Engaging a non-network agency network in a network world

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By: Lakshmi Jayakumar
Principal Analyst, Indirect Services

calender25 Jul 2019

engaging-non-network-agency-network-in-a-network-world

Abstract/Business Case

1. Introduction

Advertising network agencies (part of holding groups such as WPP, Publicis, IPG etc.) account for close to 60 percent of the advertising fees that are paid to agencies. The holding groups offer cross-regional service capabilities that allow clients to consolidate their requirements with one or more holding networks. However, the quality of the work is not always consistent, and the cost of availing services from such holding groups is usually higher.

2. Main

Independent agencies offer unique solutions and provide more customised results for any region. Their  major drawback is that they are usually present in only few countries. Thus, it becomes difficult for the client to oversee multiple agency accounts. However, to overcome this drawback, local agencies are forming international networks such as Local Planet, Icom, The Network One, etc. These networks offer the convenience of a network agency, along with the quality of a non-network agency.

3. Recommendation

Ideal way to work with established non-network agency groups. 

Problem Statement

Advertising is one of the most dynamic industries, with shifting trends both in the types of agencies and technology, as well as in the engagement models. Cost is one of the key factors that creates shifts in the engagement best practices, which makes it possible for marketers to wield buying power in the market at any given time. Furthermore, marketers are becoming more conscious regarding where to spend, rather than how much to invest, which is directly linked to the ROI generation of campaigns.

Over the years, network agenices of holding groups have been dominating the industry and account for more than 60–65 percent of the total advertising fees paid globally by marketers. However, with digital being the next trending channel in the market, there has been a shift in this trend with the emergence of more specialised independent agencies.

Independent agencies are flexible to work with due to higher levels of transparency as well specialised regional services based on clients’ exact scope. However, will clients transfer their spends from network groups to independent agencies? Will holding groups lose their market shares to these budding non-network players in the market?

Overview on Shift in Advertising Landscape

Network agencies have dominated the advertising industry since ages with the support of their holding groups, which account for 60 percent of the market shares of both ATL and BTL advertising. A major advantage that the holding groups had over independent agencies is that they won accounts by offering holistic advertising solutions with higher global coverage at a reduced price. This made it difficult for buyers to resist the offers that attract them to these giants for their advertising requirements.

Major challenges faced by Holding Groups/Network Agencies:

  • Increasing focus on investing in the right advertising formats:

Nowadays, rather than opting for a holistic approach, marketers are also becoming more mature and are spending wisely. The shift involves focusing on where to spend, rather than how much to spend. This spend is also fine-tuned on the basis of consumers’ responses to various campaigns, product sales, seasonal variations, and so on. Moreover, buyers are more keen to have higher transparency from their agency partners to ensure that they are spending wisely. This is the biggest drawback when it comes to a network group. Unlike smaller agencies, a network agency or holding company works in a traditional format with a set number of people who work on a campaign based on the hierarchy, and the client is billed on the same basis. However, the level of transparency to understand the internal structure is relatively low, which increases ambiguity for the buyer. This has created a void that was rightly leveraged by the independent agencies to channelise their offerings based on client requirements.

  • Digitalisation becoming a threat to traditional advertising:

Holding groups have been rigorously investing in mergers and acquisitons with specialised digital companies across the globe to increase their technology capabilities in the digital space. Investments have also been made in technology, along with the training of skilled labour to ensure their ability to cater to all needs of their clients across various channels. However, this may not be enough as clients are slowly moving away from the holistic engagement approach to a more customised approach, in which every campaign is designed on the basis of multiple factors. Rating softwares are used to view the trends of consumers to redefine or modify the campaign. Though holding groups have honed their capabilities, independent agencies have a greater advantage in this scenario as they are able to offer customised tools with more transparent pricing, which is advantageous in winning over clients.

  • Transparency in bidding:

In the early 2000s, holding groups had set their approach clearly to lock bids and win over high-value clients. However, now, the bidding process is becoming more transparent, which gives an equal opportunity for both parties to display their capabilities, and for clients to compare the services being offered along with the price quotes in a more unbiased and systematic approach. Thus, this new auction-based system has equalised the playing field and made the media-buying environment highly transparent.

Advantages that clients foresee in engagement with an independent agency

Independent agencies have definitely changed the advertising landscape with their approach, while giving tough competition to network agencies. Here are a few key drivers that attract buyers towards supporting this engagement model.

  • More data-driven approach rather than creativity alone

Traditionally, advertisements were rated on the basis of their creativity and out-of-the-box concepts, which were the only parameters of judgement. Although innovation is still a key factor, the focus is shifting towards creating more data-driven campaigns that constantly track consumer behaviour and quickly adapt to market dynamics so that every penny spent by the marketer is used towards deriving value and returns in terms of numbers. Independent agencies view this as a value selling proposition, and offer more ROI measurement tools that help buyers constantly monitor their spend without investing heavily across all media channels. The focus is to offer customised solutions that are targeted to their target audience’s interest and buying behaviour, differentiating even cultural nuances to connect better with the end consumer’s needs. Moving out of the holistic offering approach traditionally followed by holding groups is one of the biggest USPs that has helped upcoming agencies.

  • Higher level of transparency in payment model

Independent agencies have a smaller workforce compared to traditional network agencies that believe in a headcount or hierarchy system. Holding groups generally do not prefer to reveal their complete pricing model to their customers, which gives clients less freedom to choose the agency they prefer during the engagement period. Unlike this model, independent agencies offer complete transparency to buyers regarding their workforce, and give clients the liberty to choose the talent they would like to have onboard for the contract. This ensures that the client can choose the ratio of the junior to senior agency personnel working on the project. This reduces the overall project budget without compromising the quality of the campaign, thus ensuring wise usage of budgets.

  • Well-positioned in the market place with specialised offerings

Although independent agencies are smaller in terms of workforce, with offerings only at a local or regional level, they are well-positioned in their service offerings. Furthermore, they have effectively evolved with the dynamics of the industry by investing in the right digital tools and offering customised solutions based on what the client pays, rather than promising a set of services that are not result-oriented.

Case Example:

An independent agency located in India, Medulla has a workforce of 60 and was recognised as one of the top three Healthcare Agencies of the Year at Cannes Lions Health. It is also the only healthcare agency that has been listed in the 2017 Gunn Report for winning a creative Gold at Cannes and an effectiveness Gold at Effies for the same campaign. Furthermore, it is also recognised as the only non-US agency to be developing international TV commercials for a leading pharma corporate. The agency has even hosted a session at Cannes, which contributes to their many achievements. These achievements have been made possible by the agency’s unique positioning in the healthcare space, offering customised service even in the digital space. They understand the needs of their clients before approaching them to ensure they beat their network peers and become a non-network leader in the healthcare advertising space.

 

  • Usage of powerful tools that drive results

Independent agencies are also investing in fast-growing demand platform technologies that help monitor the pattern of the end consumers, and provide buyers with continuous reports to plan customised offerings. In addition to supporting their ability to continuously improve campaign performance, this technology also systematically tracks conversations and demonstrates the unique value they bring to the brand in terms of campaign outcomes. This is also practiced by network buyers, but the level of data transparency in terms of value and reports delivered to the clients is higher when engaging with an independent agency due to their approach.

Recommendation

The advertising industry is highly dynamic in nature, which will always ensure that the buyer has a higher bargaining power to work with the best-in-class agencies at a lower price without compromising on quality. In future, the ideal approach to engaging with both network and independent agencies would be to move towards a performance-based pricing model. This would constantly challenge the agency to perform better, as their KPIs are directly linked with their payment.

Clients can also demand more transparency during the bidding stage to ensure allocation of the right resources from the agency, and that the contract is framed to deliver value for the campaigns being executed. A small in-house team that includes specialised workforce at the client’s side would also reduce the dependency on the agency. This will also help maintain an in-house repositary of all brand activities that can be reused in the future without paying the agency additional fees.

References

 

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