4 reasons why ad agencies no longer have value (and a few things we can do about it)

moneyPeople keep asking me what the future of general service advertising agencies looks like. As they are today? Not good. Here are four reasons why these agencies are in trouble and a few things they can do to fix themselves.

1. Information asymmetry no longer exists. Clients used to come to agencies because we had proprietary information they didn’t possess. Perhaps it was unique media knowledge, or intimate research on consumer behavior. Regardless, clients paid us partially because we knew what they didn’t. Today, with the internet, clients have just as much access to information as agencies do. So, professing unique knowledge as an advantage doesn’t wash anymore.

2. Desktop publishing is widespread.
Ten years ago clients had no idea what Adobe Photoshop was, let alone how to use it. Today, almost everyone knows about it, or enough of its use to put together an ad or some collateral. The expertise we possess in our software tools has been compromised.

3. The defection of agency personnel. This isn’t a new story, but more and more agency folks are defecting to client side and bringing all of their knowledge with them. Generally their first course of action is ‘ditch the agency’ because they feel that they possess all of the required knowledge (it also helps them make a good case for their own remuneration).

4. Marketing departments need to prove ROI. Generally speaking, ten years ago, marketing budgets were deemed ‘necessary evils’. “I know I’m wasting half of my advertising budget. I just don’t know which half.” No one understood what was working, therefore no one knew what to cut. Today, a need to prove a return on marketing dollars spent is raising marketers’ scrutiny of the work they receive from agencies. Agencies that do not address this need are in trouble.

Okay, there’s the bad. Now here are a few things we can do about it:

1. Be accountable for ROI. This is an area we are aggressively researching at our agency. Tie our compensation to the performance of the campaign.

2. Narrow the scope with respect to software and knowledge. Anyone can know a little bit about everything. But few people know a lot about one thing. Agencies that focus on fewer things will possess expertise and will increase their geographical market. The analogy I use is the difference between a GP and a Brain Surgeon.

So there is hope, but only if we’re willing to change. Of course we can also close our eyes and hope that nothing changes, too. But anyone who has been in this business for any length of time will tell you – our industry is all about change. To ignore it will be at our peril.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: