Marketing as a profession has allowed itself to be moved downstream, and ‘business consultants’ have come in to fill the void. Tim Williams offers five ways in which advertising agencies can transform their business models and move beyond being viewed as offering a commodity.
It’s an unfortunate fact that the term ‘marketing’ has become associated almost exclusively with only one of the four Ps of marketing, namely Promotion. But of course, marketing is also made up of Product, Place, and Price. Agencies and client marketing organisations alike are becoming increasingly marginalised in the business world by allowing themselves to be boxed into just the Promotion business.
In the earlier days of marketing, which emphasised all four Ps, marketing was a board-level function in corporations. Today, that’s often not the case. Marketing professionals are usually seen as the ‘advertising people’. Marketing as a profession has allowed itself to be moved downstream, and ‘business consultants’ have come in to fill the void.
As a result, much of the immense brainpower and creativity in agencies is wasted on the increasingly routine and somewhat mundane production work that now accounts for around 80% of a typical agency’s revenues. Agencies have been pushed so far downstream that they now sometimes compete directly with printers, publishers, and production companies for work that is seen by clients as a commodity.
One positive sign that the agency business is starting to develop new solutions is the contemporary crop of competitions based on inventions and innovations, like the Project Isaac contest in the US. Instead of the traditional prizes categorised by medium, the honours are in such areas as Marketing Invention, Brand Performance Invention, and Digital Publishing Invention. Even the Cannes Lions are moving in this direction with a new Innovation category.
As agencies move beyond their self-perception as a ‘service business’, they’re creating new forms of value for themselves and their clients. We now see agencies as product developers (from whiskey to mobile phones), intellectual property owners (from apps to databases), and even incubators (from cosmetics to software). These firms are willing to place a series of bets on themselves and literally invest in their future.
How do they do it? Here are five ways the black swans of advertising are transforming their business models:
Unmet needs: Moving beyond widely available services to develop solutions for the unmet needs of marketers. The profit problems at most firms can be correlated directly with a service offering that the business strategist Clayton Christensen calls ‘overdeveloped services’. It’s impossible to charge a premium price for something marketers perceive they can get down the street at half the price. The most enlightened agencies turn their energies to the ‘underdeveloped services’ designed to meet the unmet needs of the brands they serve.
Productisation: Turning selected solutions into programmes and products. Labour-based services on their own are not very scalable. But programmes and products are. By packaging up selected services into programmes and products, agencies can enhance the perceived value of their offerings and create the potential for new revenue streams.
IP development: Packaging intellectual property in ways that can generate recurring revenues. Most firms have a wealth of valuable IP scattered across their file servers. So instead of approaching every assignment as ‘work for hire’ in which the client automatically owns the IP, forward-looking firms look for opportunities to create and license their intellectual property. Why should marketers buy everything agencies do for them when they can rent some of it for much less?
Experimentation: Adopting a test-and-learn approach to solving marketing problems. The most enterprising agencies have the attitude that every assignment is an opportunity to apply original solutions to familiar problems – the equivalent of a marketing test kitchen.
Non-standardisation: Aligning economic incentives through creative remuneration models. When asked by a prospective client to supply their ‘rate card’, these firms respond instead with their version of a ‘pricing stack’ – an assortment of different ways the firm prices its services. These can include such approaches as fixed-price options, revenue sharing, licensing, subscriptions and royalties.
In a business context, black swan theory posits that just a small number of people and actions account for what we consider extraordinary success stories. So the black swans of our business treat innovation as a full-time job, not something you do in your spare time. They have chosen to exit the vicious cycle of dutifully fulfilling client-supplied scopes of work and invest the required resources – human and financial – to create unexpected forms of value for themselves and their clients.