Agency Commoditization – Lost in Translation?
The Cannes Lions awards – the advertising industry's pre-eminent honors – occurring this week will undoubtedly provide awards to well-deserving examples of creative excellence. Although we do not claim particular expertise in making assessments of stand-out creative campaigns on a global basis, a recent one which resonated for us was on behalf of the Cannes Lions themselves.
As evidenced by the growing throngs of attendees, the "Lumascape flotilla" of ad tech-focused yachts, the celebrity involvement, the presence of CEOs from many of the largest media and technology companies and many other factors, the business behind Cannes has certainly grown rapidly. We're guessing that advertising campaigns such as the one described above probably wasn't a meaningful factor in bringing this latter audience segment out. By contrast, as the CEO of one of the world's leading advertising agency networks noted in an article in Digiday this week, "We reduced our participation this year by more than 50 percent. To come here, either you are coming to my creative meeting…you're judging or you have client meetings."
Even when the work is stellar and more obviously impacts a marketer's business, spending on a campaign can be difficult to justify and hard to explain. Media or marketing mix models can be applied to a given situation, but these are expensive to develop and depend on incorporating the right variables in order to make any assessment. The related subjectivity may be hard to explain to a marketer's procurement department in the business language or context that marketing procurement might understand it, framed using the language and frameworks that procurement executives from disciplines outside of marketing might use.
Put differently, it shouldn't be surprising if budget overseers respond to agencies and media owners much as a monolingual French speaker in Cannes would when presented with a question from a monolingual English speaker who, frustrated with an evident lack of understanding on the part of the listener, chooses to continue speaking in the foreign tongue with added volume.
The upshot of it all is that marketers' procurement executives, lacking evidence that is clear to them, are often dismissive of the agencies they work with and focus on price rather than strategy, if only because the price rather than the strategy is clear. This further leads to a notion that agencies are interchangeable with one another within a given discipline. They are commodities for lack of better word, differentiated primarily by the individuals working at any given pace and the relationships that each on has. In some ways, this perceived lack of differentiation in the media agency business has led to price cuts for like-for-like services and efforts from agencies to find new sources of revenue.
Of course, commoditization follows the industry in other spheres. Early reports on the US national TV upfront market suggests low pricing increases on negative volume changes for some networks. In part this is possible because as ratings fall for individual programs, marketers are less likely to be specific in demanding certain programs in their schedules. If marketers treat specific TV programs as commodities which produce Gross Ratings Points and nothing else, then marketers are not beholden to buying the packages that networks sell and can express indifference by widening the range of potential suppliers they might acceptably buy from. In digital advertising, the same is generally true, where most digital inventory is only as valuable as the data the marketer assigns to it, which means that that core content production will be something of a commodity to the marketer too, potentially. Everyone in the eco-system constantly fights to avoid commoditization. Scarcity is necessary to realize the kind of pricing – let alone growth – they expect to see. For digital media owners, scarcity may come from investing heavily in premium content or in data assets which add value to a sale. For TV network groups it may mean ensuring that as many of the sales they make include brand integrations with programming or other benefits that lock advertisers into a program schedule. For media and creative agencies, fighting commoditization will involve finding ways to add more value to services that they provide.
On the other hand, there might be value in embracing commoditization. Both sides may benefit from the capacity to speak "procurement-ese" as agencies better translate the choices that marketers want with the frameworks they need. It may mean developing more campaigns with the strategies that procurement executives might find preferable, such as production decoupling, even if an agency's creative team would prefer more conventional commercial message development. It may mean studying procurement text books and trade magazines to gain ideas that might be applicable in the agency world. Most of all, it probably should involve a cessation of bad-mouthing of the function of procurement. After all, functions that agencies perform in the media sphere are effectively forms of outsourced procurement.
Perhaps as the above campaign suggests, efforts to produce more break-out creative that marketers want to pay agencies might require exposing middling agency professionals described above to best practices, raising the bar for average work. However, more effort will still be required to explain the value that agency professionals provide to marketers through the language of procurement, which is the one they increasingly understand.
REPORT INCLUDING DISCLOSURES CAN BE FOUND HERE: Madison and Wall 6-26-15.pdf
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