Asked by an analyst if he feels that his company talent is disproportionately skewed toward the creators of expensive 30-second commercials, Mark Read, the CEO of WPP responded, “Look at our people – the average age of someone who works at WPP is less than 30 – they don’t hark back to the 1980s, luckily.”
Some went as far as accusing Read of being a bigot, boasting about a discriminatory culture within his own organization.
I’ve known Mark for 20 years and he is not a bigot. He tried to walk the initial statement back with an attempt to apologize, but actually made it slightly worse, writing on Twitter, somewhat condescendingly: “People over 40 can do great digital marketing just as people under 30 can make great TV ads.”
However, the original statement inadvertently let the cat out of the bag about agencies’ cost cutting at the expense of clients: they are now inhabited by junior talent, inexpensive and inexperienced.
And this is the main reasons for the decline of the advertising industry.
The holding companies like WPP were formed in the eighties, and they started consolidating the industry by gobbling up independent agencies. To do so, they needed to issue debt and the industry mortgaged itself to bankers.
Madison Avenue went from focusing on the clients’ business to focusing on their balance sheet. And that meant getting rid of “cost”: talented experienced people in their forties and fifties and replacing them with cheaper labor.
WPP and Read are not unique, of course. Other holding companies have done the same.
However, this business model is not sustainable. Switching to cheaper labor means substandard output and service, and dissatisfied clients. It’s a race to the bottom.
Agencies used to be multi-disciplinary, trusted by clients with all aspects of communication, from media buying to design and research.
Agencies used to own brand strategy, which made them indispensable to clients.
Brand strategy defines the brand and this defines the agency relationship. It means that agencies were an integral part of the client’s marketing operation.
But, when the holding companies were formed, agency approach to collaborating with clients became transactional, and they gave up stewardship of brand strategy.
Because of that, the agencies started losing high-level contact with the C-suite and the board, and, subsequently, the management consultancies like Accenture and McKinsey filled the void.
To make things worse, agencies are not proficient at components of the newly complex marketing environment that CMOs face, such as analytics, e-commerce, marketing logistics, or technology strategy and adaptation. Agencies downgraded themselves to one area of value to clients – content development. They went from being strategic partners to a tactical resource.
At the same time their financial situation was deteriorating. As they offered fewer services and smaller value, clients cut agency fees aggressively and reduced spending as they shifted from TV to cheaper, more efficient channels.
Threatened by razor-thin margins, I’ve seen more price competition, with agencies giving the business away almost for free.
Some clients demanded that agencies work at cost and forgo profit, as McDonald’s did at their review a few years ago.
Cost cutting is a matter of survival and it is done at the expense of clients – specifically, replacing seasoned, more expensive staff with cheap labor.
It became the agencies new business model, as labour is the biggest costs of agencies’ – and one that could be reduced quickly.
Eliminating waste and unnecessary cost inside a business is critical to its long-term growth, profitability and success. And agency must continue to refresh themselves and hire young blood.
However, if I were a client, I’d be very worried about Read’s statement about his company’s makeup – would I want to trust my multimillion-dollar account to a bunch of 20-year-olds?
Primarily focusing on reducing cost by getting rid of your best performers will eventually kill agencies.
You can cut back on dough and make a pizza so cheap nobody will eat it. You can make an agency so young that nobody will hire it.
The 14th Malaysian Media Conference (MMC) is happening on 25 September at the Sime Darby Convention Center and is proud to announce its list of speakers compromising the most influential leaders in Malaysia’s media landscape. Have you registered to join MMC 2020?
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