The Year Ahead: 2011 Predictions for Agencies


My Comment:
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As I have been saying all along, in the end there won’t be any “traditional” or “digital” agency difference. They will eventually transform into one “all-mighty” consolidated, multitalented “new generation” agency.

Hurray!

– Köksal.

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What to Expect From Shops, PR and Direct Marketing

 

by Ad Age

It’s officially the New Year. What now? Well, the economy might be brightening, but we’re not in the clear yet. Ad Age took the pulse of top executives in the major industry sectors to compile this preview. See sidebar for more predictions.

 

Direct marketing

Direct agencies will continue to garner the praise of marketers for the measurability of their programs and their growing capabilities on gathering consumer insights. But the privacy battle with consumers and legislators will no doubt continue as well.

Ad Age has rubbed its crystal ball and predicted industry moves in:

  • Marketing
  • China
  • Media
  • Agencies
  • Digital
  • One of the areas worth watching in 2011 will be the advancements in geolocation/geotargeting. David Sable, vice chairman and chief operating officer of WPP’s Wunderman, said there is still much psychology that needs to be understood around geotargeting, socializing and commerce. “We need to have insight into what motivates a single individual to act in a collective manner — and what it takes for them to actually physically move from one point to another,” he said. “The challenge for us is to understand how to create cultures of convergence.”

     

    Bryan Kennedy, president-CEO of Epsilon, said the biggest challenge for marketers in 2011 is an old one, but one that’s getting tougher to overcome: breaking through the clutter. With the barrage of media and the density of marketing messages making the marketer’s job harder than ever, he believes “the urgency behind engaging in relevant dialogue, powered by consumer insight and enabled by elegant technology in every consumer channel, is more critical and more complicated than ever before.”

     

    Agencies

    As agencies look ahead to 2011, they’ll be relieved to see clients invest in advertising again. Too bad that cash won’t be trickling down into Madison Avenue wallets just yet.

     

    “Marketing spending will go up healthily but I don’t think agency compensation is necessarily going to follow that quick,” said Michael Duda, co-founder of Consigliere. “2011 will be a better year for agencies than 2010, but it will still be tough; it’s not like procurement has gone away.”

    Said Marita Scarfi, CEO of Omnicom Group’s Organic: “I don’t see a change in procurement-led pitches. I think the financial prudence that was put in place in 2009 will continue. I do think more performance-based compensation models will be discussed and maybe even implemented in 2011 in the digital-marketing area.”

    Though procurement will drive pitches, there is likely to be improved dialogue between procurers and agency execs, due in part to an eagerness on behalf of the procurement community to — as evidenced by a task-force set up under the ANA — bone up on the business of creativity.

    When it comes to agency reviews, retail is a sector where large accounts could come unhinged in the coming months, while the auto sector is probably largely stable after a string of car reviews completed in 2010. Media accounts were in flux last year, and many media agency executives are prepping for more of the same in 2011.

    This year, one trend to keep an eye on in adland is agencies fighting back against “spec work,” reviews that require the ceding of intellectual property and pitches for which shops aren’t fairly — or at all — compensated for their time.

    Some marketers, like Kraft and Google, will continue to cherry-pick shops across the industry to work on specific brands or projects, but most will eschew long rosters of specialized agencies in favor of fewer, more integrated shops. “Today’s customers are consuming media content in a variety of forms in a relatively seamless fashion,” said David Beals, president-CEO of consulting firm R3:JLB. “Yet many marketers are working with a variety of specialist agencies for traditional mass media, online, social, mobile, etc. While the agency service offerings are fragmented today, I will be highly surprised if in five years we are still talking about ‘traditional’ and ‘digital’ agencies.”

    Retaining top talent will be a challenge for many agencies. Alex Bogusky, Gerry Graf and Eric Hirshberg all left their big-agency creative jobs last year, and with the uptick in business it’s likely more will follow. “As the market continues to recover, we can expect to see more movement among executives who were loathe to explore new horizons in an uncertain economy,” said Mainardo de Nardis, global CEO of OMD. “Hopefully, this improved outlook will drive an influx of talent as well, since this remains one of our greatest challenges as an industry.”

    M&A won’t slow down, but the size of the deals will. We saw a slew of acquisitions in 2010, from Taxi being bought by WPP to Hearst buying iCrossing and MDC investing in 72andSunny. There are still more acquisitions to be made, but the universe of indie shops is feeling smaller and smaller. There aren’t very many AKQA-size firms out there anymore (and it remains to be seen whether AKQA can find a buyer).

    Holding companies will continue to be selective, but acquirers will continue to emerge in the form of venture capital firms and media companies. “Media will continue to view themselves as marketing companies and look for other ways to serve their advertisers other than just display ads in whatever media they’re in,” said Tolman Geffs, co-president of Jordan Edmiston Group. “They’ll continue to move into below-the-line services. When looking at media companies’ agency services, you need to differentiate from value-add capabilities vs. real stand-alone businesses. I think more media companies like Hearst and Meredith will invest in real standalone businesses.”

    Agencies will continue to evolve their services and capabilities, and grow more competitive in the process. “The days of traditional firms dictating to digital agencies what to do are coming to an end,” said Aaron Shapiro, CEO of Interpublic Group of Cos.’ Huge. “Instead, it’s more of an equal partnership where we’re briefed at the same time and the best ideas win and are then applied to each channel by the respective agency.”

    Agency intellectual property projects will continue to move away from physical objects and novelties like books and candles to proprietary tools and software, and incubated companies with the potential of growing into new revenue stream. “This year will be one in which agencies will spend a meaningful percentage of time producing their own platforms,” said Andrew Essex, CEO of Droga5.

    “The old guard should not make the mistake to think that the pressure to change has eased even a little bit,” said Gaston Legorburu, executive director and worldwide chief creative officer at SapientNitro. “There are no blue skies ahead for anyone who resists change and focuses all of their efforts on protecting the status quo.”

     

    PR

    As social and two-way conversation-themed strategies advance, the role of the PR industry will continue to grow within the marketing mix. According to many within the industry, this past year saw many marketers realize the conversation game lies directly in the wheelhouse of the PR industry. Digital revenue, which drove a huge number of bottom lines into the black for PR shops, will continue to do so in 2011. And following several major PR cries last year — think BP oil spill and J&J recall — marketers are all too aware of the need for communications professionals and their agencies.

     

    Also look for more irregular hires within the industry. Probably more than any other marketing sector PR is bringing “less traditional” talent into the fold, such as bloggers or experts in areas like nutrition or bio-science to manage accounts or act as counsel to clients.

     

    Mostly sunny, with a chance of rain

    That about sums up the climate many in adland are predicting for the first half of 2011, based on the results of a survey of more than 100 leaders of independent shops conducted last month and shared with Ad Age.

     

    Asked to describe their feelings about current business conditions in the marketplace, the majority of respondents, 51%, said they felt positive sentiments, while 33% were neutral and 16% felt negative. The folks who participated in the survey — CEOs and senior leaders at agencies linked via the Worldwide Partners global network — reported similar sentiments for new-business activity.

     

    Worldwide Partners employs 4,500 people in 119 offices in 52 countries. In total, the network manages ad budgets worth $3.4 billion in spending. More than half of the responding agencies are based in North America, while 20% are in Europe, the Middle East or Africa and the remainder in Latin America and Asia.

     

    Looking out over the next six months, predictions for the business climate are slightly more favorable; 60% were optimistic, while 31% were neutral and 9% were negative. Agencies appear to have a rosier view than their clients do, though. Asked to describe their clients’ feelings about business conditions, respondents said they believed most clients (55%) were mostly neutral while 33% were upbeat.

     

    Agencies were cautious when asked whether they predict client budgets in 2011 will be more, less or the same as they were in 2007 before the economy melted down; the majority predicted budgets would be the same as they were last year.

     

    “Clients are slowly getting more confident that the economy is improving,” one exec wrote as part of the survey response, while another respondent said that as consumer spending sees an uptick, “clients are anxious to get back or increase market share.”

     

    At the same time, there is reason to be wary. Said another respondent: “Clients have learned to be more efficient with their spending. I don’t see that changing. The fat is gone and will stay gone for the foreseeable future.”

     

    Where are agency execs most guarded? When it comes to hiring. More than a fifth of those who responded said they felt negative sentiment about their agency hiring more employees. There was less negative feelings around how much they could afford to pay employees; 61% predicted that employee salaries would stay flat, 37% thought they’d be up, while only 2% expected they would be less.

     

    “The feeling from the survey is that even though people are certainly optimistic about the coming new year,” said Al Moffatt, president-CEO of Worldwide Partners, “most agency CEOs think that things are looking better, but are guarded in their optimism and aren’t saying they predict a big uptick. I think they’re reluctant to hire a huge amount of people, knowing we’re not out of the woods yet. The challenge now is how to enhance productivity even further. Clients are spending money on an absolute basis but that doesn’t necessarily better margins for agencies.”

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