In a landscape where clients are looking for different solutions and ad agencies are suffering from a lack of differentiation and the threat of disruptive new entrants, agencies need to avoid commoditisation by reinventing the business model, creating more value to clients and capturing the next wave of growth

De-commoditise the ad industry

By Ahmad Abu Zannad, Leo Burnett

It is a fact of life that certain industries are continuously facing the threat of extinction. While many factors contribute to the demise of these industries – disruptive new entrants, advancements in technology,

economic circumstances – the main problem lies within their own organisations: the lack of real innovative thinking when planning for the future and failing to understand that what worked for them in the past will not rescue them from the threats facing them in the future. In our recent history, we have seen Netflix dismantle the DVD rental industry and eventually take it out of business. We have seen Uber disrupting the transportation industry and Airbnb disrupting the hospitality industry, and how these two new entrants threw into serious question the fate of these two humongous traditional industries. Today, there is no doubt that this very same threat is facing advertising agencies, and if we fail to do something major about it, we too will be facing the threat of extinction.

This threat has been expressed by academics, industry practitioners and our clients. For example, in a survey conducted by RSW/US, 320 marketing and agency leaders painted a bleak picture for agencies; Reebok, Acura, MetLife and Hilton were among the marketers, while the agency sample included leaders from networks such as Leo Burnett, DDB, J. Walter Thompson and Y&R. Also, a recent poll from Ad Age asked industry practitioners if they thought ad agencies were being commoditised; strikingly, 88% of them said yes. Major clients such as Brad Jakeman (president of PepsiCo’s global beverage group) have made it clear that they do not see a bright future for agencies unless a major change takes place. And academic Jerry (Yoram) Wind (founding director of the Wharton Future of Advertising Program)

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process. Because when you combine their expertise with ours, good advertising suddenly becomes great advertising.”

Today, almost all major agencies look exactly the same: they are all owned by one of the big four holding groups, they all have a long list of awards, they all have impressive clients, and they can all claim to be big. However, with all the shifts taking place in the industry and the threat coming from disruptive new entrants, what we have, what we can claim, and the actual value we are giving to our clients are no longer sufficient. We need to reinvent our business model, and here is how we can do it.

According to Clayton Christensen (the world’s foremost authority on disruptive innovation), whenever commoditisation takes place somewhere within an industry’s value chain, there is always a reciprocal process of de-commoditisation happening somewhere else within that same value chain. The companies that are able to spot the areas within their value chain where performance is not yet good enough and position themselves within these areas are the companies that will eventually be able to differentiate themselves, capture growth and increase profit margins.

The value chain of an ad agency can be broken down into at least 15 activities where an agency is adding value to its clients (Figure 1). Currently, such activities may be

has criticised the current business model of the advertising holding companies, comparing them to a Wall Street player, where each of them is acting as a profit centre competing with each other. He states that unless they change this model, he does not forecast a good future for the industry.

All the above is taking place at a time when the Netflix, Uber and Airbnb-type disruptors of the advertising industry are on the rise. For instance, today websites such as https://en.eyeka.com, http://www.jovoto.com, http://www.ideabounty.com, or https://tongal.com are using crowd-storming to enable and encourage brands to throw their briefs at anyone – literally anyone – who can think of an idea for their next campaign, and they are already luring in major brands such as Dove, Samsung, Nike, Coca-Cola and Harley-Davidson. And new agencies are creating absolutely new disruptive value propositions, such as that of the agency Victors and Spoils. Their business model is to source creative ideas and creative content from everyone and everywhere. Their proposition is all about their ability to tap into any individual who can help them in their quest to find the best creative solution for their clients. As they put it: “Copywriters and art directors are great. And we have some of the best. But their expertise only goes so far. We bring people from outside our walls into the advertising

bringing insufficient value to clients; however, if their offering in the market is still not good enough, an agency can improve such an offering and position itself within it. And if such an agency is able to make the client feel the real need and value in such an offering whereby it will be willing to pay some premium for it, then this should represent an opportunity for the agency. Here are three examples of how such offerings/activities can be turned into big opportunities.

1 ALLOCATING THE TIME OF TOP MARKETING TALENTS It was probably back in the mid-

1980s when auditing firms first figured out that their industry might be approaching commoditisation, and accordingly, they decided to extend their offering into strategy and management consultancy. They basically looked within their value chain and realised that they offered value to their clients by allocating the time of talented human resources, and this activity could be extended beyond accounting services and into consultancy. They already had the tools, the systems and culture to hire, train and grow top talents, therefore they felt equipped to do so.

Today, auditing firms such as PwC and Deloitte have become the biggest consultancy firms in the world and the majority of their

growth is actually coming from this relatively new business activity and not from their core business. Just like auditing firms, ad agencies have been allocating the time of top marketing talents to clients, and accordingly, they have the tools, systems and culture to hire, train the grow these talents. Then why not extend such an offering to cover marketing consultancy based on a project basis? At Leo Burnett MENA, we have been experimenting with such propositions through partnerships with regional consultancy

1: Allocate the time of topmarketing talent to clients

2: Consult clients on theirbusiness needs

3: Capture cultural trends, fuel and seismicshifts in society that change human motivation

4: Get insights and understandings ofpeople and their behaviour

5: Get insights and knowledgeon the category

6: Service and manage the clientson their communication projects

7: Build brand strategies for clients

8: Build communicationstrategies for clients

9: CreateBIG ideasto bring

thestrategies

to life

10: Createsub-ideasaround

the idea tocommunicate

it in anintegratedapproach

11: Createrelevant

andengaging

content tocommunicate

the ideas

12: Executethe ideas

– artdirection,design andcopywriting

13: Managethe

productionof thework

14: Managethe launch

of thecampaigns

15: Monitorthe

performanceof the

campaigns

MA

RG

IN

FIGURE 1: SUMMARY OF AN AD AGENCY’S VALUE CHAIN

This article was first published in Admap magazine April 2016 ©Warc www.warc.com/admap

firms and so far it has been extremely profitable for us (a three-month project can yield as much profit as one full year of advertising retainer fees). However, the real challenge is to have clients change their perception of the agency from solely the doer of things – someone who only answers briefs – into a strategic partner with strategic input.

2 CAPTURING INSIGHTS INTO HUMAN BEHAVIOUR Advertising is a business that revolves

around understanding human behaviour and coming up with the ideas that can influence this behaviour. Accordingly, almost all agencies claim that this is what they are really good at: BBDO claims that its WORK changes consumer behaviour; DDB claims to have an “insight into human nature”; JWT claims that they “find influence, interest and the spark of creativity in the various, predictable and unpredictable interactions that happen between the international people of JWT”; and Leo Burnett realises that everything that matters in its business starts and ends with two things: people and their behaviour. Accordingly, with Leo Burnett’s HumanKind approach, people come first, front and centre.

However, none of these agencies have gone to the trouble of capturing these human insights and taking them to the next level where they can become the source of actual growth. The exception can be found in Swedish ad agency Rodolfo which has started hiring full-time psychologists, believing they might well be their future star creatives. Ludwig Jonsson, co-founder of Rodolfo, believes that with its current structure, the ad industry will go nowhere. The basic combination of an art director and a copywriter is no longer sufficient; he believes the agencies need to start afresh and look for resources beyond their domain.

Today, we live in the people’s era and every single business is trying to deeply

understand its target audience. This comes at a time when, as evolutionary psychologist Geoffrey Miller (author of Spent: Sex, Evolution, and Consumer Behavior) claims, all marketing research has become obsolete and new methods are needed that reflect the advancements in psychology. Such a step forward would represent an opportunity for ad agencies.

3 CREATING BIG IDEAS The advertising industry is among those sectors that are most pressured

to come up with creative ideas within tight deadlines. This process, along with the organisational culture and environment that nurture such a rich and almost endless supply of creative ideas, is almost impossible to find in any other industry. And we are in a time when the competitive environment is pushing every single business in any industry to be more creative.

Luc de Brabandere and Alan Iny (authors of Thinking in New Boxes: A New Paradigm for Business Creativity) have stated that the need for creativity in every single business and industry has become critical for their survival, and there are various shortcomings these

industries are facing in terms of facilitating this creativity. Such shortcomings include the mindset of the leadership team, the culture of the organisation, the lack of understanding as to where and how one can think creatively, the team’s lack of ability to sell their ideas to management, and the overall lack of inspiration.

Today, all these challenges are being tackled on a daily basis at any ad agency: we face senior staff members on the client’s side and sell them creative ideas; we establish a culture of creativity; we precisely understand where and how one can think creatively; we are able to find sources of inspiration; we are able to inspire our creative teams and get inspired every day. This ability of

“ None of these agencies have gone to the trouble of capturing these human insights and taking them onto the next level where they can become the source of actual growth”

ours is definitely not yet good enough in the marketplace and this overall creative process that we have mastered is apparently needed in all industries.

In the same way that a brand like Armani can master all aspects of stylish living – it can, and has, become a way of life with fashion, accessories, home furniture, hotels and resorts, cafés, make-up, fragrance, jewellery – an advertising agency can stand for a creative way to conduct business; it can master all aspects of the creative process within a business or commercial environment. So whenever a business has a creative task, this business will need to hire the services of an advertising agency, regardless of what this task is.

A good example of this comes from the 1960s, and how Mary Wells transformed the way Braniff International Airways conducted its business. Wells did not come back to her client with an ad campaign, but with a recommendation on how it could creatively transform the way it went about its business. This was a time when all airlines looked the same: their aeroplanes had almost the same colour of paint and all their staff looked and behaved in a very traditional and stiff manner. In this case, the creative approach was to turn the airline into a fashionable one with stylish colours for its aeroplanes and staff who looked stylish and behaved stylishly.

To conclude, the facts are obvious: we are living in a completely different landscape where clients are looking for different solutions, consumers are more demanding, empowered and distracted, and the definition of creativity is more broadly defined. This comes at a time when ad agencies are lacking clear differentiation and new disruptive entrants are redefining the industry. Commoditisation is at the door and unless we reinvent ourselves and disrupt our business models, commoditisation will keep eating up our margins until we cease to exist. To avoid this, we need to look within our current value chain for areas and activities where we can strongly position ourselves, create more value to our clients and capture the next wave of growth.