Michael Farmer on the State of the Ad Industry Today and in the Near Future: Part 1

Jack Myersamp160amp160Michael you wrote quotMadison Avenue Manslaughterquot in 2015 with a second edition in 2017 and a third edition due for 2019amp160 What accounts for three editions in four yearsMichael Farmeramp160amp160I never expected to be revising the original book twice in four years but the rate of industry change has been acceleratingamp160 The first edition in 2015 documented the long slow decline of agencyclient relationships from the good old mediacommission days when agencies were highly paid and respected strategic partners to todayamp8217s feebased mess where agencies are treated like lowpaid commodity vendors who can be changed at willamp160 The second edition 2017 documented the impact of Jon Mandelamp8217s 2015 ANA speech where he accused media agencies of receiving media rebates kickbacks and other incentives that were adverse to their clientamp8217s interestsamp160 This led as you know to a rapid erosion of trust the amp8220transparencyamp8221 crisisamp160 The new third edition coming in 2019 documents something that I have fearedamp160 holding company share declinesamp160and the possibility of holding company breakupsamp160 In 2018 WPPamp8217s share price dramatically declinedamp160Sir Martin Sorrell left the companyamp160and there were further industry upheavals due to spending cuts inhouse agencies and competition from consulting firmsJackamp160amp160Youamp8217ve been consulting to ad agencies and their clientsamp160 Are there any signs that agencies are coming to grips with their problemsMichaelamp160amp160I wish this were the caseamp160 Advertisers are suffering from brand stagnation and they need new growth strategies from their ad agencies Agencies though are suffering and they cannot carry out their work in a quality wayamp160 Itamp8217s a loselose situationamp160 Advertisers and agencies are cutting costs to solve their problems but cost reductions are actually making their problems worseJackamp160amp160What do you mean by thisMichaelamp160amp160Advertisers are making up for the shortfall in brand growth by cutting costsamp160 Itamp8217s a crude way to increase brand profitability but it is not a longterm solutionamp160 At some point theyamp8217ll have to figure out how to grow their brands againamp160 Agencies are dealing with client fee cuts by downsizing amp160firing their most expensive people and cutting headcounts liquidating their capabilities to serve the profit needs of their ownersJackamp160amp160What do you think they should be doingMichaelamp160amp160Well for one thing agencies should try to be paid for all the work they doamp160 This is the only industry in the world where the key suppliers amp160ad agencies amp160do not have a firm understanding of how much work they are doingamp160 Agencies do not document how much work they do for a given feeamp160 They let their clients dictate fees and Scopes of Workamp160 Itamp8217s hard to believe but itamp8217s trueamp160 The amp8220business of running an agencyamp8221 is handled in an incomplete wayJackamp160amp160Surely though agency CEOs are coming to grips with fee problems arenamp8217t theyMichaelamp160amp160Not in my experienceamp160 CEOs worry about new business development amp160winning new clients and meeting their holding company targets for the yearamp160 They have a low interest in getting involved in amp8220how the agency factory is runningamp8221Jackamp160amp160The agency amp8220factoryamp8221amp160 You donamp8217t seriously mean that ad agencies are amp8220factoriesamp8221 do youMichaelamp160amp160Jack all businesses are factories even if they are highly creative and sophisticatedamp160 Hollywood is a factory that finances and distributes filmsamp160 Amazon is a factory that inventories and delivers productsamp160 BMW is a factory that designs and assembles highquality automobilesamp160 Apple is a factory that develops and manufactures iPhones iPads and Mac computersamp160 Ad agencies develop and deliver strategic creative and media deliverables that drive client brand growthamp160 Among these companies only ad agencies do not see themselves as factories and they donamp8217t measure their operations accordinglyamp160 They deliver products but they do not know anything about the quantitiesJackamp160amp160How does this hurt themMichaelamp160amp160If you do not know how much product you are making then you cannot know what price you are gettingamp160 The price agencies are being paid for their amp8220deliverablesquotamp160has declined by 63 since 1992amp160 Thatamp8217s because workloads are growingamp160and fees are being cutamp160 If agencies were being paid for the work they do their fees would be risingJackamp160amp160What about the holding companiesMichaelamp160amp160Agency business practices put their holding companies at riskamp160 Holding companies cannot be amp8220betteramp8221 than the agencies they ownamp160 If their agencies have lost control of pricing and are downsizing to generate profits then the holding companies sufferamp160 Sooner or later holding companies will fail to growamp160 Thatamp8217s what happened at WPP in 2017 and 2018Jackamp160amp160You donamp8217t paint a very optimistic picture for the industryMichaelamp160amp160The industry needs to changeamp160 There will always be a need for independent marketing partners serving clients who have brands that need to growamp160 The industry can thrive againamp160 Whatamp8217s likely to change are the players and the strategiesTo be continued next weekClick the social buttons above or below to share this content with your friends and colleaguesThe opinions and points of view expressed in this content are exclusively the views of the author andor subjects and do not necessarily represent the views of MediaVillagecomMyersBizNet Inc management or associated writersamp160

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Michael Farmer on the State of the Ad Industry Today and in the Near Future: Part 1

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Michael Farmer on the State of the Ad Industry Today and in the Near Future: Part 1

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