To gain an understanding of traditional advertising agencies, it is important to understand where it all began. Advertising is not a new or recent concept. Advertising dates all the way back to the Christian era. Outdoor signs with paintings on a building wall were one of the first recognised approaches to advertising. Rome and Pompeii are also known for signs found in ruins by Archaeologists. (The Classy, 2010) Advertising is also said to have been initiated through the use of newspapers in the 17th century. These included simplistic explanations accompanied by prices of products up until roughly the late 19th century. (Lodge, W. 2011)
With developments in technology, visuals could then be added to advertisements and soon after, colour became a possibility. Nevertheless, it was not until the arrival of advertising agencies in the late 19th century that advertising became a self-sufficient and well developed establishment. (Lodge, W. 2011) Accordingly, the advertising agency industry has been evolving ever since and thus it is only natural that that evolution carries on.
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This leads to the question as to what exactly is a traditional advertising agency. According to Redpath, D (2012), Business Unit Director at Mortimer Harvey, a traditional advertising agency focuses mainly on "the creative concept development of campaigns and creative using mainly traditional media types like TV, print, radio and out of home advertising." In addition to this, Nebuloni, M. (2012), Client Services Director at Mortimer Harvey, explains that traditional advertising agencies focus primarily on either solely above the line or below the line advertising or both. This means that these agencies do not offer specialist services such as PR, direct marketing; digital marketing, etc. Today however has seen a shift from traditional agencies in that many agencies are beginning to offer these specialist services. The reason for this is due to the increased competition within the industry, declining revenues as well as client expectations, all of which will be further explained below.
The typical workflow experienced within a traditional advertising agency and as described by Redpath, D (2012) involves the following:
The client invites the agency to a meeting where the briefing of the new project/campaign will take place. Members from the agency would attend the briefing session and would then revert back to the agency with the brief. Client Service will then open a job bag on Chase (the agency's operating system) and will then submit the brief for the creative studio to begin work on the new project. Simultaneously, the Production Department generates the cost bag in order to establish a Cost Estimate for the project/campaign. This Cost Estimate will then be presented to the client who will have to approve the costs in order for the agency to proceed with the creation of the project/campaign. A Purchase Number is usually submitted by the client in order to approve costs. When this Purchase Number is received, it is the job of Client Service to make the creative studio aware that the job can now proceed. A brainstorm will then commence set up by Traffic. The agency project team will need to make sense of and unpack the brief received. It is then the job of the Strategy team and Creative Studio to develop the communications strategy and creative concept. Most agencies ensure that an internal agency pit stop is arranged in order to review the communications strategy and creative concept. If all agency project team members are satisfied, a meeting with the client will be arranged in order to present the concept to them. (Redpath, D. 2012)
This type of workflow structure is traditional in the sense that it flows from on department to the next. Different employees have different specialisations and thus focus on what they do best. A threat to this workflow system is the divide that it creates between employees within the organisation. Although it is very systemic and appears to be the perfect solution, a divide in employees is the un-ideal outcome for perfect synergy and thus the desired results. Fradd, A (2012) goes on to explain the issues agencies have today with the divide between their employees. Creatives do what they know how to do and Client Service as well as Strategy do their part. Often, there are conflicts between the different departments and synergistically, this affects the outcome of the work of the agency.
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Another important characteristic of a traditional advertising agency is that of communication. In the past when technology was much less sophisticated and advanced as it is today, much communication between agency staff and agency and client was done face to face. This was great for internal and client relationships. Today, with e-mail and cell phones, this communication is no longer what it used to be. Although this does allow for meeting deadlines much faster and a greater efficiency of work, it is not as positive for the internal and client relationship as it was in the past. The agency model of today thus has to ensure a greater emphasis and care for the relationships both internally and with the client. (Fradd, A. 2012)
A change that has taken place over the past 10 years is that of full service agencies breaking up into smaller specialist agencies. Together, these specialist agencies are seen in PR, digital, design, research, creative and media planning/buying disciplines to name a few. A transformation has taken place which has seen advertising move from overwhelming a mass market approach with generic messages to the consideration of insights and an understanding of the motivation behind consumer behaviour, especially in South Africa with such a diverse nation. (Lodge, W. 2011) Campaigns are now more than ever, more highly technical and research driven as opposed to being essentially emotive and creative and it is no longer about what message the brand or client wants to put out in the market to promote their products or services, but more about what the consumer wants - the "what's in it for me" approach. (Fradd, A, 2012)
Currently, agencies often have to take responsibility of the marketing role for their clients. Often, clients' briefs are insufficient in detail or their information regarding their target market is lacking and most of the time clients include no key insight into their target market and what their wants and needs are. This places a large amount of pressure and strain on the agency which means that agencies are now obligated to re-look their current models as well as the type of people they employ in order to provide their clients with greater value. (Nebuloni, M. 2012) Agencies are thus continuously evolving. Acting in the role of just being a supplier is no longer sufficient. Engaging with clients as business partners is now more important than ever before. This also leads to longer term relationships as agencies become part of a client's team and through this have the opportunity to make themself indispensible to the client. (Lodge, W. 2011)
Over the years, traditional agencies have been overwhelmed by various changes within the industry which has posed a large threat to the traditional way in which they conduct business. Redpath, D (2012) states that a significant change was that of the removal of procurement and production from many agencies. Many clients today have their own procurement agencies or departments that are responsible for all of their print production as well as promotional items and gift sourcing. For traditional agencies, this was a great revenue stream as they would normally have marked-up production by 15% to 20% and this additional revenue is now no longer available.
Additionally, clients are outsourcing their media buying to specialist media buying agencies where as in the past, traditional agencies would purchase media for clients and earn a +- 16,5% commission on all media purchased on behalf of the client. Thus the shift in the industry as can be seen by the points above demonstrates the threat and reality of decreased income for advertising agencies as a larger amount of services become more specialist. (Nebuloni, M. 2012)
As seen above, the agency remuneration model has seen significant changes over the years. In South Africa, the 2 most used types of remuneration are the 16.5% advertising commission model and the retainer fee. The advertising commission model has almost completely been phased out and even media agencies today no longer earn the 16,5% commission and are also being remunerated through the retainer model. (Lodge, W. 2011) Today, retainer fees are widely used and are the popular choice. This is mainly due to the consistent income and predictability and allows the agency to employ dedicated teams to work on bigger clients as the retainer covers the salaries of these employees. (Nebuloni, M, 2012)
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Another benefit of the retainer model is that of media neutrality as the income of the agency is not dependent on what medium is chosen but rather on what is the most appropriate channels and media choice for the brand's objectives and strategy. Despite the benefits, Retainers do still present certain challenges to agencies. This occurs when the scope of work changes and negotiations with clients are then needed. (Lodge, W. 2011) Clients also tend to "take advantage" of the retainer model as it is easy to brief in work just for the sake of doing so and often this work never goes to market. This is very frustrating for agencies as a great deal of work goes into every campaign just for it never to be used. The best prevention for this is to have a very detailed scope of work document that clearly states what the retainer includes and what will be billed for outside the retainer. (Fradd, A, 2012)
The subject of remuneration is an argumentative one. There are a variety of other forms of remuneration but Retainers are generally the better option. A new model has emerged which seems to be the preferred option by both agencies and clients as both partners feel that they are remunerated based on actual output. (Lodge, W. 2011) It is called the Hybrid retainer model. In this model, Strategy and Client services is covered by a set retainer which enables the agency to employ a dedicated team to service the client. All creative work is billed for on a pre-approved rate card. The benefits are that the agency is assured of a steady income each month plus income billed for all creative work. This assists with the problem mentioned earlier where clients now need to be more thoughtful about work briefed into the agency as now they are being charged for each piece of work. It also motivates the agency to hunt for more work from the client. (Nebuloni, M. 2012).
A degree of accountability is also a prevailing subject of consideration of agencies today. Anne van Rensburg from The Jupiter Drawing Room, Cape Town, South Africa, states "Results have become imperative to the success of a media schedule and measurement of outputs is becoming increasingly more critical. Pressure to demonstrate successful business outcomes and quantifiable added value, which agencies are measured against, is particularly high and non-negotiable". (Lodge, W. 2011)
Another element affecting the South African advertising industry is globalisation. Many of South Africa's larger agencies are global and the problem with these agencies is that these multi-national associates are very structured and there is a great deal of accountability. The controls, criterions and global strategies sometimes are a barrier and constraint to creativity. Strategic freedoms as well as budgets are firmly observed too. There are however advantages to this globalisation as these agencies have access to a big pool of experts and best practice world-wide. (Lodge, W. 2011)
One of the major current threats to traditional agencies is the fact that brands are cutting out their agencies and are turning to specialist agencies when it comes to acquiring knowledge and know-how when it comes to these specialist areas. These agencies hold great benefits as they don't call for a "global or hierarchical sign-off". The turn-around times are rapid and great campaigns are produced at a lower cost. However, larger full service agencies argue the benefits of these specialist agencies as it is said that they there is a lack of integration, consistency and efficiency as they are uninvolved in the strategy, core communication and creative conceptualisation. (Lodge, W. 2011) Full service agency client service director of Mortimer Harvey, Mariette Nebuloni mentions that this separation of disciplines causes the communication mix to suffer as each agency, for revenue purposes, wants the client to make use of the channels for which they will produce the material and this is not always in the best interest of the clients' objectives.
Another threat to the traditional agency is that of the "professional consumer" - the Prosumer. These Prosumers are beginning to demand and obtain respect through mediums such as social media. Enabling brand related conversation and receptiveness to monetising new opportunities of contact planning must be considered and built into the communication strategy. Managing and monitoring these online conversations requires a separate strategy and expertise and clients believe that they are best served dealing with agencies how specilise in this field. (Lodge, W. 2011)
A new concept is that of Crowdsourcing which involves the ability for any individual to suggest creative or strategic ideas for advertising campaigns. Crowdsourcing is a threat to advertising agencies as it is seen to take away budgets and undervalue advertising/media as a profession. (Business Community.com, 2008)
In conclusion, it is apparent that over the years, what is described as the traditional advertising agency has changed significantly and it has become apparent that in order for an agency to survive in the competitive landscape today, agencies need to continuously adapt to all the changes within the industry and to innovate in order to stay on top of these changes.
Essay Two: M3B4
A FUTURE PROOF AGENCY MODEL
As can be seen from essay one, traditional agencies have been forced to evolve as times are continuously changing. Although many agencies in South Africa today still maintain elements of a traditional agency, they have all incorporated new elements based on the fact that in order to survive, change and adaption is imperative. This brings us to the question as to what is the future proof agency model.
"The question for creative agencies is whether they can wake up, react to what's going on, engage the crowd, and make themselves a part of the new reality." (Winsor, J. 2010)
This brings us to the first factor; understanding the shift to digital is highly important in order for brands as well as agencies to survive. Digital has transformed the marketplace in a major way as the change in lifestyles and two-way communication is now a brand reality. (Lodge, W. 2011)
The traditional model of agencies whereby they employ creative teams to produce creative and strategic ideas is simply not the case in a digital era where ideas can come from anywhere. Digital tools are used to gain access to the world of creativity, and this is achieved through a lean infrastructure. Here, the client can win through as a diversity of ideas that are easily accessible, even without the use of traditional agencies (Winsor, J. 2010). This is a significant factor that agencies of the future have to take into account as it is imperative for the client to realise the benefits that agencies can offer over and above what the world of creativity has to offer. Agencies themselves should consider adding to traditional creative teams with considering the benefit of Crowdsourcing and making use of the voice of the consumer. It must be noted that Crowdsourcing platforms have proven to be uncontrollable for various clients and agencies of the future can take advantage of this. With Crowdsourcing, the amount of potential solutions and the extensive effort to maintain the correct strategy for a brand is overwhelming. (Winsor, J. 2010). Thus the agency model of the future needs to understand that facilitation and creative direction is the answer to assisting clients to innovate in the future.
With the advances in technology and the ability for employees as well as clients to communicate without having to be present (Skype, Google Chat, e-mail, mobile), it is still necessary to schedule true face time for relationship building as in the future, technologies are bound to become even more sophisticated and face to face time is likely to diminish to a large extent. (Farrugia, D. 2012) Being actively involved is even more critical when directing a digitally distributed workforce. Agencies of the future need to ensure that when connecting the mass of employees for creative work, every individual warrants feedback and direction. Managing both expectations and rewards is the only way to see this type of business into the long term. (Winsor, J. 2010).
As discussed in essay one, currently, there has been an increase in the amount of specialised digital agencies and there is an issue in this in that it results in disjointed offerings. According to Nebuloni, M (2012), Client Services Director at Mortimer Harvey, the direction of the future agency model will see more clients choosing only one or two agencies to produce all the elements required for campaigns as the handling of various agencies proves to be very difficult and there are often inconsistencies in the work the various agencies produce for the client. It must be noted however that agencies of the future who incorporate these specialist services within their own agencies need to ensure that if they do decide to offer the client these various specialist services, that they can do it properly and that they hire the appropriate specialist personnel as it can work to the agency's disadvantage if the services they offer are of a lesser standard. (Nebuloni, M, 2012)
For specialist agencies, this will mean taking the appropriate measures to avoid these inconsistencies and difficulties for clients in handling these various agencies so that the clients will rather opt to stay with their chosen specialist agencies. This can be achieved by building solid relationships with the client's other partner agencies and ensuring that briefing sessions by client include all partner agencies and for agencies to after the briefing work together to come up with the right campaign solution for the client. (Fradd, A, 2012)
In relation to the above; In such an ever changing commercial world, a one size fits all model will never suffice if agencies do not ensure that they employ specialists in the various fields and also ensure that these different departments do not work in isolation of each other. Industry cycles will be continuous where large full service agencies create one big happy family through gathering all of their resources and then run the risk of inconsistencies once again when they allow splinter agencies to be formed. These then grow into large organisations eventually and thus the whole process begins once again. Market related factors and the dynamics apparent in these will determine how agencies are shaped. (Lodge, W. 2011)
According to Lodge, W. (2011), the most prominent element to a future proof agency model is to obtain the buy-in from client that an agency is a business partner, not a commodity provider. A challenge that agencies will have will be the fact that they may understand strategy, thorough research tactics and modern marketing tools of target marketing; but they might not know enough about the internal dynamics, product offering and vision of the client and their company. CEO of Ogivly & Mather, Miles Young states that through agencies becoming a part of the direction of a company, accountability will become vital in all departments of the client. Through an understanding of the entire value chain and a zero-based approach, agencies can begin to resolve internal and external deficiencies. This will be ultimately positive for the client as it will be more perceptibly defined and understood by all stakeholders and thus the groundwork to building brand equity will be strong (Lodge, W. 2011).
Being responsive and having the ability to adapt is critically important for future agencies. The functions of the agency must not be set and must have the ability to change. WPP head Martin Sorrel states that more than half of the agency holding company's revenues are from non-advertising activities, and he predicted that soon this figure will climb closer to 2/3. Thus the future of advertising agencies could possibly move into completely different spaces (Lodge, W. 2011).
According to Goodson, S. (2011), the agency of the future must be able to achieve 3 things: The agency needs to ensure a new ideas culture, a new value culture and a new talent culture. The agency model of the future is built around the value of ideas. The problem with agencies of today is the fact that the value and the central model for business of the advertising industry today has shifted apart from ideas and now primarily focuses on execution.
The value of ideas is unlimited; however agencies are repeatedly seen as executioners and thus as suppliers. The value of suppliers in the future will be vastly diminished. Idea creators and producers will be highly valued and thus agencies of the future need to realise this because ideas-driven people develop supreme value within various industry sectors, not just the advertising industry (Goodson, S. 2011).
According to Goodson, S. (2011), in order to survive, agencies need to embrace the fact that success and survival are dependent on flourishing in various environments. To succeed in these various environments, agencies need an idea generating organisation that can make use of various differing strategies and then finding ways in which to bring these strategies to life in a way that is fresh, relevant and using technology that is up to date and innovative at the time.
Change is inevitable and is an essential survival technique within the advertising agency industry. The only thing to do is to see how the industry develops over time - "advertising is cyclical, what goes up must come down, what grows will eventually shrink again," (Lodge, W. 2011). There is therefore no identifiable future model, but rather a realisation that rapid adaption is a factor of survival.