How Agencies Can Extract More Value from the Value Chain

February 18, 2011 | Author: Tim Williams

In pondering the question “How can we improve our margins?” it’s useful for advertising agencies to consider their place on the value chain.  Based on the illustration below, where would you say your firm plays the primary role on behalf of your client?

Most agencies would say that they play primarily in the areas of Marketing and Sales.  But what about the other areas of the value chain?  If your firm wants to create new sources of revenue, it will require finding new ways to help your clients create value. 

Today’s agency executives are smart enough to know that sometimes advertising is the weakest means of building a strong brand, or at least that the foundation of a strong brand is a remarkable product.   It could be argued that the greatest value agencies could add to a client’s brand is helping to “build the marketing into the product,” as Bogusky and Windsor preach in their thought-provoking book Baked-In.  Their model argues that agencies are working exactly in the wrong order; they start with the advertising and (sometimes) work their way back to the product.  The most effective approach is to start with the product itself and eventually work your way out to the advertising.  And the better the job you do on the inner circles, the less you’ll need advertising.

As master designer Brian Collins believes, “Smart marketers are delivering brand and product experiences first, and advertising later, if at all.  Soon, a category-leading ad budget will be a sign of brand weakness, not strength.”  Next time Advertising Age publishes its list of advertising-to-sales ratio, notice how the tables have turned.  The strongest brands are no longer the leading advertisers.  If you really believe you’re in the brand building business (as your website no doubt promises), develop and support the skills and services that are most effective in delivering that promise.