Future of Advertising Agencies

August 3, 2009 at 5:23 PM Jennifer 1 comment

Here is the other strategic outside influencers group I was placed on. I was to report on the future trends regarding advertising agencies and how they will change doing business with Florida Communications Group in the future. Some trends I have found:

Revised Payment Model The old 15% of spending model of paying for agencies becoming more irrelevant, particularly in the “free” media social media world. Likely a new revenue model will arise based on results, cost savings, brand testing, etc.

The agency commission and retainer systems may be reevaluated. Recession-bitten advertisers will probably be wary of a compensation model that rewards agencies for spending, rather than saving, client money. In 2009 Anheuser-Busch canceled its agency retainer arrangements, opting to pay by project.

Electronic Ordering: Agencies will rely more and more heavily on electronic ordering processes such as ePort television purchasing and Microsoft/comScore’s digital media planning-service Reach and Frequency Planner to quickly process orders. The simplicity of electronic ordering almost takes the “brain” out of media planning, leading agencies to consolidate and layoff higher level buyers in lieu of less buyers with less experience placing more buys. A media buyer used to buy only several markets; now, it is common to see a buyer straight out of college placing buys for 25 markets or more. This leads to less strategic thinking in media buys and more straight Cost per point buys. This is not a benefit for the client.

Social Media: Agencies will be much more involved in helping companies manage social media advertising. Agencies will need to embrace new technologies quicker and become a more global “advertising management” company, not unlike the media management firms, but broader in scope, especially including the creative process and product.

…And the particular trend that is most of interest to our company, as this is EXACTLY what our business model is evolving towards…

Media Companies Acting as Agency: Media companies may expand operations to increase revenue from ad development. A blogger wrote in 2008 that agencies are no longer needed because media can better combine research and creativity. It was just one young man’s opinion, but Ad Age gave him prime exposure.

One real challenge that agencies face is competition from media. Jack Neff reported in AdAge in November 2008 that Proctor & Gamble, Johnson & Johnson, Kimberly-Clark Corp., Clorox Co., Hewlett-Packard and Verizon have called upon media to serve as “co-creators of programs” to reach consumers. “They sometimes bypass their usual media and creative agencies in the process.”
Becky Saeger, chief marketing officer for Charles Schwab added that “if I were an agency, I would be really worried about being disintermediated,” a financial industry term meaning eliminate the middle man. More worrisome, Saeger said: “More and more, agencies are almost in the way sometimes.”
Earlier in 2008, Brian Reich, of Echo Ditto in Washington, D.C., argued in an AdAge video that “marketers as well as consumers would be better served if TV networks took over the full functions of advertising agencies.”
Gary Elliot, vice president for corporate marketing at Hewlett-Packard said in 2008 that HP wants to work directly with some media companies “because they have relationships with customers and can build that quickly and immediately and give us feedback.”
Despite all that, Neff said “there doesn’t seem to be any real danger, at least at P&G, that media companies will supplant ad agencies.” It’s more likely media companies will handle agency functions on occasion, he said.