The shift of advertising agency remuneration from commission to fee was a major strategic blow that set in motion a change in client-agency relationships -- leading to the downgrading of agencies as strategic partners and the long slow slide towards commodity status today.
Paradoxically, advertiser strategic needs have been growing in complexity, and the pressures of globalization, the proliferation of brands / line extensions, the growing power of the trade, increased competition, increased consumer price-sensitivity and the growth of digital media have been making improved brand performance increasingly difficult and complex to achieve.
Agencies, during the past two decades of fee declines and growing workloads, had to downgrade the seniority of Client Service people because of cost pressures that affected recruiting, entry-level salaries and training.
Predictably, a void in brand thought-leadership has been created in the marketplace -- and filled by new competitors: M.B.A.-trained strategy and brand consultants working in blue-chip consulting firms: Bain & Co., McKinsey, BCG and AT Kearney. Visit their websites if you don't believe this!
Today, advertisers (but not agencies) are recruiting trained consultants from these firms for their own staffs and bringing their capabilities in-house.
Inevitably, if this direction is not reversed, then advertisers are likely to opt out of the need to pay for agency Client Service resources (other than for a minimal amount of account coordination and communication) and limit agency services to the provision of creative (and maybe production) resources only.
Since agencies have as much resource cost in Client Service people as in Creative people, this change will bring about a major economic dislocation for agencies.
Agencies must re-establish themselves on the strategic playing field, and add an upgraded "strategic brand and performance consulting" capability to the front end of their resource offerings. Furthermore, they must offer a full range of creative services -- traditional creative, direct marketing, events / sponsorships and digital / social -- under the leadership of these Client Strategy consultants.
Integrated marketing services can then be deployed to solve and overcome marketing performance challenges -- and bring about improved, superior brand competitive positions, the creation of brand loyalty and higher sustainable levels of brand growth and profitability for agency clients.
Reorganization of agency and holding company portfolios is a supporting requirement, since specialized agency resources today are isolated and fragmented in separate profit centers. These resources are cobbled together in various ways, but they are not deployed as effectively as they could against client brand performance challenges.
Only those agencies who commit to upgrading and integrating their capabilities have much of a chance to seize and maintain thought leadership and the premium fees that go with it. Let's not forget that strategy consulting firms earn 5.0x multiples on the cost of their people, while ad agencies are lucky to earn 2.3x multiples on the cost of theirs.
Advertisers will always seek and find solutions for their problems. Agencies will be part of the solution only if they offer capabilities that are valued and competitive when compared to the other alternatives that their clients may consider.