Small advertising agencies had to reevaluate their business plans when the 2008-09 recession forced their clients to cut back on spending, reducing agency fee and commission income right in the middle of the industry’s digital and marketing revolution. Even for those that survived, there had to be lingering questions about how to weather future downturns in the economy.
Should they diversify their services to maintain a balanced source of income?
Should they specialize to become the best in their field, particularly one of the newer digital fields?
Advertising Age Small Ad Agency of the Year
Rockfish Interactive of Rogers, Arkansas had already been doing both well enough to be named the Advertising Age Magazine “Small Ad Agency of the Year.” According to Ad Age, Rockfish took in $4.6 million in 2008 revenues and was projecting $7.8 million for 2009.
“That’s a growth rate of nearly 70%, impressive in any year, let alone during a recession that’s knocked the wind out of many agencies,” Ad Age wrote.
Rockfish has succeeded by arming itself with an arsenal of digital services for giants like Wal-Mart, Proctor & Gamble, Hershey and Tyson Foods. Of course, it hasn’t hurt to be located in Wal-Mart’s back yard, in the same town the retail giant located its first store.
Clients of that size testify to the caliber of the Rockfish digital knowhow. But the agency has also distinguished itself with some entrepreneurial business of its own, using skills perfected in its research section to launch a coffee company chain as well as a successful website and specialized software programs.
“We don’t want all of our cash flow and revenue to be 100% client-driven,” CEO Kenny Tomlin told AdAge. Small agencies are especially vulnerable to economic downtowns because most of them rely on income from a few clients.
The Rockfish business incubator not only brings in additional revenue, but it also impresses prospective clients that it understands business.
Other agencies have added public relations or specialized marketing and graphics functions to strengthen and diversify their revenue stream. Others have invested in being the best in one specialized field, especially one of the new digital or social media fields.
Agency Consultant Michael Gass
There has been “a paradigm shift” in how small agencies acquire new business, according to Agency Consultant Michael Gass. He wrote in his blog:
“According to a recent CMO (chief marketing officer) survey, 80 percent of decision makers say they found the vendor (agency), not the other way around.” That’s a long way from the “cold calls” that many agencies made in the past.
It’s also a dangerous condition that might lull some agencies into waiting for business to come to them rather than aggressively pursuing new clients.
But to be sought after in today’s digital media, Gass said small agencies need:
A working knowledge of search engine optimization (SEO)
An active agency blog
Presence in a social media.
That’s still strange territory for some small agencies, but an area practically all agencies will have to explore in the future, sometimes by adding people well versed and experienced in those fields.
The Future of Advertising Agencies
Even with their faults, the “Mad Men” and “Trust Me” television programs may be creating perceptions of advertising agencies that can shock business people accustomed to high efficiency and production standards. The resulting cynicism, plus the unknowns in the post-recession economy, may be the straws that force the ad industry to reinvent itself.
However, there are so many conflicting factors demanding change that there are few indications of what the new business model will be.
As John Hagel writes on his blog “Seismic shifts are shaking up the world of advertising big time. But which shift is most relevant?”
Video Commercial Functions
A few of the obvious shifts:
The digital revolution is changing video commercial functions and expanding their horizons.
Newspapers and newspaper advertising have declined, downsizing a major source of agency business.
Network television must now share the market with cable.
The Internet and mobile media command a growing share of the ad market.
Television advertising has been changed forever by Tivo, VCRs and fast- forward buttons.
Traditional billboards must now share revenue with digital boards.
New Business Models
How will the industry, particularly ad agencies, work all this into new business models? Some possibilities:
Boutique agencies may flourish when credit becomes available. The Internet and digital revolutions give people more freedom to open small agencies that specialize in digital functions and develop closer client relations. Recent massive layoffs in big companies makes ownership more appealing.
The agency commission and retainer systems may be reevaluated. Recession-bitten advertisers will probably be wary of a compensation model that rewards agencies for spending, rather than saving, client money. In 2009 Anheuser-Busch canceled its agency retainer arrangements, opting to pay by project.
Advertising awards. “Trust Me” may have already convinced some business people that agencies focus more on awards than on producing effective ads for clients, an impression that may not be far from the truth in some agencies. Contest criteria could be tilted more toward client results than artistic excellence.
Connor, “Trust Me’s” creative writer (played by Tom Cavanagh) reinforces the perception that ad development depends more on inspiration than research, in effect a discipline without much discipline. The Chicago agency’s casual work regimen and the outburst that “clients are idiots” won’t improve agency images among business people unfamiliar with advertising
Targeting may replace creativity as top priority as more ads move from television to the tighter confines of the Internet and mobile media. The rise of social networks may place more emphais on writing effective 140-character messages for Twitter and producing videos that wow folks on Utube.
The ability to measure and test online and mobile ads may lessen the dependence on focus groups.
Media-buying whizzes may become the agency stars, a development that could trickle down to university curricula.
Media Ad Development
Media companies may expand operations to increase revenue from ad development. A blogger wrote in 2008 that agencies are no longer needed because media can better combine research and creativity. It was just one young man’s opinion, but Ad Age gave him prime exposure.
CEO Maurice Levy told AdWeek in 2009 that the Publicis Group is already changing its business model.
“We’ve reinvented our agencies and changed the way we’re working. In rough times, advertisers are in need of creative agencies with new, bold ideas and the imagination to connect and reach consumers,” Levy said.
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