An agency positioning that’s too authentic is too backward-looking, too focused on where the business was instead of where the business is going.  On the other hand, a positioning strategy that’s too aspirational is a shot in the dark based more on hopes than abilities. 

The best solution isn’t to draw the line right in the middle of the spectrum, but rather to err on the side of aspiration.  Your positioning must be looking more to the future than the past; otherwise you’ll be cycling back to the re-positioning process much sooner than you either want or need to.

Effective agency positioning strategies look ahead, not just behind.

A positioning rooted in the future

Here’s another way of looking at it.  If you base your agency positioning on current data or information about the industry, you will be defining a position for the present and the past, but not one for the future.  Current industry information can only tell you what has happened, not what will happen.  Facts don’t predict the future – only a theory predicts the future. 

Your positioning should be based not on where the money is, but where the money will be.  And to know where the money will be requires that you have a well-founded theory about what will happen in our business and why. 

Not just who you are, but who you want to be

The point is that your positioning will not be found as much in the archive of facts about your agency as in the storehouse of knowledge, learning, and expertise in your company that can peer ahead and predict.  This is not the equivalent of an “educated guess,” but rather a well-constructed view of the future based on an understanding of the trends that are reshaping our business. A positioning that’s grounded mostly on past performance and past client needs will be true to what you are, but misses the opportunity to define who you want to be.

Of course this isn’t easy.  (Nothing worth doing is.)  Writing recently in the Harvard Business Review, Seth Godin observes “If you can offer a scarce and coveted good or service that others can’t, you win.  What is both scarce and in demand.  Things that are difficult; difficult to conceive, to convey, to make … In fact, just about the only that that is not available in unlimited supply in an ever more efficient, connected works is the product of difficult work.” 

The alternative is to produce the same thing most other agencies produce; the stuff that the client community increasingly regards as “commoditized.” Here are the top criteria economists use to evaluate the degree to which a product or service has become a “commodity”:

• Homogeneous products and services.  The characteristics of the product or service do not vary much across providers.
• Industry standard specifications.  The means of developing the product or service are well understood and widely available.
• Excess supply of buyers and sellers.  There are an abundance of customers with the willingness and ability to buy the product or service at a certain price, and an abundance of producers with the willingness and ability to supply the product at a certain price.
• Wide availability. There is overcapacity in the market because the product or service is widely distributed and easily obtained.
• Low barriers to entry and exit.  It is relatively easy to enter or exit as a business in a “commoditized” market.

If your approach is to look around to see what other agencies are doing (so called “best practices”) for inspiration, your business strategy will just be a reflection of what already exists.  Your goal should be to develop a business model that’s “scarce.”  And you won’t find it through focus groups and “listening to your customers.”  Apple’s breakthrough product line didn’t come from customer input.  Brilliant business strategies – in agencies as in client organizations – are about leading, not following.  

Be creative about your own brand

Agency professional Darryl Ohrt’s guest column in Advertising Age, “Don’t Let Your Agency Be a Cover Band” makes the point that lack of originality is the reason most agencies never break from the pack.  Observes Ohrt, “It's ironic that so many in our industry have a hard time being original. They're coming up with innovative, original conceptual work for their clients each and every day. But when it comes to taking care of themselves, plenty of agencies stick with the ‘we've always done it like that’ approach. And in a noisy industry space, that's not enough to stand out, and leaves clients and talent looking for another band.”

In positioning your firm, your objective is to be exclusive, not inclusive. Strategy making is like map making; you can’t include everything.  “Cartography is essentially about dividing things up – deciding what’s in and what’s out,” says University of Toronto professor and business author Sarah Kaplan. “In order to draw a map of any sort, you have to take a stand for some things and not for other things.”

So make your mark by making a market – of your own.

So here’s a game-changing resolution for your firm to begin the New Year: commit to bill for what clients really buy.  Instead of billing for time, bill in other creative ways that are tied to the value you create rather than the costs you incur.

For inspiration, consider the consequences of continuing down the path of the increasingly discredited hourly rate system.  Over the years, my colleagues and I have developed the following list:

1. The hourly rate focuses on efforts, inputs, hours, costs, activities, rather than outputs, results, and marketplace value.  It assumes the client is buying an activity rather than an outcome.
2. The hourly rate misaligns the interests of agencies and clients.  Clients want their agencies to spend less time, whereas the firm makes more money by spending more time.
3. The hourly rate places all of the risk on the client.  This is why most clients don’t really view agencies as true “partners.”  The nature of partnership is shared risk.
4. The hourly rate fosters a production mentality instead of spirit of invention and entrepreneurial problem solving.
5. The hourly rate encourages hoarding “estimated time” and produces a disincentive for people to delegate work and responsibilities.
6. The hourly rate creates a system in which as the agency gets more effective and efficient on a client’s business, it actually earns less money instead of more.
7. The hourly rate works against making more progressive use of technology to get work done faster.
8. The hourly rate commoditizes the firm’s intellectual capital and expertise, as if an hour from one person or firm is as valuable as any other.
9. The hourly rate places an artificial ceiling on a firm’s income, since there are only so many hours in a day. This amounts to a self-imposed limit on agency profitability.
10. The hourly rate creates a large bureaucracy centered around collecting, policing, reporting, analyzing, transferring, and managing time.  There are much better uses of the firm’s time and resources.
11. The hourly rate diminishes quality of life for associates of the firm. No one became a professional to bill the most hours, but rather to achieve something important.
12. The hourly rate looks in the wrong place for value.  Value is created out in the marketplace, not inside the four walls of the firm.  For pricing cues, agency should look outside, not inside the organization.
13. The hourly rate is based on the cost to the agency rather than value to client.  Clients don’t buy your costs.
14. The hourly rate discourages collaboration and integration, because account managers are constantly worried about going “over estimate” on an assignment.
15. The hourly rate puts the emphasis on efficiency instead of effectiveness.  No client hires an agency just to be efficient.

Ultimately, the main problem with hourly billing is that it keeps agency professionals trapped in the illusion that what they sell is time.  Clients don’t buy the time of the people working on their business any more than you buy the time of the mechanics who work on your car. As buyers of services, what we’re buying is a successful outcome – the solution to a problem. 

So consider making this the year that your agency really does move to a new level of success by changing your paradigm about what you really sell and what clients really buy.  If you do, you’ll join the growing ranks of innovative firms who are realizing greater profits and professional satisfaction by burying the billable hour.

Back in the days of Mad Men, agencies had a “television department,” because TV was a new technology that the print/outdoor/radio-centric agency executive of the 1950’s didn’t really understand.  So agencies were staffed with “television specialists” whose job it was to understand and recommend the new medium.

Over time, it became clear that a “television department” was no longer needed.  Television became mainstream and assumed its place as the most “mass” of all mass media.

In 2011, the internet officially became the world’s largest advertising medium.  It already was the planet’s leading communications medium.  To have the most popular medium on earth “departmentalized” doesn’t make a lot of sense.  We killed the “television department” when TV became part of the culture; it’s time to kill the “digital department.”

Not separate, but equal

Of course an equally important reason we need to de-departmentalize digital is so that it will no longer be viewed as something “special” or “different” within the agency.  This only serves to give the “non-digital” types an excuse to postpone their immersion into digital marketing and continue to lean on the “interactive group” to come and speak intelligently about digital at client meetings.

I actually believe the digital cognoscenti in agencies perpetuated for many years the notion that digital is indeed a separate, mysterious thing that only certain types of people can understand.  True, some aspects of digital are indeed complex (programming, coding, software development) but some aspects of television production are complex as well (producing animation, lighting sets, running edit bays, etc.)  The point is that every medium has its areas that are the domain of specialist experts.  Digital is no different.

Disbanding the digital department isn’t difficult.  There’s already a natural home for most of the functions that exist in a typical interactive group:

See how easy that was?

Procter & Gamble probably comes closest to the former AOR approach with their Brand Agency Leader (BAL) model where one large agency designated as the “BAL” has the responsibility to hire and collaborate with other specialists agencies; but still, this is not a “full service” relationship.

From AOR to AOC

What we have today are not Agencies of Record (AOR’s) but rather Agencies of Collaboration (AOC’s).  Gone are the days when large clients have the expectation that all or even most of their marketing communications needs can be handled by a single firm.  So why exactly do agencies persist in marketing themselves as “full service?”  Good question.

Smaller firms would argue that they do in fact work for some clients who consider the agency to be an “Agency of Record.” But these relationships are increasingly rare.  Even smaller clients in smaller markets now have multiple agency relationships; advertising, public relations, digital, etc.

But here’s the really startling finding: even the small or mid-size agencies that still persist in developing and cultivating a “full-service” model actually have very few – if any – full-service relationships.  Let me illustrate this dynamic with a real-life but anonymous example of a well-known, mid-size agency in the Southeastern U.S.  They actively market themselves as “full service” and “integrated” and staff for a “full service, integrated” model within their organization.  They list their primary services as:

• Creative development
• Web development
• Digital marketing
• Media planning and placement
• Promotional marketing
• Direct marketing
• Public relations
• Social media

Not a single one of their clients uses the agency for all or even most of these services.  Here’s how their services are actually used by their five largest clients (which makes up 80% of their revenues)

The difference between integrated thinking and integrated doing

In larger agencies – the multinationals – these dynamics are even more exaggerated, where most clients use the agency primarily for a single service; usually creative development for the creative agencies and media planning/placement for the media agencies. 

Agencies that persist in trying to fund an expensive full service model must come to terms with the fact that we are now in the age of specialization and we’re never turning back.  In fact, many observers believe we’re now crossing into an era of hyperspecialization due to the ability of the internet to serve up so many specific skills and services from people and providers all over the world. 

Don’t marketers need holistic thinking?  Of course they do.  But increasingly this role is falling either to the client organization itself – who is functioning as the integrator in this constellation of 17 agency relationships – or to a separate “strategy” firm who is one of the “Agencies of Collaboration.”  Firms like Interbrand, FutureBrand, Prophet, and Red Scout (not to mention consultancies like McKinsey and Bain) are increasingly playing the role of the holistic strategist. 

That’s actually the right place on the value chain for full service-type thinking; upfront in the strategic and planning phase, where marketing problems are defined and solutions are recommended. 

Executing those solutions is best done by specialists who have the expertise and resources to deliver best-in-class services in those areas.

This is why surveys among clients, such as one done recently by Millward Brown for the 4As, shows “Desire for best-in-class specialists” as the driving force behind agency selection.  Clients understand that no one agency can be excellent in everything.  It’s time for agencies to understand this as well.

A wide body of business literature documents time and again that the most successful companies are those who are willing to make what business strategist Michael Raynor calls “strategic commitments.”  In his compelling book “The Strategy Paradox,” Raynor observes:

“Firms that avoid strategic risk survive but do not prosper.”

This is a powerful way to think about the question of positioning. It essentially invites you to ponder the question “Do you want to just survive, or do you want to truly maximize your success?”  Survival, while certainly desirable in these tough economic times, is hardly the reason talented professionals come to work every morning.

The nature – and power – of trade offs

To define and implement a strategy is to decide which trade-offs your company will make.  You can’t offer every type of service or serve every type of client, so strategy is about deciding in which areas you intend to be excellent.

“Faced with this painful trade-off between the returns to the bold commitment and the risk of making the wrong commitment,” says Raynor, “most organizations forgo the possibility of glory for an existence bereft of greatness.”  If your goal is greatness, the price is strategic commitment.

Robert Burns understood the nature
of trade-offs.

A risk?

“The best laid plans of mice and men go oft awry,” wrote the poet Robert Burns, in a nod to modern strategy making.  A positioning strategy is indeed a risk, but so is not having a strategy.  In fact, the greater risk – at least financially speaking – appears to be in not taking a stand and not making strategic commitments.

The diversification discount

Economists have actually identified what they call a “diversification discount,” which is a measurement of the inefficiencies that arise by channeling money and energy into too many different activities, divisions and product lines.  This is chronicled in studies like The Cost of Diversity: The Diversification Discount and Inefficient Investment and Diversification's Effect on Firm Value.

In effect, you erode both the short- and long-term value of your firm by spreading your time and resources into too many areas. 

Don’t ever forget that as a professional service firm, what you essentially sell is expertise, and expertise is gained and maintained by focusing on the areas in which you and your firm can truly be best in class.

The process for accomplishing this has been largely sequential: brief, concept, produce, ship and then on to the next execution.  Writing in the insightful new book The Idea Writers, Creativity magazine’s Teresa Iezzi lists the assumptions most agencies grew up with:

“… that pushing out a Big Marketing Campaign that runs for several weeks and then stops is the best way to connect a brand to consumers; that a large media budget assures a marketer of getting its message across to its desired audience; that one-way, TV-borne messages are the only, or even the primary, or even a necessary unit of marketing; that people only watch media-company-made content at media-company-dictated times …”

This of course is not the nature of storytelling.  Storytelling is an iterative – not linear – process.  And the vast majority of agencies are not set up to work this way.  Unlike conventional advertising, the dynamics of storytelling involve:

• Less emphasis on the skills needed to write a good headline and more on the ability to write good dialogue; valuing and cultivating long-form writing, not just short-form
• Creating ongoing conversations and ideas
• Curating ideas and story threads
• Developing a “back story” that guides the narrative of a brand
• Creating not a big idea in the form of a big production, but a big idea developed in multiple smaller, deeper executions

As Iezzi goes on to observe, on any given day, brand storytellers at agencies “might be writing a script for a web film, orchestrating a transmedia story or conceiving and helping to develop an app.”  Some agencies, such as Campfire, are built around this approach from the ground up.  Their work surrounding the introduction of HBO’s “Game of Thrones” series is multidisciplinary storytelling.

In the era of brand storytelling, the metrics of success have to move from simple brand awareness to more relevant assessments like:

1. How effectively are we telling this brand’s story?
2. How well are the main themes of the story being communicated?
3. Has this story begun to take on a life of its own?

Agencies must now think of themselves less as service companies and more as media companies.  The new role of the storyteller is to literally become the voice of the brand – and that’s an exceptionally valuable role to play for a client.

The effects on your business of committing to a focus that makes the most of your strengths can be not just incremental, but exponential. It’s actually very similar to the growth pattern often seen in the digital world, sometimes referred to as the “network effect.”

Slow at first, then rapid growth

This term originally was used to describe the rapid growth of telephones in the first half of the 20th century. In the 21st century online world, this phenomenon is seen in the initial slow growth, then rapid explosion, of brands like LinkedIn and Facebook. It took LinkedIn 16 months to reach its first million users. The second million came in 11 days. Facebook took five years to attract its first 150 million users. It then doubled that number in just eight months.

To be sure, there are many positive short-term effects of a new positioning strategy, including:

• Well-defined criteria for identifying the types of clients who want your firm for what it does best.
• A meaningful, unifying theme for the agency website, online marketing, promotional materials, and social media program.
• Agency associates energized by a clear direction and focus.
• Clear hiring standards for the kind of people you need to reinforce your agency brand.

But the long-term effects are even more significant:

• A stronger win ratio when soliciting new business, because you are playing to your strengths.
• A platform on which to build intellectual property based on your designated area of expertise that you can own, which is more economically sustainable than the traditional “work for hire” model.
• More pricing leverage with clients, because you’ll be offering more differentiated services and expertise.
• Ultimately, a clearer direction for how your firm should spend its limited time, money and resources.

Worth the wait

The short-term effects can be almost immediate.  In fact, a lot of agency leaders are surprised at the remarkable morale-building effect of taking a stand.

The long-term effects, on the other hand, may take 18 to 24 months to begin to manifest.  But when they do, the agency success rate changes from gradual to exponential.  The nature of exponential growth is that the initial period can feel “flat” as the seeds of change take root.  But as soon as these roots are established, growth happens rapidly.

American scholar Albert Bartlett pointed out difficulty people have understanding the nature of exponential growth, stating, "The greatest shortcoming of the human race is our inability to understand the exponential function."  Alongside that misunderstanding is the impatience that accompanies the early stages of this kind of growth.

So have faith in the network effect.  Your firm can be not only twice as successfully, but much more than that.

One possible outcome is that despite all this great work, you don’t get the business.  So you turn the attentions of your high-value people back to your current clients.

The other possible outcome is that you do get the business.  So you roll up your sleeves and get to work on firming up the client’s scope of work, which means opening jobs, preparing estimates*, and getting to work on execution.

Congratulations.  Yes, you have won the business.  But you have also just succeeded in effectively giving away your higher-value work – strategic thinking, ideation, and concept-development – in order to get the lower-value work of production, execution, and implementation.

Sometimes winning can be losing

It’s not that the lower-value work isn’t important.  Of course it is; it’s actually the thing that historically produces the most revenue in an agency.  Today, it just doesn’t produce much profit.  Because production work is largely “commoditized” in the mind of the client, it’s difficult to attach a price tag that allows the agency to cover its costs and earn a reasonable profit. 

Four main ways agencies lose

The services that actually carry the highest perceived value in the mind of the client are the same things that most agencies do the absolute worst job of charging for.  Here are the four main ways in which agencies routinely give up revenue and profit opportunities in regards to high-value services:

1. Agreeing to develop and present high-value work in new business situations without upfront compensation in the form of an appropriate stipend.
2. Presenting high-value work in new business situations where you then win the business but still fail to charge appropriately for the high-value work you’ve done, and instead launch directly into the low-value phase.
3. For ongoing clients, failing to price high-value services appropriately (underpricing research studies, strategic planning, etc.) believing that you’ll “make it up on the back end.”  This is the most common form of profit drain in agencies today.
4. When pricing, combining high-value and low-value services on the same estimate.  How can you possibly know what the production of a print ad should cost until you have an approved concept?  Ideation and execution should always be separated when it comes to pricing agency services.  

High or low value?

How do know if something is considered high-value or low-value? I believe there’s a pretty simple test.  If the service in question is something clients believe they can do themselves, that’s a low-value service.  (Clients rightly assume that anyone reasonably proficient with a Mac and Photoshop can resize a banner ad.)  It’s hard to charge a price premium for services that fit this definition.

This leaves a lot of other services that actually can carry a price premium, because they are very often regarded as things clients can’t do for themselves (or at least can’t do them well).  Good clients know that the most talented consumer insights experts and creatives still work in agencies.  Consumer insight studies, brand and creative platform development, conceptual problem solving, and channel planning and development are examples of the areas where you can actually make a fair profit. 

Two more things

You just need two things to make it happen.  First, the self-confidence to charge what these higher-value services are actually worth.  And second, a change of habit.  We are in a habit that is actually a carry-over from 50 years ago when agencies could afford to “give away” their strategic and conceptual work because they were earning extraordinarily healthy media and production commissions. 

Today’s reality is something quite different, and the agencies that understand this shift in the value paradigm can thrive well in the next 50 years.

A pretty ineffective way to sell a car, right?  Remarkably, this is how the majority of agencies attempt to sell their own brand.  Instead of selling the “end” of what they do, they sell the “means.”  Instead of the benefit, they sell the features.

Do a validation check

Incredulous?  Go to http://www.aaaa.org/pages/AgencySearch.aspx and pick five agencies at random.  It’s very likely that four of the five will, either on their home page or one click away, feature a list of the “components” of their firm, as in:

“The Maple Group offers a complete range of creative services including marketing strategy, branding, graphic design, copywriting, media management, public relations, social media, mobile marketing, online advertising, search engine optimization, and web design.”  (Quoted from a real agency; name changed to protect the innocent.)

If you sell components, you’re in the component business.  Jeep doesn’t sell ball bearings and steering columns; they sell the ability to scale rugged mountains. 

Not interesting, and certainly not differentiating

Besides being a fundamental marketing mistake (remember “Sell the sizzle instead of the steak?”) listing your “components” or services does absolutely nothing to differentiate your firm from others. 

Here’s a useful internal exercise to determine if what you put on a list of services is really worth listing.  Precede the name of the service with “Unlike other agencies,” as in:

And to list things like “copywriting” or “graphic design” is kind of like saying you also have electricity and running water.  Aren’t things like writing and design assumed to be part of what an advertising agency does?  Don’t waste your prospects’ time talking about the things that are the price of entry in our business.

Making a strategic commitment

So why do agencies persist in this kind of marketing?  In my opinion, it really boils down to lack of imagination about their own brand, coupled with a lack of effort.  Listing the “features” of a business is easy (which is why most inexperienced marketers default to this approach).  Carefully considering the end benefit of what you do is difficult – for two reasons:

1. First, because understanding and defining your core competency requires a lot of creative thought.
2. Second, because it requires you to make what business strategist Michael Raynor calls a “strategic commitment.” 

Years of research by Raynor, Ignition and others shows that firms that avoid making strategic commitments may survive but they do not prosper.

Do you want to just survive or do you want to prosper?  Optimal success comes from understanding the ultimate benefit of what you do, articulating it in a compelling way, and being willing to commit to it as a business strategy. 

If you’re an advertising agency that’s good at what you do, you’re most certainly not in the components business.  You’re in the transformation business.  And it’s the best job in the entire business world.