It’s no secret that agencies are under pressure. Clients are pushing back on non-transparent business models, consulting firms are setting up digital media departments, publishers are getting organised so they can hold inventory rates, and, the once ‘golden child’, the agency trading desk is having a tough time proving it serves the client rather than creates value for the agency holding group, argues IPONWEB’s Brian Fitzpatrick.
The erosion of the trust relationship
Before the advent of digital media, the contract between client and agency was clear; the client would entrust the agency with its media spend; in return, the agency would identify the most appropriate audience and use its collective buying power to get the best rates from press, outdoor, radio and TV media owners. Fast forward to today – digital media is the largest sector in advertising and Google and Facebook hold much of the power when it comes to finding the audiences brands need to reach.
The agency-client relationship used to be built on trust over years of working together. But the status quo was upturned with the financial crash of 2008, after which consumers stopped spending, resulting in brands suffering and looking for ways to cut costs. An obvious way for brands to cut costs was to change media buying agency, and agencies won based on their ability to get the best price – everything else becoming a secondary consideration.
During the rise of the agency trading desk, agency holding groups focused on pooling clients’ data and implementing non-transparent business models. Under pressure to maintain margins, the focus was on buying ever-cheaper inventory and applying data targeting to reach the brand’s audience. The positive brand association derived from having an ad appear on FT.com or Vogue.com was replaced by a ‘pile it high, sell it cheap’ mentality, causing trust to melt away with both client and agency playing their respective parts to make this a reality.
Today we find a media industry that, as well as suffering under a lack of trust, is seeing a shortage of investment and a reliance on third parties to innovate.
Agencies are struggling to demonstrate difference
Agencies are struggling to find their way back, but balancing the desire to reinstate trust while operating transparent business models is a nut many are finding very difficult to crack.
A key issue that needs to be addressed is how to differentiate one agency from another. Due to lack of investment, many agencies use the same third-party buying platforms; three of them pitching for the same business, for example, will struggle to demonstrate they are different as they all use the same buying technology with the same features. And while it used to be that individual and talented team members would differentiate one agency from another, in a world of algorithms, micro-targeting and automated audience segmentation, it’s difficult for individuals to stand out.
That’s not to downplay media buying platforms; the majority are excellent, providing a level of targeting and optimisation that have never been seen at scale in the past. However, it doesn’t help agencies if third parties undertake all innovation and development.. Clients need to feel that they are at the centre of their agency’s world, and that the agency is one of the new innovators. But innovation can’t be outsourced and agencies are discovering this the hard way.
Agencies need to innovate
One possible solution is for agencies to give control of first party data back to clients and shift their own attention to taking charge of the technology they are working with by building their own algorithms for media buying, optimisation and targeting. Agencies can get clients back on side by getting back to basics and focusing on what they are best at – understanding the importance of brand association in a way that their online media buyers, technology companies and consulting firms don’t. How compelling would it be if an agency were able to translate this art into the digital media ecosystem and take it into a pitch? There are countless ideas agency professionals could come up with, but unless innovation is allowed to happen inside the agency, the technology platforms will hold this back.
Many in the advertising industry are of the opinion that brands should work directly with media owners. They believe that agencies are no longer relevant in a world that’s increasingly being driven by giant social media networks and search companies that know so much about individuals’ habits, preferences and even what they are going to buy next.
There is a risk that this will become a self-fulfilling prophesy. But agencies that put innovation at the core of their offering demonstrate both their fitness for the future and their commitment and ability to deliver against clients’ goals.