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How Social Dismantled the Traditional Agency Model

How Social Dismantled the Traditional Agency Model

By Lizz Kannenberg / August 6, 2018

In 2014 I found myself at a crossroads in my ad career.

After exploring several options for my next move, I’d narrowed it down to two potential agencies.

One was a traditional, big-name legacy agency. One of the Big Ones I’d dreamed of joining when I was in ad school. The kind who’d written the book on the art of great storytelling, but still approached digital as an afterthought.

The other was a buzzy, tech-focused creative shop founded on the belief that “the story doesn’t work without the system.”

When I learned that the latter agency employed its own internal tech teams to effectively and autonomously bring their ideas to life, I was sold. I knew then that the days of the traditional agency model were numbered.

In the past, legacy agencies and large holding companies had always reigned supreme over smaller, independent shops. Big names meant big budgets and in an industry ruled by costly media like TV and radio, there was just no competing with the giants.

Until the Goliaths of the ad industry met their David: Social media. And everything changed.

Social (and all of digital media for that matter) was and is the great equalizer – a channel for brand building that doesn’t need big budgets or months of billable creative hours to reach people. It’s fast, affordable, and easily measured – all things traditional mediums (and traditional agencies) are not.

With the power and control of media and message consumption now in the (more empowered and impatient) hands of the people, brands realize they need to shift their communication strategies from broadcasting messages to building relationships – a change that for many big, traditional agencies has been very difficult.

In an interview for Ad Age’s podcast, “Ad Lib,” industry veteran and independent agency CEO Mark DiMassimo says, “Legacy agencies were built for a world where advertising drove the brand positioning. And that’s just not the case anymore.”

The majority of brand building now happens online in the digital and social realms through the overall consumer experience. Advertising is now just a small part of a larger picture that includes your content, your customer service, your values and the story you tell around it all.

Advertising, as DiMassimo puts it, “is just a lot less important than it used to be.”

What’s important now is making real connections with real people. To do that, agencies need to be able to deliver content and provide value to those people on their own terms – where they want it, when they want it, and how they want it.

Consumers of the social and digital age are no longer a captive audience and have little to no tolerance for broadcasted brand messaging. At a recent industry event, Marc Pritchard, the Chief Brand Officer of Procter & Gamble, cited the fundamental problem with advertising today as the simple fact that people just don’t want to watch ads anymore – especially on social.

Reports from the event say Pritchard pointed to the average digital ad viewing time of 1.7 seconds as one reason he believes the marketing world collectively is only delivering low-single-digit sales growth, despite $200 billion in digital and $600 billion in broader marketing spending.

That’s because today’s consumers primarily respond to brand content that is authentic, unobtrusive, and feels super personal. And if consumers have changing needs, clients will have changing asks from their agencies – asks that pose specific challenges to the traditional agency model. And while some of these challenges may be inherent, there may still be hope with the right changes.

Too Many Cooks

When UK-based market intelligence firm, Creativebrief, questioned 50 agency CEOs and 50 brand CMOs about the changing role of agencies, they found that 68% of agency respondents and 72% of brands believe that ‘agency structures, processes and pace of delivery’ are not developing at the same rate as a brand’s needs.

When asked her thoughts on why this was the case, KFC’s global CMO Jennelle Tilling responded, “Marketing has fundamentally changed from marketing to publishing, and the pace and turnaround is so much faster.”

Traditional agencies have always excelled at telling a great story. But to build and maintain real relationships with their audiences in the digital age, brands need to tell great stories every day – not just one per quarter or year. Therefore the traditional creative process is just too long. As Tilling puts it, “We need quick pulses. Brands can not wait six weeks for an idea.”

Big agencies will need to trim the fat and flatten out to avoid the common communication challenges that contribute to these long timelines. Too many voices reduce the quality of a conversation, and complicated leadership hierarchies impede swift decision making.

The other reason to stay small is that brands are cutting their creative budgets. Gene Grabowski, a partner at crisis communications firm KGlobal, says that “clients don’t want to pay for unnecessary overhead anymore or talent they don’t need, which gives a leg up to smaller, independent agencies and freelancers.”

Traditional agencies are notorious for employing large teams of up to 15-30 people to manage the client relationship and creative of one brand. But that just won’t fly now that brands are looking to cut back and reduce fees.

Not Enough Data

A frequently puzzling and frustrating aspect of traditional agency culture is the objective, and often speculative, nature of creative. Many big ideas are born from gut feelings and human insights rather than concrete information about real people.

But “creative” doesn’t always mean “effective,” and clients no longer have the time or resources to wait until a campaign is over to understand whether it was successful. Data used strictly for final measurement is a practice of the past. Agencies of the future will look to data as an essential part of the creative process – serving as a tool for both preliminary insight and ongoing optimization.

The marriage of data and creative will take more than just a shift in mindset, though. Traditional agencies may consider partnering with an ad tech company to expand their data expertise and offerings.

In a survey conducted by eMarketer, 74% of senior marketers said that it’s important to have an agency with marketing data/analytics capabilities and that this would be a deciding factor in the agency selection process.

And while ad tech companies boast the software, tools and expertise to effectively target, deliver, and analyze digital advertising efforts – they could definitely benefit from the creative capabilities and experience of traditional agencies.

At the very least, agencies will need to make sure their staff includes an individual or team with experience dissecting consumer data for meaningful, creative insights.

Stuck on Retainer

How legacy agencies get paid is also preventing them from being as nimble as clients now require. The traditional agency compensation model is largely based on long-term retainers – a source of secure, guaranteed income for the agency, and a dedicated, singular partner/consultant for the client.

The problem with retainers is that they’re void of transparency, and lack the accountability on the agency’s part to deliver the measured impact of their work. Many times agencies commit to the same type of work year after year in a retainer relationship, and clients never really have much insight into where the hours and the resources are really going.

A 2017 study from ANA on agency compensation revealed the first drop in labor-based fees since 2006. The study indicates that, “although [labor-based compensation] remains the most-used method, it is losing momentum in favor of a small, but increasing, use of traditional commissions and value-based compensation.”

Agencies of the future who must respond to the growing demands of clients for more transparency and efficiency are going to have to move to a different compensation model if they want to avoid being overlooked for smaller agencies operating on project, values-based models.

Two Steps Behind Tech

Great stories remain the foundation of the advertising industry. Creative storytelling has always been the legacy agency’s bread and butter – winning pitches through drama and delivery.

But in the digital age, it’s not just the brands who are storytellers – it’s also consumers.

Real people want experiences. They don’t want to hear your story, they want to make you a part of theirs. I love the way Accenture Interactive’s Jeriad Zoghby puts it: “Customers aren’t looking for brands to define their journeys, but to design experiences that help them create their own journeys.” To create these desired experiences, agencies need to start focusing more on the systems that deliver them.

And while many of today’s traditional agencies have started to expand their digital focus and tech proficiency, their progress hasn’t been enough to close the extensive gap between their capabilities and those of more savvy digital shops.

Technology is an agency’s new competitive advantage, and in order to stay ahead you’ve got to be thinking ahead – to tomorrow’s tech. Learning and mastering advanced technology like AI, automation, voice and virtual reality is crucial for agency survival.

But hiring creatives with digital experience is not going to be enough. The agencies thriving in this digital transformation are those who employ their own internal tech teams – people solely dedicated to building cool shit. How many times have agency creatives heard, “That’s an awesome idea, but we’d never be able to do that?” Creativity skyrockets when it’s not bound by the limits of existing technology. True innovation starts with the systems.

The “Mad Men” era is long gone, yet some legacy agencies are clinging to prestige and the timelessness of a well-told story. But social media is real people, not a boardroom full of clients. And not even Don Draper can sell an idea that isn’t based off of real, data-informed consumer insights, or that can’t be measured and optimized in real time.

If these agencies don’t make some serious changes during this seemingly interminable charge of digital and social transformation, they’ll run the risk of extinction – or perhaps even worse, irrelevance.

And it won’t be as simple as a shift in mindset.

The very core of their organizational structure – operations and partnerships – needs disruption. Their teams need to become leaner, their relationship to, and understanding of, data needs an overhaul and their compensation model must shift from retainer to return – challenging them to personally measure and prove the efficacy of their efforts. And finally, they need to build technology into the very DNA of their organizations.

Either that, or officially concede their dominance to the smaller, independent agencies that are nimble – and humble – enough to adapt.

Lizz Kannenberg

Lizz Kannenberg

is the Director of Content at Sprout Social. Kannenberg is a career strategist and creative lead for social content. She has developed and executed social content campaigns for CPG, automotive, alc/bev, government and lifestyle clients by creating credible, compelling conversations between brands and communities. Offline she can usually be found playing bass in an indie rock band or out exploring with her husband and young son.
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