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. 

Consider the following:

  1. Agency retainers and resources are routinely cut, year after year, under the relentless assaults of Procurement, even though agency workloads are consistently growing.  Agencies can make fair profits only by downsizing their staffs at year-end and working with a more junior mix of staff.  This means that more work is done by fewer and more junior agency people.  This is self-destructive for the agency; there will be no happy ending if this pattern continues.
  2.  AOR relationships are pretty much dead, as advertisers increase and fragment their agency rosters to cover a wide range of media disciplines.  Advertisers are increasingly managing the integration of their agencies.  Each individual agency has a smaller and more passive role to play within the total roster.
  3. Production, to a very considerable extent, has been largely disintermediated, farmed out to low-cost production specialists chosen by Procurement, much as media planning and buying was disintermediated in the early 1980’s. 
  4.  Advertisers are increasingly taking control of Scope of Work planning and brand strategies across the media landscape.  This reduces the role and relevance of senior Client Heads and their strategic planners at individual agencies.

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?

What happens when agencies are left with only a Creative role to play?  Surely, advertisers will then start to use creative freelancers, who may bid for creative work via on-line auctions.  There is plenty of great creative talent “on the street” for freelance purposes.  What could keep this from happening?

Is this an overly-gloomy assessment?  A very senior agency executive put it this way in a recent conversation:  “Clients used to work with their AOR agency because the agency could solve 70% or more of their marketing and brand problems.  Today, an individual agency can solve not much more than 15% of these problems.”

Somehow, it is hard to believe that advertisers will flourish by starving their agencies and taking more of the agency’s value-added capabilities in-house. 

 However, advertisers are acting as if this is the correct path, and agencies are aiding and abetting by acting like powerless victims.

“No one in any battle has ever won anything by being on the defensive,” Cesar Chavez used to say. 

It’s time for agencies to fight back and win what they have been losing, day after day -- a respected leadership role at the table with their clients.