Until recently, the advertising industry was fast-growing and innovative, but it has kind of lost its lustre. How did this happen? How did Madmen go from being exceptional experts to Badmen with the problem of transparency?
In the past, advertising agencies charged a 15 % agency commission on the media. This meant that they could plan then expensive media for their clients and earn enough. However, in the 80s, when the situation got out of hand, advertisers stipulated a new financial relation and agencies started to charge a flat fee for the same amount of work. This fee was often determined by the number of people working for each client. When you add together their salaries, benefits, and a little extra, it is clear that agencies were able to, in this way, continue working and still earn a fair amount of money.
But the problem was that their business did not continue as usual. When you buy man hours, you can always buy them cheaper someplace else. When the main deciding factor is the price, there is always a way to pay less. In that way, unfortunately, advertisers singularized the importance of the agency fee as an important deciding factor in choosing an agency.
At the same time, agencies accepted the wrong challenge. And that was the beginning of the price war, a fact which, in this line of business, does not allow for advancement and innovation, but only temporary handlers and losers.
For most jobs and services in this industry, the price itself does not guarantee the opportunity to carry out the project, nor does it form the basis for a successful partner relationship in the marketing ecosystem. And working hours mostly do not even make sense for most services and jobs in this industry. Actually, advertisers need partners who will help them accomplish certain goals and who will be ready to pay the right price.
Despite the decrease in fees, agencies are expected to take on more and more jobs nowadays. Ten or twenty years ago, agencies were in charge of newspapers, radio and TV. But today they need to be experts in much more: social, digital, and programmatic marketing, native advertising, influencers and so on…
With the digital revolution and transformation, advertising became much more fragmented and complex, and organisational models and calculating agency fees has not changed significantly. In the end, the agencies on the oversaturated market are at war against each other for a higher quantity of work for the same, if not smaller, fees. Advertisers contribute to that with a series of short-term decisions.
Since agencies need to make a profit, a fast and secure way to accomplish that is to decrease the number of their employees so that nowadays they do a lot more work with less people. And they are doing all that at the time when their clients’ need for great results and ROI is higher than ever. In the end, the result of it all is a synchronised destruction of an agency’s potential at a predictable rate.
Exploitation of work cannot go on producing the profit at the rate that is required to expand existing agency model forever.
The core of the problem is that the amount of work has increased, the knowledge and the expertise are insufficient, agency fees have decreased, the measurements and analyses have become more complex, and agencies still do business using the old organisational model and are introducing corporate culture. The traditional organisation of agencies and the way of charging for services are not sustainable in today’s economic and technical environment. On the other hand, advertisers do not have the time for different models of collaboration and new ways of investing in agency services.
In reality, agencies can improve their odds of sustained success by taking advantage of creativity about the unfolding innovation process.
In order for the industry to gain new momentum and take on a bigger role in the business of today, agencies and advertisers need to challenge status-quo. This means that they have to maintain the output quality regardless of the fast-paced organisational changes; manage creativity at all levels of market interaction; understanding of agency cost drivers and the impact that remuneration agreements can have on agency motivation, capacity and capability; and that they need to look at their own results in a socially responsible way.
Now is the right time for bold, creative minds and those who refuse to accept the “ it’s okay, we’ll make it “ situation. It is without a doubt that the advertising industry can be better if we look at it in the way that it could be, and not the way that it is right now.
Here’s to the crazy ones. The misfits. The rebels. The trouble-makers. The round pegs in the square holes. The ones who see things differently. They’re not fond of rules, and they have no respect for the status-quo. You can quote them, disagree with them, glorify, or vilify them. But the only thing you can’t do is ignore them. Because they change things. They push the human race forward. And while some may see them as the crazy ones, we see genius. Because the people who are crazy enough to think they can change the world, are the ones who do. -Apple
Originally published at https://www.linkedin.com on October 16, 2017.