BT is one of top ranking agency AMV BBDO's biggest spending clients
After another tough trading year, it is perhaps surprising that there
haven't been more casualties. Of course, some agencies have failed and
some have been rescued by their competitors, but the vast majority have
fought on.
Indeed, recent results announced by the global players Omnicom, WPP,
Publicis and Interpublic showed revenue growing faster than inflation
and operating profit margins on the increase, helped no doubt by their
energetic focus on developing markets. So far, only Dentsu has poured
cold water on the seemingly positive climate, commenting in November
last year that future prospects were "far from optimistic".
Impact of the economic downturn
Back in the UK, agencies have been paddling very fast beneath the
surface to maintain the appearance of buoyancy. Clients have been
cutting back, sometimes with serious consequences.
Advertising expenditure in Western Europe grew by only 1.8 per cent
in 2011, the smallest growth for some time, according to
ZenithOptimedia. A lot of that modest growth came from the internet,
much of it at the expense of traditional media.
For example, the digital agency Work Club claims that the marketing
spend across its core client base increased by an average of 20 per cent
last year. Stripped of internet advertising, the advertising
expenditure grew by only 1.4 per cent. So for every traditional agency
that gained revenue, there will probably be another one that lost.
In media buying, the trend towards consolidation has continued,
offering clients the benefit of more buying clout that has inevitable
appeal in a depressed economy. But views differ on the effect this has
had on the media buying agencies. UM London's chief executive, Andy
Jones, says you don't have to be the biggest to get the best deals, but
client pressure on fees has resulted in a decline in service quality
among some agencies. "The last six pitches we did were for clients that
complained of terrible service elsewhere," he says.
MPG Media Contacts' head of investment, Alan Brydon, argues that the
depressed economy has not been the driver for more consolidation. He
says that trend had already started several years ago: "It was very
hectic with big new-business pitches being driven by cost-reduction
agendas." With the advent of digital and advances in data analytics, the
buying climate is increasingly complex and clients value expertise and
stability far more.
Media buyers have had their own particular problems stemming from
the economy because the amount of money that can be made on the cash
that flows through their hands has been reduced by lower interest rates.
M&C Saatchi's group chief executive, David Kershaw, says: "Low
interest rates and consolidation of media buying into a few big agencies
make it harder for everyone to make decent profits."
Deferred campaigns have been at least as harmful as spending cuts.
"While loss of clients or cuts in spend are challenging, at least
agencies can act quickly to rebalance the business," Lisa Killbourn, the
group strategic director at the brand-building specialist Bray Leino,
says. "We have seen examples of agencies holding overheads at too high a
level for too long because clients have 'postponed' spend that, in
fact, never comes. This can be fatal."
Budget cutbacks are bad enough, but the depressed economy is also
being blamed for a loss of courage among clients, many of whom are
taking fewer risks.
Clients' desire for measurable results might be expected to have
driven more spend towards direct and digital channels. But Killbourn
expressed surprise that this had not happened more in practice.
Agencies' response to the depressed market
After the Government announced its spending cuts in October 2010, the
Omnicom direct marketing agency Rapp commissioned nationwide research
that looked at consumer views and behaviours before and after the
review. The research showed that the more affluent were being impacted
as well as the young and poor. "Less the squeezed middle, more the
squeezed ends," Rapp's director of customer experience, Gavin Hilton,
says.
Rapp's research revealed how consumers were reacting to the cuts -
and the sectors likely to be most impacted. Thus the agency was offering
insights that clients would value and be able to exploit. And Rapp
would earn revenues from applying that knowledge on its clients' behalf.
It would be interesting to know whether the difficult trading
conditions prompted an acceleration of existing trends in the industry -
such as the embedding of digital technology into every channel of
communication or the search for growth markets overseas. Or if it put a
brake on change, leaving weaker traditional agencies inert and
vulnerable. There's no obvious evidence either way, but some agencies
would claim that they benefited from changes that were already in
progress.
For example, four years ago, the Midlands-based integrated agency
Cogent Elliott began to broaden its offer by investing heavily in other
aspects of its client offer, such as digital, PR, CRM and direct
marketing. So while raw media billings may have been fairly static - as
the Nielsen table shows - total revenue growth has been "substantial"
during the period 2009 to 2011, according to Cogent Elliott's chief
executive, Tim Pile. Thus the revenue mix has changed. "Those agencies
that have invested during the period have benefited and will continue to
benefit as they emerge into better economic conditions," Pile says.
An unexpected parallel to the Cogent Elliott experience is found at
Bartle Bogle Hegarty. Commonly regarded as a traditional advertising
agency, albeit a very creative one, in reality BBH has been broadening
its capability considerably in recent years. The policy has been to
combine traditional ads with customer dialogue. So social media, direct
marketing and CRM are among the skillsets that come with the BBH brand.
That may have contributed to the agency achieving one of its best years
for new business in 2011, boosting its media revenues and other revenues
besides.
M&C Saatchi has also enjoyed more revenue and profit growth from
newer business offers such as mobile, data analytics and social media,
while traditional advertising has grown less impressively. "Traditional
advertising revenue is big, but it's not growing so fast," Kershaw says.
Technological change seems to have proceeded with little fuss among
the bigger direct marketing agencies, where databases are the real
assets and digital technology provides more and more effective
opportunities to exploit them. According to Work Club's chief executive,
Martin Brooks, companies such as Wunderman, Rapp and Proximity have all
"reinvented" themselves as specialists in customer insight and
e-commerce.
Rapp's UK chief executive, Marco Scognamiglio, would argue that his
agency's ability to weather the economic storm was helped considerably
by a long-standing focus on outcomes that prove the worth of the work it
does. "We have 45 years' experience of using data, of identifying
cultural trends and making brands more relevant," he says. Rapp always
had a technology base that fuelled its analytical processes, so what for
others was a digital revolution was for Rapp more of a technology
evolution.
The blending of direct marketing with digital skills was one of the
main attractions leading to the merger of Kitcatt Nohr Alexander Shaw
and Digitas in London last year. Whether the timing was ideal in the
face of an economic downturn may be open to question, but with profits
in decline, the Kitcatt Nohr founder and now Digitas chief commercial
officer, Jeremy Shaw, is in no doubt. "Before the merger, there were two
60-person agencies. Now there is one 150-person agency," he says,
pointing to the added capabilities available to clients - especially in
social media - and the higher profile created for Digitas in the UK.
Among mainstream advertising agencies, the transition to digital has
sometimes been a more cumbersome and painful experience. Realising their
vulnerability, some agencies rushed to acquire digital shops or a token
digital "supremo" and frequently thought that would be enough. Now
everyone knows it was not.
The learning cost and disruption has been vast and the downturn in
the economy has come at the worst possible time. Those agencies that
might have been able to manage the digital transition in better climes
with an element of goodwill and budget elasticity from their clients
have instead seen profits eroded at best or clients walking out of the
door at worst.
To their credit, some of the UK's independent agencies have been
quite adventurous in their response to the challenging conditions. For
example, Total Media claims to have gone through quite a big reinvention
of itself. "Despite tough economic times, we have increased our
workforce by about 35 per cent in the last 12 months," its managing
director, Tom Laranjo, says. "Whereas we were once a pure-play media
planning and buying agency, we now offer everything from media planning
and buying (press, cinema, outdoor, TV, radio, online) to SEO and
pay-per-click, social media, PR, direct marketing, insight and market
research, and production services."
The depressed economy also made it even more difficult and risky for
domestic agencies to contemplate expansion into faster-growing and
potentially more profitable global markets.
Combinations and collapses
Of course, it is still possible for agencies to make a living from
the UK market without expanding overseas, provided the offer is in tune
with client needs and the delivery is of the right quality. But not
everyone has maintained a healthy level of profit.
Brilliant Media Group put up a white flag to administrators and was
rescued by MediaCom. Various subsidiaries of Adventis Group have been
struggling, as has the AIM-listed, Kent-based ad agency WFCA. Recently,
Cello Group disposed of the underperforming, albeit profitable, Farm
agency to Inferno. And there will be several other quiet mergers or
takeovers that are motivated by a sense of financial vulnerability. At
Adventis, the business of its media buying subsidiary Adgenda Media was
sold to management after two key staff had joined a competitor.
The absorption of Hooper Galton into VCCP at the end of 2011 may also have reflected how tough it was to go it alone.
Even where individual agencies are operating at a reasonable profit,
they can fall foul of parent companies that have borrowed too much to
build their corporate empires - Media Square being an obvious case.
Earlier, Robson Brown had been the victim of its buyer Round 2 going
bust, but, afterwards, was successfully bought out by Mission.
Pressures on profit margins
No-one can deny that 2011 was a tough year, with pricing under
pressure and clients wanting more for less. But the true test of a good
agency is how it copes with that climate. "Our aim is to not be the
cheapest," Shaw says, "but that means we have to be good and to give
good value."
Scognamiglio acknowledges there's not a client that isn't trying to
negotiate more value for its money. Rapp's answer is to earn more money
by doing more work, which he says gives clients the confidence to spend
more and to spend it more effectively.
"Times have definitely been tougher than previous years," Laranjo
admits. "Clients are under a lot of pressure and this naturally
influences spending on media services. It also means that competition is
much more fierce."
Kershaw believes client pressures are not as challenging today as
they were at the start of the downturn in the first half of 2009, which
he describes as "bloody". Since then, it has just been a matter of good
housekeeping.
Dare's managing director, Toby Horry, thinks it's "just as hard as
ever" to achieve healthy margins. In an over-supplied market, it takes
intense servicing to keep clients happy and it's a constant battle to
keep talented staff. "There aren't enough good people," Brooks agrees.
"The ad agencies are still hoovering up average people from digital
specialists and giving them 15-25 per cent pay rises for moving. Yet few
of those agencies appear to have worked out how to make good money from
digital."
Apparently, many clients still treat marketing expenditure as
discretionary. When the economy gets tough, the spending tap is turned
off. Several years (and marketing executives) later, the brand pays the
price.
| Holding Companies - ranked by advertising |
| Rank |
Rank |
Holding company |
Billings 2011 |
Billings 2010 |
Year-on-year |
| 2011 |
2010 |
|
(£m) |
(£m) |
% change |
| 1 |
1 |
WPP |
851.7 |
875.5 |
-2.7 |
| 2 |
3 |
Omnicom |
759.1 |
704.1 |
7.8 |
| 3 |
2 |
Publicis Groupe |
726.6 |
775.2 |
-6.2 |
| 4 |
4 |
Interpublic |
556.9 |
537.5 |
3.6 |
| 5 |
5 |
Havas |
182.2 |
200.2 |
-9 |
Bob Willott is the editor of Marketing Services Financial Intelligence (www.fintellect.com)
How the leagues are compiled
This article was first published on
campaignlive.co.uk
The main button on the umbrella site takes you to different games, GIFs and videos at random
The games are easy to play in short bursts
Content will come from a range of sources
The bright and cartoony visuals are aimed squarely at youngsters
For
the latest instalment in our series of posts looking at how brands use
the four main social networks I have decided to turn the spotlight on
Kellogg’s.
On Marketing
Contributor
John Ellett
Contributor
Measuring the efficacy of social media marketing still isn't an exact science, regardless of what the gurus and ninjas tell you.
Butterball –
Butterball stepped into the mobile advertising arena with a mobile ad
campaign that offered users helpful turkey tips, promotions and recipes.
KFC
also used Pandora’s iPhone app to target consumers and rolled out a
dedicated radio station that featured groovy tunes which went
hand-in-hand with the Chunky Chicken Pot Pie promotion.
The mobile ad let consumers follow the film on Facebook, watch a trailer and browse show times. 
Earlier this year, Papa John’s ran targeted mobile banner ads that promoted offers and deals.
Pepsi's Super Bowl advertising campaign centered around music and getting people to talk during the game.
Trader
Joe’s ran mobile and audio ads that poked fun at what an engaging
mobile ad is. The company simplified its campaign to take users to a
mobile-optimized landing page.
