Is there a 'Normal' to Return to after this Disruption?

This is a dire view of the industry situation but it is founded on hard data and facts Consider the followingAdvertisers have taken over the direction of marketing reducing their partners to lowpaid executors but this has not over the past decade restored brand growth to pre2008 levels Confusion continues to reign over quotwhat drives brand growthquot in the face of media fragmentation ecommerce and the generational demographic shifts of our society COVID19 disruption has added additional uncertainty to this question When the crisis passes the industry is likely to remain just as confused about the media and creative choices that drive brand growthIn response to low brand growth rates agency fees have been cut every year despite the massive output increases due to digital mobile and social advertising This has driven down the price of agency outputs I see nothing to turn this trend around amp8211 agencies have begrudgingly accepted price declines as a normal part of operations to be dealt with through continuous cost reductionsAgencies have routinely downsized and juniorized liquidating their problemsolving capabilities in order to generate shortterm profits in the face of declining price Agencies are now shortstaffed with relatively junior people and the recent round of cost reductions announced this month WPP Omnicom Publicis Dentsu Aegis will only accelerate this unfortunate trend Agencies will be enfeebled as they enter the recovery periodHolding companies are up against the wall Holding companies have a limited ability to add value beyond what can be generated by their costreduced businesses Holding company share prices were in decline since well before the current crisis amp8211 Publicis39 high was in 2014 WPP39s in 2015 Omnicom39s in 2016 How can holding companies restore growth and profitability after this crisis given the extreme costreduction measures they have required from their agencies If they cannot grow again they will be broken up by Wall Street whose investors are likely to conclude that the parts are worth more than the wholeThe chronic cost reduction measures taken by the industry have solved shortterm financial challenges but they have done nothing to strengthen industry capabilities It is distressing to see the magnitude of cost reductions today amp8211 designed to shore up share prices amp8211 but having the effect of digging very deep holes for the futureAgency CEOs and advertiser CMOs need to invest instead in learning how to master the fragmented media mix and restore brand growth after the COVID19 crisis passes Success in achieving brand growth will take the pressure off of costs and fees brand success will be converted into Wall Street successAgencies who invest in capabilities and succeed in helping their clients grow should be able to charge higher prices thus putting a floor under industry prices and restoring financial health to their operations Success in this dimension will help them pay for better talent and staff up appropriately to handle their extensive workloadsWhat is needed to prepare for postCOVID19 is investment not desperate costreduction efforts that will only make things worseHolding companies should consider taking billions of dollars in hits to the income statement and balance sheets to create investment reserves for the next few years Forget about defending share prices for 2020 amp8211 that is a lost cause Take the quotbig bathquot and use the reserves to invest for the futurePrivatization of the industry though the efforts of private equity players may be required to wean industry executives from focusing so intently on quarterly financial performance amp8211 giving them respite to invest rather than further enfeeble their operationsThis would be a better outcome if it were planned today amp8211 instead of seeing it emerge as the outcome of an industry failure after the passing of the COVID19 crisisPhoto Credit Roz Chast The New Yorker The Cartoon Bank With permissionClick the social buttons to share this story with colleagues and friendsThe opinions expressed here are the author39s views and do not necessarily represent the views of MediaVillagecomMyersBizNetamp160

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Is there a 'Normal' to Return to after this Disruption?

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Michael Farmer

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Is there a 'Normal' to Return to after this Disruption?

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