Ad agencies are struggling to develop their capabilities to match the requirements of an increasingly digital world, according to the Chief Marketing Officer Council.
The majority of traditional advertising agencies are not meeting the challenges of the digital age, according to a new report from the Chief Marketing Officer (CMO) Council, which reveals that just 9pc of senior marketers believe agencies are doing a good job of evolving and expanding their service capabilities.
The ‘More Gain, Less Strain’ study, which is based on a survey of more than 250 senior marketers around the world, as well as in-depth interviews with over 20 leading brand advertisers, claims that the marketing shift to digital, social and mobile channels is significantly impacting agency relationships, compensation models and use of marketing technology and measurement systems.
“The biggest indictment is the fact that clients are not seeing their traditional agencies as being up to the task of taking them to the next level of integrated digital market,” says Donovan Neale-May, executive director of the CMO Council. “It’s clear and apparent that there’s a redirection of spend and there’s a massive transformation going on from an operational standpoint of marketing – systems, practices, platforms and processes – and agencies are to a certain degree being sidelined in that process.
“I think some of the bigger firms have obviously gone out and acquired many different entities. The perceptual issue today is that clients have felt that the bigger firms, while they’ve amassed lots of capabilities, haven’t actually been able to integrate them and offer a truly holistic package where online and offline is tightly coupled and interconnected.”
He points out that agencies that grow through acquisition continue to have traditional mindsets and mentalities. “You still have agencies that are creatively driven and the creative product for the offline world is very different in some respects than the creative products in the online world. A lot of the online campaigns are more consumer inspired content. You can’t control and manage the delivery of those messages because it’s a more democratic approach, it’s much more interactive, it’s much more engagement oriented and it’s much more conversational.
“So the whole methodology and approach of digital advertising is not really easily adapted to the world of social media, the science of search and even, to a degree, the engagement options online. You’ve got to be intrusive and you’ve got to stand apart and that takes a different type of technical creativity.”
The traditional firms are holding up when it comes to doing traditional work, according to Neale-May. “It’s just that the clients appear to be looking to other sources for guidance and direction when it comes to mobile, social and local, and there are clearly a bunch of new players in there that are platform-based, people that are bringing technology-based marketing solutions and hosted services that are efficient, effective and measurable.”
Neale-May says the CMO Council’s members report quite a bit of switching of digital marketing resources, as well as a view that big, global agencies don’t have a truly integrated offering and capacity to execute in an effective, localised way in emerging markets. As a result, many are turning to specialised boutique agencies in regional markets that have deep domain knowledge in specific geographies and vertical industry sectors.
Marketers are being challenged to transform their organisations, he continues. “They’ve still got a lot of folk who are functionally focused. They’re not looking at the way all the different pieces fit together. They’re not taking an integrated campaign centric view.
“And this is pervasive. It’s an organisational challenge on the client side. It’s not an agency problem. Clients really are struggling to figure out how all these pieces fit in. They don’t have the knowledge and insight inside their organisations, although they’re obviously moving in that direction. They’re saying, ‘We’ve got to find people who are smart and talented and a lot of this stuff we should be doing in-house’. Why? Because where does customer data reside? Customer data resides inside that organisation and the way the world’s going today, it’s all about being customer centric, analytically driven and targeted and utilising customer behaviour and customer insight and customer intelligence and delivering a more relevant personalised message.
“That’s not to say that traditional brand advertising is going away by any means. It’s really saying there’s a paradigm shift going on in marketing and marketers are scrambling to find out how the pieces will fit together.
“It’s about how do I use the mobile channel with over five billion connections to people who in many cases have no physical address or internet connection? How do I reach this visible crowd of people on social networks, and business communities, all connected and all looking for peer validation and insight? And then how do I localise?”
The report also reveals that just 44pc of marketers surveyed have a formal scorecard for rating agency performance on an annual basis, compared with 52pc who do not. Just 23pc have solutions or hosted services to enable agency benchmarking and evaluation, while 24pc have developed best-practice models or formal guidelines for client/agency relationship management.
More significantly, according to the CMO Council, is the fact that 65pc do not employ any form of ad scoring or tracking services. This number is noteworthy given the huge level of media and creative spend through agency partners. Compounding the problem, 38pc of marketers rated their ability to extract optimal value and return from agency partnerships as poor or in need of improvement.
“There’s a lack of awareness of what’s available,” says Neale-May. “In many cases the agencies manage and control the scoring and measurement. Traditionally, it’s been done with studies that tie back to concepts like recall and recognition and awareness and brand affinity. That’s the soft metrics. The hard metrics are ones that are in some cases more difficult and require an integrated approach to campaign measurement and require visibility into customer engagement and customer conversion and customer upsell and relationship building.
“Marketers have got to be as focused today on brand experience as brand awareness. And campaign success has to do with creating a more predisposed environment, impacting the selling cycle, increasing potential close rates, heightening the value of the deal, filling the pipeline with qualified sales ready opportunities. These are more challenging metrics for agencies to step up to than the traditional way of doing research to justify spend.
“Today, you can see campaign impact instantly. You can see the light-up of conversation online. You can see the traffic to a website. All of a sudden the mechanisms for tracking and scoring are different and not all agencies like that. To them, advertising is a longer term, repetitive investment where you’re building brand equity, brand trust, brand recognition and brand reliance. The campaigns aren’t designed to drive direct response.
“People in the direct marketing business know all about this and they’ve been doing it for decades. It hasn’t necessarily been pretty stuff but it’s been effective in terms of helping companies acquire customers. And the focus today in marketing is about customer acquisition and revenue generation and market share.”
The study also highlights a move from agency retainer to project-based billing, which has been embraced by more than 40pc of marketers. Thirty-six percent, meanwhile, are requiring a wider range of services for the same monthly fee.
“Because the marketing mix has become more fragmented, it’s a hideously complicated process to figure out how to allocate spend,” says Neale-May. “And then to reallocate or continuously adapt or modify your spend. There’s a raft of different mechanisms for pricing marketing services these days.
“Clients are getting smarter,” he says. “The financial department and CFOs are getting more involved in agency selection and compensation. The procurement function has had a very significant impact and is requiring and demanding structured evaluation and greater transparency in agency selection. They want to get more granular in how agencies are pricing their services and what they’re getting for their money. Clearly there’s a shift in how agencies are selected and how they are being compensated.
“So agencies have to modify and adapt and look for ways to generate revenue and they themselves could become resellers of technology. Some are doing quite a good job of that, using platforms that are white-labelled from somebody else and integrating. Some of the more progressive firms have been getting smart about the fact that they can become experts in a particular platform area or technology area and deliver more value to their clients because they have knowledge and insight into their client’s business and the platform provider doesn’t. And they can customise the platform according to the requirements and needs of the client. So there’s definitely big opportunity here for agencies.
“But agencies have also got to think about the fact that clients definitely are rethinking compensation. And they would rather see a menu driven, more a la carte approach so they can quantify the value and break the services down into projects and activities and components, price them out and do a spending plan. In some respects that should also help agencies be more disciplined in how they use their time.”