a concern for agencies and their clients alike.

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The Advertising Agency as Strategy Consultant

The Advertising Agency as Strategy Consultant

Ad agency Senior Client Service people used to dominate thought leadership at their clients during the media commission era. But commissions gave ways to fees, and lower fees have reduced Client Service capabilities and thought leadership to a ghost of its former self. Strategy consultants now fill the gap. It's time for ad agencies to get back in the game.

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