Posts Tagged ‘Business Development’

In a recent “Recession Survey” from the Association of National Advertisers (ANA), 71% of client respondents are challenging agencies to reduce internal expenses and/or identify cost reductions. 56% are planning to reduce agency compensation (compared with 32% a year ago).

My friend Tom Finneran, Executive Vice President of the American Association of Advertising Agencies, says AAAA members are under tremendous pressure from clients on compensation. Current client tactics include:

• RFP’s that focus extensively on price.
• Procurement inviting more “competitors” to pitch and bid on projects.
• Unilateral procurement mandates to reduce fees with little to no reduction in scope of work.
• Procurement led processes that demand extensive agency “transparency” of agency labor costs, overheads, profit margins, hourly rates, etc.
• Clients being coy about revealing what they are budgeting for major marketing expenditure components.
• Procurement groups trying to use the recession to re-negotiate contracts and to edict extended payment terms.

Moving toward “perfect competition”?

It’s no wonder agencies are feeling more pressure on their margins than ever before.  Some parts of of the agency business are starting to match up with an economic theory called “perfect competition,” which is characterized by these conditions:

1. The customer is in control. (This is increasingly the case, evidenced by the rise of procurement.)

2. Excess supply. (There are 12,000 agencies in America vying for client business.)

3. Large numbers of small firms. (Most of these 12,000 are definitely small firms).

4. A homogeneous product. (While the quality and inventiveness of agency work certainly varies, increasingly clients view agency output as similar. When it comes to production, clients view these services as identical.)

5. Total access to information. (Clients demand — and mostly get — very detailed information about every dimension of the agency operations and cost structures.)

6. Low barriers to entry. (The belief that “anyone can start an agency” is largely true. It’s also true that small agencies come and go with great regularity.)

The above conditions are truer for the “tactical/manufacturing” side of our business than the “strategic/conceptual” side. Nonetheless, we’re on dangerous ground.

Magic and logic

The IPA (Britain’s version of the AAAA) has coined the terms “Magic” and “Logic” to describe what agencies do. The “Magic” is the high-value brand development, strategies, and concepting — things that clients generally can’t do for themselves (at least can’t do well, because the best talent in this area still goes to agencies). The “Logic” part of our business is the lower-value production and execution work — work that clients actually can do themselves (or at least believe they can).

The Project Lifeline

John Minty, CFO of Venables Bell & Partners, believes that every assignment has a “Project Lifeline.” On one side of the lifeline is the strategy/concept work that clients still value and are willing to pay for. On the other side of the lifeline is the increasingly-commoditized production/execution work that clients believe they can get cheaper down the street. The goal of VB&P is to maximize the value they provide to clients by emphasizing their abilities and services on the left side of the lifeline.

The agency business must begin charting a course away from commoditization if it is to remain relevant, valuable, and profitable. We must do that by developing and offering differentiated, high-value services. Particularly when it comes to dealing with procurement, we cannot negotiate our way out of pricing pressures; we can only differentiate our way to success.

An important part of the value agencies bring to a new client relationship is their ability to help focus the client’s brand messaging. Often the brand strategy is scattered and unfocused. The brand is not speaking with one voice, the messages are off-strategy, and the client organization isn’t really sure what the brand stands for in the first place.

As an observer of the agency industry, I often see agency brands behaving in exactly the same way. Not only is the agency brand not well defined, but the message strategy is almost schizophrenic. For some reason, this is particularly true when it comes to the agency’s social media strategy and messaging.

What kind of agency would you assume is behind a Twitter stream like this?

• Recipes for most popular cookies.
• This year’s strangest clothing trends.
• Top 5 ways to host a successful dinner party.

These are paraphrased tweets from actual agencies. Not only are these messages irrelevant to the marketing business, they do nothing to build a positive, consistent perception of the agency. They say nothing about what the agency believes or advocates, and do nothing to differentiate the firm from the thousands of other agencies participating in social networks. Can you imagine this agency executing a similar program for a client? Not likely.

The same goes for blogs agencies produce for themselves. I see agency blogs that feature random commentaries about travel experiences, how much they like the new iPhone, and a call for entries in a moustache contest. That’s fine random fodder for a personal blog, but it hardly helps build the image and reputation of a professional service firm that wants to be known for innovation and thought leadership. Can you imagine visiting a blog published by Apple and finding posts about favorite recipes, the last Harry Potter movie, or the lamentations of a stay-at-home mom? Such are the topics I often find on scores of unfocused, uninteresting, undifferentiated agency blogs.

Branding firms (aka agencies) preach building the brand at every point of contact. They counsel clients that everything the brand says or does should combine to create a unified, meaningful, distinctive impression. Why isn’t it more obvious to branding professionals that they should be doing the same thing for their own brands?

Just like everything else, your social media program needs a strategy. Ogilvy recently published a strategic approach to using Twitter that is a good place to start.

Part of the reason many agencies fall short on their online marketing efforts is because the leaders of the firm are often out of the social media loop. They actually don’t know what’s currently on the agency blog, what’s being posted to the agency Facebook page, or what’s being sent from the agency Twitter account. Instead they relegate these jobs to junior associates (sometimes even interns) who don’t have the depth of experience to speak on behalf of the agency in these important ways. This is inexcusable. There is no more important job for an agency leader than to set the messaging strategy for the agency brand. This doesn’t mean that the agency CEO has to personally manage the agency’s presence on social networks, but he or she should certainly see that the agency is communicating in useful, relevant, and differentiating ways that support the agency brand positioning.

Especially given the emerging importance of social media, agencies should be setting an example for their clients to follow.

These are trying times in the agency business. The latest research shows that advertising spending is projected to decline well into next year. Marketers are spending less and expecting the same (or better) results. The response from agencies is to cut costs.

But is there another way to respond to the upheaval in our business? What would happen if agency leaders invested the same amount of energy in creating opportunities as they do in solving problems?

Growing vs. shrinking

Is it realistic to think that marketing communications firms could be growing, developing and improving in this environment? Some are. But it means agency professionals have to stop investing all their time in “yesterday” and invest some of it in “tomorrow.” Disruptive change must be met with disruptive change.

Writing in a recent issue of the Harvard Business Review, executives of the consultancy Deloitte believe that “Unless firms take radical action, the gap between their potential and their realized opportunities will grow wider…Institutions must increase not just efficiency but also the rate at which they learn and innovate…”

If you’re serious about growing, then developing new products, services, and approaches should be at top of your daily “to do” list. Don’t wait until your calendar eases up, because it never will. As successful entrepreneurs know, business building means acting rather than being acted upon.

In turbulent times like these, marketing communications firms are scrambling to identify the best business strategy not only to get them through this recession, but to position themselves for success once the recession is over.

The natural response is to “try a little bit of everything”; to expand your services, broaden your capabilities, and try to appeal to more clients. It seems like common sense, but it’s exactly the wrong response. The best growth strategy — in good economies or bad — is to decide what not to do.

Expand by narrowing

Imagine two architectural firms: one that’s extremely focused with a clear value proposition, and one with an unfocused business strategy that attempts to do everything for everybody. Which of these two firms would have:

• The strongest earning power?
• The largest geographical market area?
• The fewest competitors?
• The greatest degree of respect from clients?
• The most sophisticated clients?

The answer in every case is the focused firm. Let’s look at each question individually.

The greatest earning power. It’s a simple fact that the specialist earns more than the generalist. This is true in medicine, law, engineering, architecture, consulting, construction, you name it. This is because the specialist knows more, and we live and work in a knowledge economy.

The largest geographical market area. Focused firms draw clients from all over the globe, not just from their own Zip code. That’s because what they’re selling isn’t available down the block from some other firm just like them.

The fewest competitors. The easiest way to narrow your competition is to narrow your focus. There are far fewer specialists than generalists, and the law of supply and demand dictates that the less supply the greater the demand.

The greatest degree of respect from clients. Knowledge and expertise equals respect. An effective value proposition allows your firm to develop and leverage its intellectual capital. This makes you valued – and respected – not just for what you do, but what you know.

The most sophisticated clients. In the boardrooms of professional firms everywhere is heard the lament “If only we had better clients.” A quality value proposition attracts a quality client. A business that proclaims “we’re right for everybody” is logically going to attract both the good and the bad.

As business strategist Chris Zook writes in his insightful book Profit from the Core,

Having a clear sense of business boundaries and of the definition of your core is a critical starting point for growth strategy. Identifying the core of your business is the first step in determining how to grow.

If clients employ professional buyers (procurement agents), shouldn’t agencies employ professional sellers? And shouldn’t it be the job of professional sellers to know not only how to deal with pricing objections, but how to structure a deal that will solve both parties issues?

Why do procurement departments exist?

a. To get the best possible price.

b. To get the best possible value.

What procurement is really trying to achieve

It’s easy to assume that procurement professionals are interested only in saving money by getting your services as cheaply as possible. But procurement exists as a function to secure value for the company. Consequently, procurement departments drag agencies through a series of detailed, invasive questions about their process, cost structures, competencies, experience, financial strength, etc. all with one central goal in mind: to make sure the agency is capable of delivering what it says it can deliver.

In the faulty world of time-based compensation, the client organization really has no other way to evaluate or assure performance. As long as agencies continue to price their services based on costs (hours) instead of value, procurement professionals will always be looking for compliance to their process as a means of evaluating whether an agency really, truly is capable of delivering what it promises.

Compliance to process vs. alignment of incentives

In the end, procurement has a detailed process for selecting agencies because of the total lack of alignment of economic incentives between clients and agencies. In fact, in the current cost-based system, there is a real misalignment of incentives. The agency actually has an incentive to spend more time, not less.

Next time you’re working with a procurement department, ask “What if we proposed a form of compensation in which the economic incentives of both parties were in near-perfect alignment?” We recently asked such a question of a respected procurement professional of a major company. His response? “Then there would be no need for compliance to our detailed process.” We then asked, “So why not just bypass the process and go directly to what it’s supposed to accomplish; alignment of incentives?” He was compelled to agree that this is actually the ultimate job of procurement.

Dead or alive

Consider this example. When Great Britain sent prisoner ships to Australia, they initially paid the shipping companies based on how many prisoners boarded for the journey. The problem was many of the prisoners died making the trip.

They could have proposed a process and documented compliance ––such as with the ludicrously expensive Sarbanes-Oxley law –– insuring that adequate food, medical supplies, etc., were on board.

An economist would laugh at this. Rather, a good economist would suggest they pay the shipping company for how many prisoners they deliver to Australia alive. Once the incentives are aligned, who care about process and compliance?

Try this next time

If you want to disarm procurement, you must first walk away from the notion that you’re selling time. Then give procurement the assurance they need right up front by proposing compensation based on your ability to create the value they seek in the first place.

How many times have you heard the tired phrase, “New business is a numbers game.” As the theory goes, you need a lot of times at bat (meaning you need to take a lot of swings) in order to hit the occasional home run. This school of business development believes that agencies need to pursue and pitch a certain number of new business opportunities in order to win their fair share.

It’s a logical argument. Only it’s wrong.

It’s precisely because agencies view new business as a numbers game that the industry has created and perpetuated the cumbersome and often ineffective “agency review” process. Agencies scramble to respond to as many RFPs as they possibly can, knowing that they will make the cut on only so many, and will eventually win only a small percentage of the reviews in which they are invited to participate.

Creating an unlevel playing field

The goal of most agency reviews is to “level the playing field” – a process designed to line up and compare agencies on a set of common characteristics. Your job as an agency executive is to unlevel the playing field. Rather than showing how well you compare, you should go out of your way to show how you don’t compare.

You’re not playing the lottery here. Instead of being at the mercy of the law of averages, you can dramatically improve your chances of winning with a relevant and differentiated positioning.

Playing in a game you’re favored to win

The firms that have been able to step out of the agency review rat race are those that have a focused business strategy and know precisely who their target is. The first essential question of any business is “Who is your customer?” Many agencies would answer this by saying “everybody.” For the undifferentiated “full-service integrated marketing communications firm” every company with money is a prospect. If “everybody” really is your target, you might as well go ahead and play the numbers game.

But how much better would it be to spend your time and resources on prospects that actually want you for what you do best? Would your new business wins go up? The most focused agencies have the best new business batting averages because they are playing in a game they are favored to win.

The answer is not trying harder

Instead of investing the necessary mental energy to actually position themselves uniquely in the marketplace, some agencies try to improve the law of averages through cosmetics. A more finely-produced RFP response. A more decked-out presentation room. More blown-out spec creative.

But deep down inside agency professionals know this isn’t really the answer. Having a clear idea of what you’re selling is the answer.

Trade the time and money you spend peddling a largely commoditized product (the “full-service agency”) and invest it instead in answering the question “Who are the best prospects for what we do best?” The answer can’t be everyone. As Bill Bernbach said:

“If you stand for something, you will find some people for you and some people against you. If you stand for nothing, you will find nobody against you, but nobody for you.”

So stop playing the numbers game and apply your agency’s considerable creativity to the brand that matters most: your own.

Most students of serious business schools learn that there are two – and only two – real strategies in business: low cost and differentiation. Some brands, like Wal-Mart, pursue the low cost strategy with great success. In fact, Wal-Mart makes a series of very conscious trade-offs (sales help, ambience, urban convenience) in order to be able to deliver on its low cost strategy.

Apple’s strategy, on the other hand, is differentiation. The iPhone and most other Apple products are clearly different and generally higher priced.

A brief strategy quiz

What would you say is the strategy of most agencies; low cost or differentiation? Where would you plot your agency on the following chart?

Needless to say these are very different – in fact, opposing – business strategies. You have to do one or the other very well in order to be competitive. You can either have a highly efficient, low-cost offering (not a business most agencies aspire to be in), or a highly differentiated, higher-cost offering.

The operational implications of these two basic strategies is significant. An organization would obviously make very different decisions about it staffing, offices, and technology depending on which of these strategies it pursues — which means you can deploy one or the other of these strategies well, but not both.

Saying is not being

Here’s the problem. Virtually every agency would say that their strategy is differentiation, yet  talk, act, prospect, and price as though their strategy is low cost. If agency leaders truly embraced differentiation as a strategy, they would:

So, by not authentically pursuing a strategy of differentiation, agencies are defaulting to a strategy of low cost. This could explain why:

• Prospective clients and search consultants insist that agencies submit detailed information about their cost structures
• Prospects develop spreadsheets designed to carefully compare the costs of one agency against another.
• Agencies get lined up and “shopped” based on hourly and blended rates.
• Procurement agents (the same people who buy offices supplies) are now a primary decision-maker in most major agency reviews.

This isn’t to say that agencies shouldn’t try to maximize efficiency by streamlining their processes and taking as many of the costs out of their system as possible. But it’s easy to start believing that efficiency is what you’re selling (and the procurement community certainly does their best to reinforce this). An agency doesn’t sell efficiency, but rather effectiveness.

Finally, what else do you know that is bought mostly on price? Commodities, of course. And that’s a place agencies can’t afford to be.

Ask any agency principal what he or she dislikes and avoids the most and the answer will almost always be the same: cold calling new business prospects. Not only is this the most dreaded activity among C-level agency executives, it’s also among the least effective.

Cold calling has always produced only modest results and today’s avoidance-enabling technology only makes it easier for prospects to hide from your phone calls and ignore your e-mails. I routinely hear from agency principals how traditional new business prospecting methods are becoming less and less effective.

Hard to reach

The dynamics that make it more difficult to reach a client’s prospective customers are the same forces that make it harder for agencies to reach their own prospective customers: media proliferation, multi-tasking, message overload, and short attention spans.

If you feel guilty for not spending enough time cold calling and cold e-mailing, here’s a really good excuse to stop: it doesn’t work.

A better alternative

Management genius Peter Drucker preached that a good marketing program makes sales irrelevant. Says Drucker, “The aim of marketing is to make selling superfluous.” The aim of marketing is to make a product so relevant and compelling that it literally sells itself.

If you think this is mere hyperbole, consider the outrageously successful iPhone. Can you imagine ever seeing an iPhone salesman? Instead, eager customers are lined up in front of Apple and AT&T stores for hours.

If agencies spent more time and energy on making and marketing a relevant, differentiated “product” (their own agency), they could spend a lot less time and energy trying to sell it.

A multi-dimensional approach

Witness the hyper-successful Crispin Porter + Bogusky. Not only have they devoted themselves to making a differentiated product, but they have invested considerable time and money marketing the CP+B brand to the business community. Getting mounds of press – both offline and online – is the result of a concerted effort by a dedicated team of PR professionals whose only client is the agency.

Most of the agencies that constantly kick themselves for not devoting enough effort to “prospecting” are the same ones that have devoted below-average resources to marketing their own brand. That’s no coincidence.

In addition to focusing on the business press, entering the awards shows, and joining business organizations, the most progressive agencies have also engaged in an online conversation with both their peers and prospects. In place of a traditional PR plan, you need a multi-dimensional publicity plan that includes:

• Search engine optimization (SEO) program
• Postings and comments on relevant blogs
• Search engine marketing (SEM) program based on keywords
• Letters to the editor
• (both offline and online)
• Landing pages (based on owned URL’s)
• Paid and reciprocal links
• Listings in both paid and complimentary online directories
• Wikipedia entry
• Membership in relevant online professional networks
• Facebook page
• Participation in professional online forums
• YouTube channel

The only limit is the amount of creativity you apply to marketing your own brand. So stop thinking sales and start thinking marketing, which starts with how your firm is positioned in the marketplace. Trade the time and money you spend “selling” your brand and invest it instead in differentiating and marketing your brand and you’ll get a much better return on your investment.