Why Are Ad Agencies So Hard Hit By Recent Changes in the Media Industry?

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An Adotas Q&M with Paul Vincent, CEO and founder of Neuranet, explores the pressures on and changing roles of ad agencies in the increasingly complex digital world.

Q: What changes have occurred within the media industry that are affecting ad agencies? And why are ad agencies being hit so hard by those changes?

A: There have been many changes that have affected the ad agency model over the last decade. Like any business and evolving industry, they simply need to find where they provide value while embracing efficiency and automation in order to keep up and avoid becoming obsolete. Some of the biggest changes include:

1. Mass media is disappearing – Linear TV ad spots are being replaced by video on demand ads that are allow for more granular targeting like the rest of the digital ecosystem. Even if your audience is a large one such as a bottled water company, it still allows for more customized creative messaging to granular audiences. The need to build more creative variations requires agencies to rethink their entire workflow to create more efficiently.

2. The need for marketers to react faster – long term campaigns must be supplemented by more fluid communications that can react to competitors, events etc. that could not be planned for. It’s difficult for an agency to be able to react on behalf of a client as fast, or efficiently. This means that agencies must implement tools that can help their clients work together more closely and clearly define responsibilities based on the value that can be added. Brand marketing teams must be able to leverage creative assets that the agency may have developed and adapt them for use in social and blogs.

3. Self-serve media buying & brands moving some agency functions in-house – More granular audience targeting has required more advanced self-serve platforms that aren’t only available to agencies but also to marketers. Marketers have the ability to buy media easily, directly via media buying platforms and somewhat automate their marketing spend. While it is definitely more complex now than it may appear, each year the platforms are becoming easier to use, more accurate and marketers are more educated. Rather than agencies maintaining complete control over their clients’ digital campaign optimization – in the future they will move into a more consultative role by providing an oversight but leave the day to day optimization to their clients’ marketing teams.

Q: How should ad agencies approach and rebuild their end-to-end model to embrace these changes and evolve?

A: Agencies have to rebuild from the ground up. They must embrace clients who want to take on some functions in-house and distribute roles/responsibilities based on who can provide the highest value & performance. This of course is going to vary depending on the client, but finding the best balance of leveraging the client’s employee’s knowledge of their business and deep knowledge of platforms, processes and connections that the agency brings is optimal. By serving in areas that provide the most added value from the agency’s expertise, they will also be able to maintain the highest margins for that work and clients will be happy to pay for it.

Another factor for ad agencies to consider is something that is sometimes overlooked– which is to move away from billable hours. I encourage agencies to find a remuneration model that drives value and efficiency for both clients and internal teams. Billable hours provide no incentive for internal teams to innovate or be efficient. Additionally, ad agencies need to think about the message before the medium; centralizing the message and creative production helps to scale messaging variations across audiences and all media, and facilitates easier & faster updating of messaging.

Q: What do you think is the most important factor for ad agencies to hone in on to succeed over the next few yet?

A: It’s true that agencies have been evolving quickly with many different approaches but I do think creative, media and even PR agencies must merge. The digital world is far too complex and fast moving to have separate organizations managing these critical components. It’s important to rebuild from the ground up by focusing on optimizing responsibilities between brand marketing teams and the agency teams where they add the most value. Transition the remuneration model based on achieving performance metrics mutually agreed on so that all teams are working together towards the same goals.

Lastly and to coincide with my first point, ad agencies should call themselves anything but an ‘ad agency’. Now and even more so in the future as brand marketing teams take on more tasks that previously would have been done by their ad agency, the support needed is more about consulting around technology, process, automation and platforms that can help scale marketing capabilities.

Q: In your opinion, is the future bright?

A: The future is bright for companies that can support brand-marketing teams in a way that they provide value. Ad agencies should view it as an opportunity rather than a threat, provided that they can get their teams behind the changes required and move fast. So, ensuring that everyone across the organization understands the urgency and why the change is needed, will be critical.

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