A woman calls a leading cardiologist’s office and says, “Hello, Dr. Bernstein, I have acute cardiomyopathy and need a pacemaker. I heard from a colleague that you were an excellent cardiologist and have over 20 years of experience in pacemaker implant surgery. I have a working budget of $12,000 and need the procedure done by next Friday so I can attend a sales meeting that I am presenting at the following week. Can you send me a formal proposal outlining your unique approach pacemaker implants along with a breakout of your costs for services?”
Aside from the obvious, the folly of the above scenario is what professional marketing agencies have been forced to live with for the last 15 years. And it’s our own fault.
Despite the consensus among businesses that marketing expertise is a highly specialized and necessary service (like medical services), agencies cannot get a fair shake. Our expertise has become commoditized; our profitability has become unmanageable and our expertise has become undervalued.
Here’s an overview of why this has happened – and what needs to be done to right the ship:
1) Pricing models have become unworkable - Back in the heyday, ad agencies charged a fixed 15 percent fee for all work and services. This allowed the Mad Men to simply charge more for services and make banana-boats full of money. Because there were only three major media channels to invest in print, TV and radio–our services were predominantly creative and the contracts were not very complex. Once the big brands got wind of how much cash agencies were making they demanded that the pricing structure be changed to an hourly professional service model—which was the death knell of the industry. People carry a cost, and it became more profitable to hire less expensive and less qualified staff–and find less expensive people who were willing to spread their hours over multiple accounts. In addition, hourly professional service fees are not an appropriate way to charge for the sort of results that marketers are hired to deliver.
2) Marketing has become harder – and more complex. Digital media was the big game changer in the late 90s. Increasing overnight the number of investment channels, digital opened a slew of new mediums –search, social, acquisition, performance, web, mobile–the list goes on—making the entire undertaking far more complicated and requiring more expertise, depth in specialization and more staff. Crunched against the new hourly fee model, staff work harder to produce the same results for less money. This recipe has led to diminished results and an overall greater focus on profitability than outcomes.
Now more than ever, marketing services are interconnected and holistic
3) Conglomeration of Expertise – Corporate engineers woke up in late 90s with a bold idea: Lets buy up a bunch of small specialized agencies and create a network of global services and revenue streams. This conglomeration allowed room for charging lower fees while making up the difference in volume. International footprints meant cheaper labor costs and globally delivered services and technologies, which also brought costs down–making these behemoths even more competitive and able to charge razor thin margins. This tidal shift turned the marketing services industry into a bottom-line driven business making it impossible for mid-tier agencies to compete. Brands loved the savings as well as the cache of being represented by these world class giants with well-established names and the promise of stability.
4) Measurement: A Friend and Enemy – The rise of Digital marketing provided another addiction for brands: measurability. The lure of online marketing was the real-time metrics that they provided. Once given a taste of this new elixir, now every dollar spent needed to be validated—and the metrics and data management industrial complex was created. Of the belief that now all media investments could be tracked directly to sales or clicks, brands stopped spending heavy dollars on creative and strategy and placed their larger budgets on executional services like search and performance marketing. Even brand marketing campaigns could be measured based on views, duration, completion, etc. This addiction to measurability created even more stringent margins–and created the industry of ad fraud, delivering fake results and hence increase profits.
5) DIY Marketing Platforms/ Access to Knowledge – The middle and bottom tier of marketers introduced a whole new industry of turnkey DIY automated marketing tools, designed to allow even the lowliest back office manager feel like a CMO. At the same time, Google evolved as the new encyclopedia Britannica (and Grad School) for the masses and Facebook’s two-click paid ad platform enabled a coffee shop owner to run highly sophisticated marketing campaigns for less than the cost of their linens. With powerful tools and endless info at her fingertips, everyone became a marketing expert. This revolution only further helped to diminish the value of marketing expertise. “$200,000?? My kid can do this for $50 bucks!”
So, what are marketing agencies to do?
1) Specialize - The Full-Service agency model is over. The conglomerate’s vision of the one-agency-for-all-things backfired. Heart Surgeons will always be more valuable than Generalists. Not only because healthy hearts are a necessity, but also because the perception (and reality) is that specialists have deeper knowledge, higher acuity, greater focus and hence demand a higher price. Once an agency can take ownership of a specific discipline, they can demand better pricing and set their terms.
2) Make Strategy, not Execution, the Lead – and charge for it - Executional agencies quickly become commodities. They essentially become sweatshops that can be dumped for the lowest bidder. Deep thinking and problem solving is a premium – and represents the most important aspect of what clients need anyway. A trend over the last 10 years is to dangle strategy out as a carrot to get the voluminous executional contracts. This has backfired as cheaper options and DYI automation tools become available to brands. Strategic chops cannot be outsourced.
3) Pick The Right Clients - Large mainstream brands have the luxury of choosing among the many – because every agency wants their business. This makes for a one-sided relationship. In today’s world, choosing the right client is as important as choosing the right spouse. Clients must become partners—not revenue sources.
4) Evolve and Expand your scope of knowledge – Now more than ever, marketing services are interconnected and holistic. A TV spot is not just deployed via traditional broadcast—it becomes your interstitial, pre-roll and social media content. Agencies must develop a much more comprehensive understanding of how their specialization is deployed, consumed, re-engineered and operationalized in today’s complex marketing ecosystem. Agencies that get the big picture deliver better results and help clients make better decisions.