The factors that led to professional and financial success in the first decade of this century are not likely to predict your success in 2015. That’s because the forces that are shaping the advertising and marketing business and requiring agencies to transform major aspects of their business models.
From my perspective, here are the three most important predictors of agency success in 2015 and beyond:
1. Commitment to a focused positioning strategy.
This is by far the most critical decision you can make for your agency. Your positioning strategy drives literally everything you do, from who you hire to how you prospect for new business. This of course could be the subject of this entire article, but suffice it to say that “out-of-the-box thinking” is not a positioning strategy. Neither is “integrated” or “full service.” In fact, claiming full service actually indicates the absence of a positioning strategy, because positioning is about deciding what you’re not.
Without a doubt, the agencies that are thriving in today’s disaggregated marketing environment are those who have chosen to stand for something instead of trying to stand for everything.
2. Willingness to experiment with new compensation models.
When it comes to the subject of improving agency compensation, most firms take the attitude that it’s up to clients to fix the problem. But don’t forget that you’re the seller. It’s up to you to decide how you want to charge for your services. In the many years our firm has been working to help change the agency pricing paradigm, we have often been surprised to hear from the client community that they don’t like the current system either. In fact, after presenting to a group of clients at a conference of the Association of National Advertisers, one CMO of a large respected company asked me “Why aren’t my agencies coming to me with new ideas about compensation?”
Clients increasingly don’t like the hourly rate system because it puts the interests of the agency and the client at odds; what the client wants less of (agency hours) the agency wants more of. This misalignment of economic incentives is what’s responsible for the erosion of trust that has occurred since agencies instituted the hourly rate system in the mid-1980s (yes, believe it or not, agencies have not always billed by the hour).
The solution is for agencies to price their services the way the rest of the business world does, based on the value (real and perceived) to the buyer, not the cost to the seller. When’s the last time you walked onto the lot of an Audi dealer and asked, “I really like this A4, but how many hours did it take to build it?” We taught clients the hourly rate system, and now its time to unteach them.
3. Development of new types of revenue streams.
Because clients have come to view many agency services as “commoditized,” agencies must look to the development of new service offerings in order to generate new and better sources of revenue. The progressive firms that have created “labs” over the past few years are able to get off the “work for hire” treadmill in which the agency just takes orders and produces work that is automatically owned by the client. The emerging view is that agencies can – and must – develop marketing products and services that they themselves can own, which will help them generate recurring revenue streams by charging for usage. This is not as far fetched as it sounds. Remember that most of the service providers hired by agencies – photographers, illustrators, actors, musicians, etc. – make their living this way. One of the senior executives I know at the 4As believes that agencies within the next few decades, agencies will make the majority of their revenues this way.
Overall, to optimize success in 2015 and beyond, agencies must be willing to move beyond the high-volume low-margin work that has come to characterize the business model of most firms. Instead of trying to meet the typical needs of the typical marketer in more efficient ways, the real profit pools will come from developing service offerings that address the emerging and unmet needs of today’s clients. Remember, what’s scarce is valuable.
Written by Tim Williams, Ignition Consulting Group | www.ignitiongroup.com
Tim Williams roams the globe in search of not only best practices, but “next practices” in the agency business. As a career agency professional and founder of Ignition Consulting Group and a perpetual student of business strategy, Tim works with agencies both here and abroad in the areas of agency positioning, structure, and pricing. In the process, he has written two books, authored articles for magazines like Advertising Age, Communication Arts, and Campaign and has been interviewed by news organizations like the New York Times, Wall Street Journal, The Economist, and National Public Radio.