Ad Agencies: A Change Is Gonna Come

Advertising agencies are on the brink of a complete restructuring, according to a recent study released by the Winterberry Group. The report argues that in the face of a new marketing landscape with a greater number of channels, a higher demand for accountability, and much more customer data available, the agencies so successful half a decade ago are now finding themselves scrambling to keep up. The study, which compiled feedback from agency executives, throws the most fire at agency holding companies. A shocking 85 percent of respondents maintained that holding companies provide no real benefit to companies, spelling an impending change in marketing demand and the advertising industry as a whole. The Winterberry Group ran the study, "The State of the Agency: Market Transformation and the New Client Dynamic," due to fragmentation the firm saw in the advertising industry. The data was gathered through interviews with more than 70 executives from agencies of all service levels. Bruce Biegel, managing director for the Winterberry Group, explains that the rapidly morphing advertising space can be attributed to the crash and rebuilding of the industry since the new millennium. "Marketing departments have been restaffed in the last four years with more analytic, more technology-savvy, more finance-oriented people," he says. "In a more complex world with more data available, marketers have taken a lot of overall strategy in house." In an environment where advertising agencies compete with the very companies that employ them, agencies are feeling extreme pressure to perform, the report states. The study found that 84 percent of agencies feel that clients are holding them more accountable for results than they have in the past. Additionally, 47 percent are noticing more margin compression in pricing demands facing their agencies. To stay competitive the majority believes that it will need better integration of services, which agencies rated as the top advantage at 45 percent. This high level of competition coupled with the call for breadth of service will mean more consolidation, buy ups, and partnering in the upcoming year, Biegel says. He claims that the industry will "go back to integrated agencies that are basically channel agnostic." As a result, companies with more specific offerings that are savvy in niche fields are likely to be purchased by bigger agencies, according to Biegel. Seemingly contradictory, the study found that advertising holding companies, often thought of as one-stop shopping for advertising needs, will decline in popularity in upcoming years. Eighty-five percent believed that these companies prove no real benefit, and only 13 percent held that holding agencies are able to effectively cross-sell their services. High retainer fees and difficulty spreading capability across company divisions contradict companies' demand for low pricing and solid ROI, according to the study. Even agency holding companies, Biegel says, will survive and continue to capture the "lion's share" of marketing budgets. Across the board, he says, "we do think [agencies] will adapt, although it won't be the same old world that it was. The only question is how much people will resist." Related articles: DM Days Says "Search Me" Advertisers Add More to Their Spend Overcoming Media Fragmentation