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Survival strategy

Massive changes are looming in the marketing communications world—and agencies will need to transform to keep up

David MacGregor

[Advertising]

Old Chinese curse: may you live in interesting times. And so we do.

Recently the advertising agencies’ representative body, CAANZ, has been railing against TVNZ’s decision to halve the sales commission it pays to advertising agencies, claiming it strikes to the very heart of their existence. Maybe it does. But does any organism, let alone organisation, have a right to life if it cannot (or will not) adapt to changes in its environment?

The marketing communications environment is changing rapidly. I like the term ‘Digital Darwinism’. While TVNZ’s decision to align compensation to its agents with many other markets (including Australia) may not be a digital play, the Darwinian analogy still applies.

The commission system isn’t the only dramatic shift occurring that will seriously affect advertising agencies. There are more fundamental changes afoot.

One global trend is for advertisers to bypass agencies and approach media owners (television, magazines, radio and others) directly for solutions to their communications problems. Look in any edition of a women’s magazine in New Zealand and count the pages of advertorial promotions in comparison to overtly branded advertising. Heck, look through the pages of this magazine. Ad agencies may regard this as treachery on the part of media owners. It isn’t. Publishers of one kind of content or another must do what they can in a digitally warped environment that is just as treacherous for them—and, therefore, for advertising agencies.

A second trend is for advertisers to take much more of the marketing communications function in-house. When I worked on the launch of Pepsi in New Zealand in the 1980s (when Michael Jackson had just released the Bad album and made a commercial for the brand), the account director in our agency was, effectively, the marketing manager for the brand in New Zealand. He was a seasoned pro, with enormous experience in retail relations. His advice and opinions were invaluable to the distributor. Today the standard of marketing education and experience inside client organisations makes those days seem quaint. Ad agency account handlers, in many cases, add little additional expert value to their clients. Account direction simply becomes a duplicated resource—an additional overhead. Given that the new generation of marketing grads will be digital natives, expect conditions to worsen.

Disintermediation was one of the ominous buzzwords of the mid-90s, when the Internet became a part of everyday life. The web itself makes suppliers of advertising services conveniently available to marketers who can leverage competition between suppliers to their advantage. The old economics bromide, ‘consumers can’t possibly have perfect knowledge’, is no longer even remotely true. Advertisers can assess your capabilities in a few clicks. I’ll venture it is this phenomenon that is leading to the rise of independent creative agencies like Sugar, who recently snatched BNZ away from Y&R. Clients want more control of both messaging and costs. Old-school business connections have given way to Google’s omniscience.

Ever since I began writing this column I have talked about change and the need for innovation and adaptation by agencies to surf the shifts. Matters are now coming to a head. It’s an exciting time. Marketers want big, courageous ideas that connect and activate customers. The opportunities for brands to connect with people have never been greater.

There will be continuing shifts in the economics of marketing communication and they’ll affect us all. Instead of one message iterated many times to a mass audience—the foundation of advertising in broadcast media—we’ll produce many messages, sometimes whispered once to a niche audience (by email, Twitter, Facebook, etcetera). The measures of success will change and with them the rewards. But the new era will produce its own heroes—communicators the likes of Len Potts or Lee Clow will emerge, people who understood how we think and talk. The connection they establish will be as valuable as it ever was. They will team with new media specialists who know how to connect with the infinite array of channels now at our disposal.

Persuasive communicators will always be valuable to marketers. They will continue to be a scarce resource and command a premium but we will not be compensated for quantity via a media commission of 20 percent, but by quality—delivering results.