‘Complacency is the root’: In a tricky market, creative agencies will need to adapt

by Kristina Monllos

Repost from DIGIDAY article here.

 

Creative agencies are in trouble. At least, that’s what it looks like when you consider the trend of clients pushing for project work rather than an agency of record assignments and lengthening payment windows. That is, if they aren’t working with consultancies or considering taking that creative work and moving it in-house.

 

In order to survive in this current environment, creative shops will need to do the tricky balancing act of adapting to project work, figuring out how to manage their own business needs while waiting longer for payment and continue to define for their clients why they need their particular agency with creative work that not only solves a client’s needs but makes a statement about that agency’s particular brand.

 

It can seem like an impossible task and one that many agencies won’t survive. Last week, Gerry Graf announced plans to shutter Barton F. Graf at the end of this year. The closure of the independent creative agency, which was founded in 2010 and was known for its bizarre sense of humor, calls into question the status of creative agencies, specifically independent shops, and whether or not they can weather this particular climate.

 

“I don’t think Barton F. Graf is the poster child for the end of independent creative agencies,” said Allen Adamson, brand consultant and co-founder of Metaforce. “In a different world, they probably could have sold themselves to a Deloitte.”

 

While agency sources for this story mourned the loss of a creative behemoth, they don’t believe it’s a symbol of the death knell for independent creative agencies. Instead, they see it as a sign that shops need to continuously adapt their business models, stay cognizant of how the pendulum is currently swinging (that is, project work or AOR) and accept what they are: service providers for brands.

 

“Agencies are doing double the work for half the price in a quarter of the time,” said Lisa Colantuono, president of the search firm AAR Partners. “Does it mean that all small or smaller creative agencies have a nail in the coffin? No. Part of this lesson is agencies — big or small — need to be agile. They cannot become complacent. Complacency is the root of all reviews.”

 

Telling clients why they need you
The world’s biggest advertiser, P&G, has been one of the loudest proponents of consolidating agencies and moving work in-house as well as reducing what they pay to agencies in a move for efficiency. Since 2014, P&G has been cutting agencies from its roster of agencies from 6,000 to 2,500. While the work still exists at P&G for agencies, there’s simply less of it to go around.

 

“We’ve really changed the way we work and managed to save upwards of $1 billion in agency fees and production costs,” Marc Pritchard, chief brand officer for P&G, told Business Insider. “We essentially took the best players from different agencies and put them together in one group. The goal is really to institutionalize creative collaboration.

 

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P&G’s ask may symbolize an issue that creative agencies, regardless of size, may need to reckon with: They need to have a distinct use and purpose that they are proving to clients over and over again, especially in this market, according to agency sources. Still, proving their use to marketers won’t keep them afloat unless they figure out how to handle a market where there’s less creative work to go around.

 

“Agencies will succeed when they make it clear what they exist for and how you engage with them,” said Campbell Ewald CEO Kevin Wertz, adding that the shop is seeing more pitches from clients asking for full-service offerings as well as clients who want a shop that will be a true lead agency. “[Sometimes the client will] still have five or six different agency relationships. The client doesn’t want to have to coordinate that. So they want an agency that can truly be an integrator and play nice with lots of different shops.”

 

For Peter Weingard, a marketing specialist who has served as the CMO for New York Public Radio and managed brands like About.com and CityEats, working with larger agencies isn’t nearly as attractive as it has been in the past. “Many of the services that big agencies traditionally brought to the table, such as production expertise and discounted rates on mass media, aren’t needed in a world where brands have substantial in-house talent, first-party customer data and often manage social and digital media themselves,” wrote Weingard in an email. Marketers at large brands are frustrated working with all of the various teams inside a fully integrated shop, he said.

 

The reality of project work
While asking agencies for project work may be more popular than ever, it may just be the ask of the moment from clients. By working with an agency on a project, clients are able to get a sense of what that relationship will be like without having to fully commit to a long-term relationship. That being said, with project work clients are more likely to get what they asked for rather than have a truly transcendent creative idea, as agencies don’t want to push a client they don’t have a long-term relationship with.

 

Doing AOR or project work will depend on the client, according to Colantuono, who added that lately it’s been the larger companies with more brands who are more open to project work and a roster of agencies.

 

Still, some agency sources believe the path forward for creative shops will be to adapt to project-based work. Instead of fighting the move to project-based work over agency of record assignments, those sources believe that agencies need to instead retool their model to truly adjust to a world where the assignments they win from clients will be project-based. By becoming leaner and more adaptable to the kind of business model marketers desire, creative agencies will have a better shot at long-term survival, according to agency sources.

 

Doing so will require reconsidering the size of their creative departments, figuring out ways to staff up and down more seamlessly as they win assignments and rethinking what their overhead, like a big office space, to adapt to this model.

 

“Project-based work, if handled properly, can be a successful business model,” said Rebecca Rosoff, co-founder of The Kimba Group. “Look at production companies. You just have to be more creative with how you’re staffing talent, that’s the reality. It just takes extra business savvy to be able to operate.”

However, changing to a project-based model may not truly help brand marketers with their long-term issues. If the project work handled by an agency doesn’t solve the marketer’s business problem, then it’s likely the marketer will just move the business to another agency.

 

Tim Smith, president of full-service independent agency Chemistry, believes part of the reason marketers are so quick to move between agencies is that there’s a distrust of agencies again and that’s why brands don’t want to go all-in on an agency of record assignment. 

 

“It’s the wrong kind of thinking because when you’re a partner, you’re able to think long term and solve business problems for the company,” said Smith. “If you’re given a project, you’re just putting out a fire. If you do that and hand it back to them and they still have the same problems, it’s too bad.” 

 

That shift will likely come at the price of creativity, too. “The agency model has been evolving for years and years, wrote Erik Herskind, CEO of GoDo Discovery, in an email. “Without big retainers, we can’t have the staff in place to be a growing thriving business. When you lose a few big retainer accounts you don’t have the freedom to do the creative things you did before.”