Why Agencies Will Transform In 2018

WPP’s flat 2017 earnings is another in a series of bad omens for agencies, as the largest advertising holding company is often regarded a bell weather for the industry. IPG, Publicis Groupe, and Havas also reported lackluster earnings. P&G and Unilever recently cut another USD 800 million in agency production fees and digital advertising spending. Nike is reported to be using procurement-led, reverse auction tactics in reviews. Combine these with the steady in-sourcing of digital media and advertising capabilities, and the outlook for agencies appears grim. It is understandable that some may question their viability.

However, those who do should consider that agency economics is only part of the overall picture. Competition also factors heavily. While consultancies are disrupting the agency business, they have yet to fully cross the creative threshold and are not pursuing media. In-house agencies are possible replacements for agency services such as media planning and buying or creative services. However, this fails to acknowledge the time, cost and resources to staff, and scale full-service in-house agencies. Amazon, Google, and Facebook certainly have the technology and customer data to automate digital advertising. However, as we’ve seen from 2016 forward, the Tech giants are unable to monitor and regulate their platforms to insure brand safety.

2018 Will Be The Year Agencies Reconfigure

So, no, agencies will not start dropping off the map in 2018. Rather, they will speed up their efforts to reconfigure their offerings to better compete with other agencies and fend off new entrants. Consider the changes already underway, including:

  • New integrated offerings. The newly created Omnicom Precision Marketing Group leverages the direct marketing capabilities of Rapp, the digital skills of Proximity and the data expertise of Annalect.
  • Consolidations and mergers. WPP created Superunion out of 5 WPP-owned branding agencies. Five independent shops combined themselves to launch Merge in Chicago, Boston, and Atlanta.
  • Holding company or network go-to-market brands. Dentsu Aegis Network pitches as DAN and won Subway and AB/InBev. Publicis Groupe won Mercedes’ global business using their Publicis Power of One structure.
  • Data and platform investments. Many of the holding companies have built or bought Pii data platforms to power media and creative. Dentsu has M1. IPG has AMP and Unity, Publicis the Data Spine and WPP created the Wplatform.
The Future Agency

At present, there is no viable replacement for your agency, beyond another agency. So, the question we should be asking is, “What will agencies become?” Based upon the changes already underway, we can expect:

  • Agencies to become leaner and more consultative. Given the trend of taking portions of media, creative and digital marketing execution in-house, agencies will emerge more consultative, providing their clients access to high-demand, difficult to recruit creative and strategy specialists. High-concept, brand creative, media planning, and strategy will remain outsourced to agencies. Daily digital marketing will migrate to clients. Agencies will adjust to the economics of projects and specified scopes, consequently emerging as leaner, but able to flex across lots of marketing activity.
  • A rebirth of creative boutiques. Since consultancies have yet to bridge the cultural divide to creative and in-house teams struggle to recruit top creative talent, the best agency creatives will open a new crop of creative boutiques to serve clients searching for brand uniqueness.

The original Forrester blog can be found here.