Ad agencies becoming commoditised—good or bad?
Buying advertising has in recent times become more and more cost-driven. Agency reviews increasingly focus on saving money, and clients are assuming costs can be standardised. While this sounds scary for agencies that are already grappling for revenues—that in some cases plummeted 70% in the second quarter of 2009—perhaps they should just adapt.
To better understand the developments, let’s first define commoditisation. It means a good or service that used to be clearly differentiated being supplied without qualitative differentiation.
From an agency’s viewpoint, this is alarming because most agencies think they are unique and can provide a unique result. From an advertiser’s viewpoint, on the other hand, advertising is a business support function that needs to be purchased at a good cost-to-performance ratio. A bit like a person buying medicine: if you can cure your cold with a generic product, why pay a premium for a well-known brand if the generic product performs just as well? And if another generic product becomes available at a better price, why not change?
Agency complacency or market problem?
Might it be that ad agencies are used to being just a little too complacent? Jonah Bloom, columnist at Advertising Age, cites in one of his articles an ad exec complaining that clients are moving towards telling agencies “what our creative director’s salary should be”. Well, this is price elasticity, one of the basics of economics: buyers are sensitive to prices and will not buy if the price becomes too high.
One argument agencies and their proponents frequently use is that pushing prices lower will not get the clients better ideas. But how is an idea better or poorer coming from a higher-paid or a lower-paid creative? Or from a freelancer, for that matter? Perhaps it really is time to look at the creative director’s salary?
Why commit to high cost blindfolded?
Another argument I don’t understand is that, in Mr Bloom’s words, pretesting is “a great ass-covering tool for midlevel marketing execs, but a pretty surefire way to suck the life out of creative”. Putting myself in the client’s shoes, if there is a way to see whether the ad execution works or not before committing to production and media cost, I would certainly jump at the opportunity. Putting myself in the agency’s shoes, it wouldn’t cross my mind to oppose if the primary reason for my agency’s existence really is to put more on my client’s bottom line. Moreover, what use is creativity if it doesn’t sell? Hello agencies, your job is to help your clients earn, not get your back patted in Cannes.
Most advertisers in these days are living in enormous cost pressures. It is no wonder they are looking for cost-efficient suppliers, ad agencies among them. Maybe it is time for ad agencies to come down from their ivory towers, accept the evolution in the market and start adapting to the new situation before it is too late. As we know, evolution cannot be stopped.