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Issue 11: 3Q

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A Foot in Both Camps? Advertising Agency vs. Consultancy

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Section 1

A Foot in Both Camps?To avoid the commodization trap, many agencies are attempting to move upstream. But the structure and business strategy of a consultancy is very different from that of the traditional agency.

Section 2 Does Your Firm Have a Strategy Map?

By definition, having a strategy means deciding to do one thing but not another. If your approach is to “keep your op-tions open” and “not limit yourself” then you actually don’t have a strategy – at least not yet.

Section 3 12 Questions to Help Your Firm Capture More Value

Agencies need to apply creativity to solving their revenue problems, just as they do to solving their clients’ marketing problems. Here are twelve good questions to help you capture more value.

Creating Value is a quarterly exploration of the ways marketing communications firms are transforming themselves to become more valuable and competitive in the new multi-channel, media-neutral marketing environment.

In This Issue

Published by Ignition Consulting Group, Inc.Copyright 2009, all rights reserved. By subscription only athttp://www.ignitiongroup.com/publications/creatingvalue.html

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Differentiating the Agency Brand

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Imagine a restaurant attempting to serve both high-end cuisine and low-cost fast food. Such an enterprise would need very different talent, different “production” systems, different pricing, and different processes – not to mention different customers.

Pricing powerThere was a time when the full spectrum of services offered by agencies was considered “high value” in the sense that few clients possessed the talent, ability, or equipment to do what agencies do. In the digital age, that’s simply no longer true. The fact that clients press agencies to do quick, inexpensive production work is because client organizations have the same computers and software that agencies do.

A wise agency professional once said “There is margin in mystery,” meaning clients place the highest value on the things they couldn’t possibly do for themselves. How much “mystery” is in your products, services, and capabilities? If your list of services is identical to other agencies, you have very little pricing leverage, because clients believe they can buy the same thing you offer at another agency down the street. This is why clients compare lists of hourly rates and barter with agencies as though they’re buying peaches at the farmer’s market.

Advertising agencies are facing competition upstream from marketing consultancies and brand strategy firms who seek to provide planning and strategy services to marketers. Downstream are production companies, independent freelancers, and even media companies who now aim to not just sell media but produce content.

Agencies are arguably in the worst place of all – right in the middle. On the one hand, they are expected to be high-value strategists and on the other hand offer low-cost production services. The cost structures of these two extremes are vastly different, yet agencies attempt to continue to support an “under one roof” operation.

A Foot in Both Camps?

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Two basic strategiesThere are really only two business strategies: low cost and differentiation. Offering products and services that have some “mystery” is differentiation. If you don’t differentiate, then you have no other choice than to be shopped, compared, and forced to compete on price.

This explains the emergence of companies like New Zealand’s “Department of Doing,” which works as a virtual production department for some of the world’s largest agency networks. Argentina’s “Zoom” is based on a similar business concept, delivering “fast and cheap” in a most impressive way.

Some of the multinational firms have created their own versions of free-standing production houses with lower cost structures, such as Ogilvy’s “Redworks”. Redworks calls itself “The Beautiful Factory” and lists core capabilities as:

■ Traditional production (print production, pre-press, retouching, etc.)

■ Digital production (landing pages, flash banners, html e-mails, etc.)

■ Simple creative (adaptations, extensions, etc.)

■ Video production (simple digital video, translation/adaptations, etc.)

■ Digital asset management

Guess where many of Redworks’ centers of operation are? In countries where wages are much lower than those in the U.S.

Production services company or professional knowledge firm?

Are you more of a factory than a consultancy? No doubt today’s economy and market forces are shifting client demand even further down the “fast and cheap” spectrum, but the evolution of agencies from professional knowledge firms to production service companies was underway long before the current recession.

If you staff and manage your agency as though you’re a professional knowledge firm (PKF) but your revenues come mostly from production services, you have a recipe for a low-

A Foot in Both Camps?

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Work with junior or middle managers

Work with middle and senior managers

Concerned with efficiency

Concerned with effectiveness

Focused on producing the goods

Focused on producing results

People

Chain of command Flat structure, clients access top people directly

Junior people in leading role, senior people in supporting role

Senior people in leading role, junior people in supporting role

Human capital Intellectual capitalPromotion

Publish client lists and publicize new business wins

Client information is kept confidential

Focus on work samples

Focus on achieved outcomes

High cost of sale (competitive “pitches”)

Low cost of sale (referrals and interviews)

Present speculative work

Present credentials and reputation

Hired for what you do Hired for what you know

to-no margin business. The solution is not raising prices on your production/distribution business; these services have been largely commoditized due to the dynamics discussed above. In a mature market for easily duplicated services, you have to have the cost structure, staffing, systems, and technology to deliver production/distribution services faster and less expensively than the traditional agency. This is the business model of the factory.

The business model of the consultancy requires an entirely different approach.

Advertising Agency ConsultancyProduct

Old Hollywood model (everything under one roof)

New Hollywood model (flexible talent management system)

Doers Thinkers and doers

Ideas with execution Ideas with or without execution

Always the contractor, sometimes the architect

Usually the architect, sometimes the contractor

Primarily sell outputs Sell outputs and inputs

Amateur project management (entry-level juniors)

Expert project management

A Foot in Both Camps?

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By definition, having a strategy means deciding to do one thing but not another. If your approach is to “keep your options open” and “not limit yourself” then you actually don’t have a strategy – at least not yet.

By deciding to have low prices and broad selection, Wal-Mart is making a conscious decision not to have a high degree of sales help and ambiance. Given finite resources, Wal-Mart can’t deliver low prices and high service. Deciding what you’ll do at the expense of something else is the very essence of strategy.

Process

Accounts Engagements

Long-term Fixed period

Clients insist on category exclusivity

Client see category depth as advantage

Work for hire Earn revenue from intellectual property

Place

People at desks People working virtually anywhere in the world

Modest use of technology

Aggressive use of technology

Like most agencies, you probably have a foot in both camps. But sooner or later, you’ll be forced to choose. Just don’t let the choice be made for you.

A Foot in Both Camps?

Does Your Firm Have a Strategy Map?

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The same is true of Southwest Airlines, which doesn’t attempt to fly to every destination, offer every class of service, and fly every kind of aircraft. Rather, they actively seek to “limit” themselves to being the leading domestic low-price carrier. By flying only the Boeing 737 to only America’s least-congested airports, Southwest has turned in 20 straight years of profitability.

You can’t do everything, but you can do something

At any given time, McDonald’s has close to 60 items on its menu board. By contrast, In-N-Out Burger has mainly four menu items; hamburgers, fries, shakes, and drinks. By doing a few things extremely well, In-N-Out Burger earns three times the profit margin (as a percentage of total sales) as McDonald’s, who must devote massive resources to inventory and deliver such variety.

Especially in service businesses, a successful offering means determining which attributes to target for excellence and which to target for less-than-excellent performance. One very useful way to make these decisions is to develop a “strategy map” that shows which areas you intend to be known for.

To get started, gather your management team together and put an “x” in the appropriate boxes below.

Capability Low Medium HighCategory or industry expertise

Business planning and consultation

Marketing planning and consultation

Marketing research

Marketing communications planning

Branding strategy development

Customer insight development

Mass media advertising development

Digital marketing development

Branded content development

Sales materials development

Brand identity design

Brand packaging

Environmental and store design

New product development

Channel planning

Channel placement

Does Your Firm Have a Strategy Map?

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Capability Low Medium HighSales training and support

Multicultural marketing

Promotional marketing

Shopper marketing

Local store marketing

Franchise recruitment

Web analytics

Real-time campaign management

Marketing effectiveness measurement

Direct senior level involvement

National presence and capabilities

Professionally-certified project management

Rapid response system

Online collaboration and communication tools

Digital asset management system

24-hour access to information and assets

Proprietary IP

Other:

Capability Low Medium HighSearch engine optimization

Search engine marketing (paid search)

Digital pre-press and print production

Website development

Interactive programming

Interactive application development

Interactive usability and experience design

Media training

Media relations

Employee relations

Community relations

Crisis communications

Issues management

Investor relations

Government relations

Political campaign management

Voter initiatives

Database marketing

Customer service consultation and support

Customer relationship marketing

Events and experiential marketing

Trade show support

Does Your Firm Have a Strategy Map?

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Here’s yet another way to frame the strategy map discussion:

What you offer1. Offers high-level strategic planning processes and

expertise vs. production and execution

2. Helps with the complete brand experience vs. not just brand perception

3. Has high-end design as a core competency vs. design as a sideline

4. Works in non-paid vs. just paid media

5. Helps clients with the sale and post-sale phases of marketing vs. just pre-sale

6. Provides product and business ideas vs. just marketing ideas

7. Experts in one-to-one marketing vs. just mass marketing

8. Helps build customer relationships (by understanding databases) vs. just customer transactions

9. Helps build the internal brand within the client organization vs. just the external brand

10. Creates branded content vs. just advertising

11. Works in collaborative, multi-disciplinary teams vs. individual functions

12. Provides big multi-channel ideas vs. discipline-specific ideas

13. Provides measurement and accountability vs. just creation, production and distribution

14. Has a business model of senior people supported by juniors vs. juniors supported by seniors

Who you serve1. Works for clients where marketing is viewed as a growth

driver vs. marketing as a service

2. Takes on projects or engagements vs. just long-term ongoing relationships

3. Clients located close to home vs. clients located anywhere

How you work1. Highly organized approach to project management vs.

standard account management

2. Offers creative compensation options vs. just hourly fees

3. High-end fees for higher-end work vs. low-end fees for lower-end work

4. Develops own properties and solutions for license to clients vs. always doing work for hire

5. High-touch approach to client service vs. high-tech where client accesses digital assets online

Does Your Firm Have a Strategy Map?

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Now more than ever, marketing communications firms need to analyze their revenue streams and find more ways to extract value from the services they provide. “Business as usual” isn’t an option in today’s economy.

Agencies need to apply creativity to solving their revenue problems, just as they do to solving their clients’ marketing problems. Here are twelve good questions to help you capture more value:

1. What opportunities could we pursue to develop or package our intellectual property for sale or license?

Instead of making all our money in a “work for hire” model, do we have a knowledge base or proprietary information we could turn into a source of revenue? What would it take to develop and package it for sale?

2. Could we experiment with charging minimal fees for concept and production and then charging for usage?

This is the business model of most of our creative services suppliers: photographers, musicians, talent, etc. If it works for them, why couldn’t it work for us?

3. What missed opportunities have we had to apply some creativity to pricing (rather than just estimating our costs)?

This is the first and most essential question we should be asking. How can we get our people to understand that we’re not selling our costs, but rather our value?

4. Do we have any current clients with whom we could structure a simple compensation agreement in which we are paid for leads, inquiries, clicks, downloads, etc.?

Which of our clients might be willing to pay us for the results we produce rather than the hours we work?

5. Which of our clients would be willing to pay us more money if we take more risk?

12 Questions to Help Your Firm Capture More Value

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12 Questions to Help Your Firm Capture More Value

Do we have a client who is sophisticated enough to want to “grow the pie” rather than focusing on how big of a slice they give us? Are we willing to accept a different form of risk (knowing that every client relationship carries some risk, not the least of which is the risk of not making money!)

6. Could we propose a “value audit” for current or prospective clients to help identify drivers of success upon which we could base a compensation agreement?

Rather than jumping straight to “scope of work,” could we get some experience with the concept of “scope of value” Could we use this approach to help differentiate ourselves in a new business situation?

7. How can we help our clients identify their real brand success drivers and measure what matters (not just sales and market share)?

Could we employ account planning or analytics to help our clients identify and test their real success drivers, then build our compensation around our ability to move these drivers in the marketplace?

8. Would we make more money if we raised our prices on “high value” services and lowered our prices on “low value” services?

Could we make most of our profit on the services that are most highly valued by clients?

9. Could we add value to a particular service and charge more than other agencies?

How could we take a “standard” service and differentiate it in a way that adds more perceived value?

10. Could we find a more efficient way to deliver a particular service and charge less than other agencies?

Could we use technology or streamlined work processes in a way that would allow us to deliver a production/distribution service at a much lower cost than other firms?

11. Which 20% of our clients produce 80% of our profit? How can we cultivate more work from them?

Knowing that a handful of clients produce most or all of our profit, how could we provide (and capture) even more value from these clients?

12. Who are our low-value, unprofitable clients?

Unprofitable clients really offer us only two options: develop new compensation agreements with them, or resign them. What are we waiting for?

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Independent agency Marcus Thomas proves the value it creates by developing simple yet powerful dashboards that track relevant brand success metrics. By making this information available online 24/7, agency associates and their clients can assess the progress they’re making against key indicators. Most importantly, it helps all parties stay focused on effectiveness, not just efficiency.

Creating Value is edited for senior professionals in the marketing communications business. All content is copyrighted by Ignition Consulting Group, Inc. and may not be reproduced or retransmitted without express permission.

Creating Value is available by paid subscription only, and is distributed as a downloadable PDF. To subscribe, visit http://www.ignitiongroup.com/publications/creatingvalue.html.

Creating Value is published by Ignition Consulting Group, Inc., a consultancy devoted to helping marketing organizations create and capture more value. For more information about Ignition, visit www.ignitiongroup.com, e-mail info@ignitiongroup.com, or call 801.582.7297.

Image Credits:

A stream of mist - http://www.flickr.com/photos/miniozzy/265360833/ - CC BY-SA 2.0

Sky 3 - http://www.flickr.com/photos/fontplaydotcom/504443770/ - CC BY 2.0

Old maps - http://www.flickr.com/photos/futureshape/1800752012/ - CC BY 2.0

2006 September - Chef de parti - Shoot - http://www.flickr.com/photos/chapter3/3683535146 - CC BY 2.0

12 Questions to Help Your Firm Capture More Value