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Agencies under attack: How the middle man must evolve

Agencies under attack: How the middle man must evolve Lori Luechtefeld

I'm a traditionally trained journalist. That is to say, I understand what it is to constantly be asked, "Are you obsolete?"

On my most time-pressed days, the answer is usually, "Yes. Yes, I am." Followed by a quiet sigh. But if you catch me on one of my more patient and time-permitting days, that answer might be followed by a lengthy "but..."

Journalists, like the publishers that employ them, find themselves in an "adapt or die" situation these days. What we once were -- even just five years ago -- is not what we are today. (At least, not if we're being honest with ourselves.) Our value has changed. It's still there -- but you have to know where to look and how to channel it. Our traditional role in society is, in fact, obsolete.

Journalists are not the only ones. The ad agency world faces many of the same threats -- both perceived and real -- in the evolving media landscape. Agency value is being challenged, tested, and debated. It's still there. But do you know where to look and how to channel it?

In an effort to better understand today's agency value -- and perhaps justify my own -- I reached out to industry leaders at agencies, brands, and other entities to get their perspectives on the greatest threats to today's agencies and how they can be combatted (if they can at all). Opinions varied, but no one denied the need for a transformation in the traditional agency model and mindset. Let's take a look at a few of the themes that emerged.

Collaboration, not competition

Here's the good and bad news: Agencies are no strangers to competitive threats. It's in their DNA. "To do marketing is to develop a thick skin to assailants, from every angle," says Josh Rose, chief creative officer of multi-platform campaigns at Weber Shandwick. "We are an industry, by its nature, filled with competitive people, accustomed to this notion of threats and winning in the face of them."

But, Rose says, here's the kicker: That admirable quality -- an always-on willingness to compete -- is the very same one that agency folks need to let go of if they want to succeed into the future.

"More and more, the smartest people about a brand's earned media are the people at the brand," Rose says. "They have historical knowledge that, over time, becomes less and less replicable at the agency level. Traditionally, the marketers who wanted to stay on the edge of popular culture found themselves at agencies. Something about that environment promoted the kind of contemporary thinking you couldn't find in corporate walls. That's not the case anymore. Incredibly cool and knowledgeable people now sit in marketing departments, holding the reins on the fastest growing media properties in the portfolio."

This shift is good for marketing, Rose notes -- but not for the traditional agency model. To survive, agencies need to let go of this notion that they "own" something -- a client, a brand, a relationship. Rather, they need to co-create.

"Creativity is still at the heart of what we do, but knowing how to do it effectively with others is a skill set that agencies need to retrain themselves for," Rose says. "Creative development, by and large, is something agencies protect and build walls around. I have the opportunity to sit with creatives from all kinds of agencies now, in collaborative situations. I can smell within the first five minutes who will be the person trying to establish himself or herself as the alpha. And I know, with great certainty, that that person is the least-evolved among the group." 

That spirit of creative collaboration would certainly be welcomed on the brand side. Jeremy Brook, global lead for digital strategy at Heineken, says that the profitable agencies will be the ones that can link their creativity to business problems. But even then, creativity isn't likely to occur in a vacuum. "Tackle competition by showing that you can play nice and win," Brook says. "Acknowledge that collaboration with other partners -- not just agencies but media owners, specialists, and technology companies as well -- is the best way to show your competitive advantage. An agency that plays nice will often win more trust and influence at the boardroom."

The middle-man conundrum

Frankly, there's probably not a "single biggest threat" facing agencies today. Rather, they're being pressed to some degree on all sides. iMedia's own Chris Arens (managing director and publisher) sums it all up nicely under this concept: disintermediation. In other words, our industry is increasingly looking to cut out the middle men. Indeed, few "men" are as "middle" as agencies are these days.

"Agencies have taken on the strategy of fighting a war on all fronts, which means they aren't as strong on any one front that would allow them to add value," Arens says. "Instead they are trying to hold on to their land in such a way that they are putting their entire business at risk."

In essence, the agency has become a middle man in a relationship that one might argue no longer needs a middle man, Arens says. "With the automation of certain business practices (media buying) and the democratization of others (creative), agencies are faced with their clients' bringing most everything in-house and working directly with the vendors," he says. "This is ever-increasingly more real with the advent of data management platforms (DMPs) and brands' wariness about sharing their customers' data, coupled with their desire for that data to inform their media decisioning practices (enter DSPs)."
If an agency wants to demonstrate value in a world of disintermediation, it needs to position itself as a brand's strategic arm, Arens says. "Tactical execution is where agencies have made their money, but that is now becoming a volume game and a race to the bottom for pricing," he says. "The value that agencies can provide in guiding execution is inherently more important."

That means adopting an attitude akin to that of a movie producer, Arens adds. "Don't worry about executing it internally," he advises. "Worry about getting the right expert to execute the strategy and ensure the success of each tactic to drive the success of the campaign, initiatives, and -- ultimately -- the brand."  

Part of becoming a brand's "strategic arm" requires agencies to understand a brand's customers better than the brand itself does. "By being the purveyor of the end user and taking a user-centered approach to advertising and marketing, the agency becomes an invaluable asset in the strategic positioning of the brand's communications efforts," Arens says.

That's a sentiment that was echoed by Sean X, digital strategy director at Amazon Advertising. "Clients understand their brands in ways the agency never will; however, the agencies tend to understand the people who consume their products, and what drives them, more than both the client and any of the players in digital who go direct," he says.

X laments the current agency structure, which is typically structured around briefs -- creative briefs, input briefs, assignment briefs, etc. "[Briefs] are needed to help focus pieces of work to achieve their intended goal," he notes. "However, the problem with that is it tends to produce a 'fill the box' type mentality.

"'Fill the box' is not going to help agencies understand the consumer in a way that emotionally resonates across all mediums," X adds. "This process puts the client, the brand, in the role of master and the agency in the role of servant. And it is very difficult to lead from the servant position."

X says that agencies can no longer afford to be the receivers of requests from clients. "The agency must lead the client in both their understanding of the consumer and what is necessary for them to have a relationship with their brand," he says. "If agencies do not do this, the Facebooks, the Googles, and the slew of consulting firms will gain stronger and stronger footholds within clients pushing analytics-based marketing, and push agencies out. And the agencies they do push out deserve to be pushed out for not being leaders of their brands, but merely responding to requests."

The human side of technology

As in so many industries, agency work is being significantly influenced -- and some would argue threatened -- by the advent and adoption of new technologies, particularly around marketing automation. Mark Naples, managing partner at WIT Strategy, says this perceived threat also represents the biggest opportunity for agencies today.

"Technology will reduce friction for buying and selling media, creative will become increasingly commoditized, and good creative will become available less expensively too," Naples says. "What will always retain its value is good strategic thinking, and clients will always pay for domain expertise that informs that strategic thinking."

The era of the horizontal agency is in decline, Naples says. "Programmatic is now a $4 billion-plus business online and is encroaching on television and print too," he says. "What used to be thought of as 'marketing automation' is increasingly isolating the big brains who can deliver and execute on the best strategies from everyone else." 

Naples adds that technology will enable winners to scale. "But the winners had better be able to deliver the kind of strategy that clients in an increasingly specific and fragmented business environment require," he says.

Just as technology has flipped the media buying and selling process on its head, it's also profoundly changed things on the consumer side, says Gary Colen, CEO at AMP Agency. "Technology has completely altered consumer behavior and, thus, the consumer's expectation from brands and marketers," he says. "We are in a pull vs. push world, where consumers own the conversation. The changing consumer expectation and transfer of control requires marketers to deliver meaningful stories with equally meaningful brand experience in order to succeed."
Flexibility and nimbleness are key to business success, Colen notes. "To reach consumers effectively, agencies need to reframe the process, the structure, and the type to talent around the customer journey. Operating in traditional silos will hinder agencies' abilities to create relevant, real-time experiences to win with consumers."

A broken compensation model

OK, look. Agencies can refresh, redefine, and reposition themselves until the cows come home. If at the end of the day, the money isn't there, it's all for naught.

Enter the dreaded discussion around compensation models.

Jim Nichols, VP of marketing at Conversant Inc., says that, without a doubt, the biggest threat to agencies today is how they are being paid and how that affects the ways that they serve clients. "When I started in advertising (around the time the wheel was invented), our fees and service agreements provided sufficient money to staff and work as strategic business partners," he says. "We made good money and were able to allocate time to business-building ideas."

That said, agency compensation in those days was largely based on commission, which set a bad precedent, Nichols says. "Commission rewards activity, not insights, ideas, or sales growth," he said. "It's ultimately a dumb model if you want to encourage big thinking and ideas."

Over the past decade, the discontinuity between wanting ideas but paying for activity has come to roost, Nichols says. "These days, many agency contracts pay for tactical stuff but not for things beyond tactical minutiae," he says. "In fact, average compensation has fallen so dramatically that in many cases agencies have difficulty providing the time and senior attention necessary to be business partners." 

It's all about money, Nichols says. Agencies and clients need to start having honest conversations about compensation and how it affects service levels. "Clients need to recognize that agencies are businesses and aren't able to create sustained strategic relationships with clients when they can't make money," he says. "Agencies need to stop proposing and accepting unsustainable contracts -- meaning ones that don't enable them to invest in building a long-term relationship. After all, who can blame a client for going for a low price if agencies say they can make it work?"

Aligning compensation and client needs

Reid Carr, president and CEO of Red Door Interactive, notes that the need for agencies to deliver measureable results continues to grow, and compensation programs are shifting to include performance incentives. "This isn't just driven by small clients with little budget, but by big clients like Peet's and Coca-Cola, he says. "Many agencies are not configured to operate under that level of scrutiny, as if true creative, or art, can't be measured. The fact is that every business is measured, and every company tries to align compensation, employees, and vendors with performance toward specific goals."

Don't fight it, Carr says. The trend toward performance-based compensation is a reality. "However, there are a great many things to consider when addressing it and welcoming it into the agency-marketer relationship," he says.

This starts with client selection. "In essence, is it a solid company, with a good brand, great products, and the infrastructure required to deliver to its customers?" Carr asks. "Finally, will there be the right communication and approval structures in place to act on agency recommendations? Where are the risks and where is the alignment? Are the criteria for performance easily measured in real-time and are they something within our influence?"

Carr notes that agencies must understand the circumstances under which the clients are working and how their capabilities align with the results that each client needs. "If you find a match, then you can build a compensation framework that works for everyone," he says.

Along these same lines, Denise Zimmerman, president and chief strategy officer at Netplus, says the biggest threat to today's agencies is the ability -- or lack thereof -- to define and continuously prove value in a time of digital and organizational transformation. "To survive, the agency's role must evolve with the marketplace's and clients' needs," she says. "Clients have an increasing need to prove value to their stakeholders amidst groundswell market shifts, which is further compounded by a pervasive 'do more with less' mandate." The challenge, she notes, is that the ROI value equation varies from client to client. It can be measured in sales, leads, new customer acquisitions, customer loyalty, earned media, brand awareness, market share -- you name it. The key is aligning the agency's value with the client's needs. 

"Agencies and clients must work in partnership in a mutually defined and understood value exchange, driven by shared insight and goals," Zimmerman says. "There is an unprecedented opportunity for agencies to be helpful stewards, advisors, navigators, and creators, [especially when] partnering with clients during a time of transformation to help drive accelerated positive business outcomes. The net-net may be a wildly successful ROI on a campaign or new product launch, but higher value is always returned when agencies and clients partner to drive sustainable, iterative success."  

Lori Luechtefeld is executive editor of iMedia Connection.

On Twitter? Follow Luechtefeld at @loriluechtefeld. Follow iMedia Connection at @iMediaTweet.

"Playing wooden chess pieces" image via Shutterstock. 

Lori Luechtefeld is publisher of iMedia Connection. She came to iMedia in July 2008 from Canon Communications, where she served as managing editor of an executive-level business magazine in the medical technology field. Prior to joining Canon, Lori...

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to leave comments.

Commenter: Bob Sanders

2014, August 20

Great article, and some very valid points. The way forward is not clear, and it certainly doesn't resemble the past. The future belongs to those agencies that try the most to see what sticks. Having a clear and easy to understand expertise helps you survive and grow. Keep building strategic skills and understand the consulting methodology – those skills will greatly help you adapt and grow!