Are there any gaps opening up in the agency market today?
Nine months ago we published a blog called ‘How to prevent agencies self-destructing.’ Judging by the large number of responses it received, it hit a nerve with our creative, branding, marketing and advertising agency audiences.
It featured renowned agency consultant Michael Farmer, author of Madison Avenue Manslaughter, who states in vivid terms the way fee-cutting clients are triggering a decline of agencies.
He is scathing in his remarks.
- Even the most creative agencies aren’t paid more than their competitors in all but exceptional circumstances. “It’s never coming back – no-one’s going to turn that price curve around.”
- The continual pitch cycle is a “loser’s game” for every party, including the clients themselves.
- New business wins are won today at commodity prices. "When clients bring on a new agency they’re paying them less than the agency they just got rid of."
- The problem is growing workloads and declining fees. When workloads are not carefully measured, the knowledge of this problem is not crystal-clear, causing CEOs to downsize.
- “Unless agencies restrengthen themselves and have a better understanding of the relationships between fees, workloads and resources we can expect this to continue. And it has a knock-on quality.”
- "Most clients do not understand what their scopes of work actually cost”.
- Yet clients aren’t happy. Their brands are not working well, they aren’t growing and they aren’t getting the right work from their agencies.
What can be done?
Perhaps the most constructive way of looking at it is to step back and acknowledge that the world has indeed changed. But this doesn’t mean inevitable doom. As with all changes, it means that gaps in the market open up, and a new breed of agency will move into them.
This week we asked some agency founders to think back to the time they set up their agency, to see how gaps in the market encouraged their move. The results were enlightening. The first is a clear example of spotting a market gap and doing what you enjoy:
Max Clark, Co-Founder, Marketecture / Upp B2B
“When we first set up the agency in 2003*, specialist ‘pure’ B2B agencies were few on the ground. As founders, our backgrounds were all 100% B2B and we saw a gap for a niche specialist that really understood the often complex B2B buying environment. We were hugely passionate B2B marketers, driven by a desire to elevate B2B marketing from its positioning as consumer marketing’s less sexy poor relation.
“We’ve learnt many lessons along the way and seen the agency market change beyond recognition in the last decade. Almost 15 years on, would we do it all again? Hell yeh! Running a busy agency isn’t for the faint-hearted and it can be all-life- consuming, but what’s better than doing something you still love day in day out?”
* [Marketecture now ‘Upp B2B’ following a merger with Clock Creative last year].
Here’s another response, also based on market gap opportunities. This one emphasises the need to offer strategic consultancy rather than merely tactical projects:
Richard Burnett, MD, Excentra
“I set Excentra up due to the siloed nature of the marketing industry, eg SEO agencies, inbound agencies and web agencies, and we learnt first-hand that this didn’t serve the end customer well. Agencies never immersed themselves enough in the business strategy and were too busy trying to gain new clients, resulting in poor client retention.”
Our next contributor cites his main driver as his passion for creativity, not merely for creativity for the sake of it but as the ideal communication bridge between brand and customer. He thinks this is something not every agency quite gets – hence a gap in the market:
Mark Beaumont, Founder, Dinosaur
“I was working at an agency as a senior creative where creativity was valued. So far so good. Then the agency merges/gets taken over and the new owners make it clear very quickly that they find creativity (and creatives) to be an annoyance. Interesting. I’m firmly in the camp that creativity ie inventive and imaginative ideas is what makes living so much fun. And in a commercial context, the perfect way to communicate between company and customer.”
And another agency founder spotted the gap in the market when digital was first emerging:
They saw from the outset the revolution that digital was going to make in marketing, and the huge positive effect it would make to clients’ businesses.
This was a gap in the market. To make sure they kept a leadership position in it they made sure they never lost their focus on making a difference for the client, monitoring results closely, asking clients for feedback and building trust.
This combination of delivering results and building trust has given them their mission: “Become the UK’s most recommended performance-led digital marketing agency.”
But the most succinct response from the founders we contacted had this to say about the gap they saw in the market:
Julie Clare, Chief Executive, Clear B2B
“I thought I could do it better.”
So, what gaps exist for agencies today?
Michael Farmer believes that the answer is for agencies to think more like a consultancy than a creator of campaigns. They need to be ‘consultancies with creative capabilities’. He points out how management consultancies generate fees at five times head costs while agencies are paid at around a 2.2 multiple.
In his book, he lists several solutions including:
- VISIBILITY. Getting workloads measured and under control and paid for. Agencies must establish, as a matter of policy, that they will be paid for all the work it carries out for its clients. Be prepared to drop clients whose fees are entirely inadequate for the work they require.
- CONSULTATIVE STYLE. Enhancing the value of the agency services. Agencies need to upgrade client service people to business-sophisticated and results-obsessed executives who provide consultative services to clients, solving brand growth and profitability problems.
- DELIVER RESULTS. Acknowledging and accepting that clients are governed by shareholder value concerns, and that the mission of the agency needs to be refocused on helping clients improve brand growth and profitability.
If you'd like to know more about Synergist there are a number of ways you can get in touch. Our implementation partners, The Agency Works, run regular webinars introducing Synergist, so book your spot. Or give them a call on 01455 553 246 or book a quick 15 minute one-to-one demo.
Or you might want to chat to them about the sort of visibility Synergist can give you, or see how giving your team live information helps them raise their game, see the bigger picture and increase their commercial awareness of their daily decisions.