Logic says your agency will grow faster by targeting the “general market.” But some of the largest and fastest-growing agency brands are squarely focused on a particular type of client, not every type of client.
Of the top 25 advertising agencies in America, more than half are specialist firms, not “full-service” agencies. Focused agency brands like Rapp, Digitas, and Wunderman are actually larger than general market agency brands like DDB, Ogilvy, and Y&R. In Minneapolis, a city that has spawned more than its share of talented advertising agencies over the past few decades, the largest agency is not Fallon or Campbell Mithun – firms that help put Minneapolis on the advertising map – but rather Carlson Marketing, a specialist in customer relationship marketing. With revenues of some $265 million, Carlson Marketing is nearly four times larger than any other agency in the city.
Logic says that an agency can increase its revenues by broadening its line-up of services. But experience shows that the most successful brands deliberately cultivate a narrow line. They know that depth is much more effective strategy than breadth. This is particularly true for professional service firms, where your product is your intellectual capital. No client ever buys a “wide range of expertise,” but rather a specific kind of expertise.
Being afraid of “too much focus” is the mistake of assuming narrow is the same thing as small. Starbucks is narrow – coffee – but it certainly isn’t small. Intel is narrow – microchips – but ranks as a Fortune 100 company. In professional services, some of the largest firms are some of the most focused. For example, while most other advertising agencies attempt to position themselves as “full service,” Zimmerman is focused on the retail category. They call their specialization “brandtailing” – the combination of strong expertise in both branding and retailing. As far as ad agencies go, this is a pretty “narrow” focus. But the result is anything but small. With billings of over $2 billion, this agency employs several thousand people.
Logic says that diversifying and creating other divisions will help grow your firm in these economically challenging times. This type of diversification may add to your revenues, but it rarely adds to your profit. This is mostly due to the diffusion of your firm’s energy and resources. Your agency and your management team (especially if you’re one of the smaller independents) can really only optimize one strategy at a time.
The other argument for diversification is that it broadens your risk — if one business goes bad, the others are there to protect you. Again, this sounds like inarguable common sense. But experience and research shows that it’s almost never an effective way to maximize your profits. The most profitable companies in the country are without exception those that are the most focused, not those that are the most diversified.
As the philosopher Heraclitus said, “You can never step into the same river twice”.
To make matters worse, agencies that do choose to establish additional divisions tend to make the same mistake their clients make; they extend the existing agency brand name onto these new companies. Logic says this will create faster, higher awareness at lower cost. But marketing text books are littered with examples of line extensions that literally destroy the meaning and value of a brand. In professional services as well as packaged goods, line extensions rarely if ever result in a strong brand that generates profits without cannibalizing the parent brand. This is because your brand can really only stand for one thing at a time.
The main reason so many brands — agencies and others — fail to reach their potential is because they do what seems logical instead of what’s actually effective. As marketing professionals, we in the agency business should know better.