Posts Tagged ‘Positioning’

Without sacrifice, your agency has no strategy

As a agency brand, would you rather be moderately appealing to a large group of prospects, or intensely appealing to a select group of prospects?  Most agency professionals would say the latter.  But most often, their business strategy centers on the former.

In life and in business, our natural tendency is to go broad instead of narrow, to want the most and the biggest.  Diversification feels safer and smarter.

The problem is that if your approach is to “keep your options open” and “not limit yourself” then you actually don’t have a strategy.  By definition, having a strategy means deciding to do one thing but not another.

The fact that most marketing communications firms don’t have a clear and differentiating positioning is usually for one of two reasons:

Reason 1: Unwillingness to think

The leaders of the business simply haven’t devoted the necessary time and attention required to understand how their brand creates value. They simply assume that trying hard and “being your best” are the keys to success.

The English economist David Ricardo is credited with saying “Profits are not made by differential cleverness, but by differential stupidity.” What he meant was that most business executives simply don’t make the effort to think through what actually may be obvious differences in their business model and value proposition.

Reason 2: The desire for universal appeal

Because most businesses would rather be liked than disliked, loved instead of hated, they are extremely reluctant to say or do anything that would cause anybody not to like them.  But of course the very nature of a positioning strategy is that your firm is right for some people but not all people.  Someone but not everyone.  So successful brands are able to plot their position on the spectrum of love and hate.  To be on either side of the spectrum is desirable; to be in the middle is death.

Brand experience expert Kathy Sierra observes in her blog Creating Passionate Users,

“You don’t really have passionate users until someone starts accusing them of “drinking the Kool-Aid.”  Where there is passion, there is always anti-passion… or rather passion in the hate dimension.  If you create passionate users, you have to expect passionate detractors. You should welcome their appearance. It means you’ve arrived. Forget the tipping point — if you want to measure passion, look for the Kool-Aid point.”

Said another way, the brands with the strongest supporters also have the strongest opponents; Microsoft, the New York Times, the Red Sox.  This means you should stop worrying about being pleasing and start worrying about being polarizing – not necessarily in a negative way, but in a way that clearly sends the signal “we’re not for everyone.”

Most companies — particularly in professional services — desperately want to be loved. They don’t like the idea of admirers and detractors, so they don’t want to take a stand.  What they don’t understand is that being lovable doesn’t get you loved.  What gets you loved is standing for something.

Southern California’s DGWB does this very clearly with their commitment to what they call “values-based marketing.”  They seek only clients that believe what they believe: that for the brands to be successful, consumer values and brand values must be aligned. By “flying their colors,” DGWB knows that some clients will resonate with this approach and some won’t — and that’s exactly what they want.

Think of it this way.  If you’ve done a thorough job of differentiation, your agency brand is defined by the features or clients you don’t have.

Positioning isn’t logical.  If anything, defining a differentiating value proposition for your firm will take you in the opposite direction of “common sense.”

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 helpp 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.

*Heraclitus picture courtesy of Cote – Flickr

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.

To understand the changing dynamics of the “value chain” concept, observe what’s happened to the music business.  Consumers are still spending roughly the same amount of money on music, but the money isn’t going to the record companies and music stores; it’s going to iTunes.  The money in the music business value chain is still there – it just moved.

The same is happening in the advertising agency business.  Marketers are spending, but they’re spending in areas of the value chain that aren’t owned by agencies.  Instead of trying to squeeze the last bit of value from traditional sources of revenue, agencies should instead be focused on finding a different spot on the chain.

Finding the most profitable areas of the value chain

To continue to profit in the marketing business, agencies must select a place on the value chain where the offerings are still underdeveloped. The problem is that most agency business models are still centered around the idea of “production and distribution of advertising” — a spot too far down on the value chain to have any real or perceived value in today’s multi-channel marketplace.

Here’s how to think about your firm’s value proposition:

Most agencies base their value propositions on overdeveloped services; they are placing themselves on the wrong side of the value chain.  By focusing on the underdeveloped features or benefits of the category, you are in effect not just positioning your brand for where the profits are, but for where the profits will be.

Underdeveloped offerings in the agency world include:

Online Account Planning

While many agencies have a well-developed account planning function, they have yet to fully realize the potential of the internet in gleaning customer insights.  For example, in addition to using traditional account planning tools Butler Shine Stern & Partners uses services like MotiveQuest to track consumer behavior for client Mini.

Analytics

Virtually every agency can benefit from adding the discipline of analytics.  Besides helping to meet clients’ demands for accountability, analytics can serve as the foundation for value-based compensation agreements.  Kansas City-based Bernstein-Rein promises clients the ability to “organize, evaluate, measure, and interpret the right data to make it valuable.”

Social Media

As the marketing value chain continues to emphasize non-paid online solutions vs. paid offline solutions, agencies must establish competent services and tools to help their clients maximize the world of social media. Media Logic, an innovative agency located in Albany, New York, has a suite of resources that help them monetize this important area.

Other underdeveloped agency services include:

Digital: Usability testing, behavioral targeting, software application development (think smart phone apps)

Branded Content: Custom publishing (both online and offline), branded channel development

Customer Relationship Management: Customer database analysis, customer service programs

Reputation Management: Online reputation monitoring and reporting

Conversational Marketing: Conversation strategy, online community development

Customer Engagement Marketing: Crowdsourcing, product co-development

Intellectual Property Development: Content syndication, sale or license of IP

And much more …

So now the question is, which side of the value chain are you on now, where do you think you should be, and what are you doing to get there?

In every category, it’s virtually inevitable that the brands and companies that market them will become more and more alike. In the seamlessly connected world of today, this phenomenon is both accelerated and exaggerated. Studies show that an increasing number of categories are becoming more commodity-like in the eyes of consumers. In categories ranging from home improvement to insurance, brands are seen as becoming less differentiated.

The copying mechanism

The underlying explanation is the “copying” mechanism that has allowed humans to survive and evolve for the past few millions years. The work of social observers like Mark Earls demonstrates the simple truth that humans are social creatures, not independent agents, and that as such rely on copying to learn and survive in society. In fact, says Earls, “Copying is our species’ number one learning and adaptive strategy.”

Thus products and product features are mostly copied rather than invented. Copying is perceived as less risky, and risk is what most humans strenuously seek to avoid.

There is, of course, an important difference between real risk and perceived risk; in marketing the real risk is simply copying what other brands do. Copying leads to undifferentiated brands, commoditization of entire categories, and erosion of pricing power.

Duplicating success?

The temptation to copy in business is irresistible. We logically conclude that we can replicate another company’s success by duplicating their features, attributes and capabilities. But copying diverts companies and brands from doing what they do best and instead puts them on what has been called “the long road to unfocus.”

The illogic of all-in-one

The other force at play that leads brands to become homogeneous is the natural tendency to define their value proposition solely in terms of product attributes. Believing that the more product attributes a brand can claim the more valuable it will be to the customer, brands continue to add more and more features until they become “all-in-one solutions”.

The problem is, of course, nobody buys a product because it can do everything, but rather because it can do something. Nowhere is this more apparent than in packaged goods, where most categories ultimately produce a “total solution” brand. Witness Colgate Total, Crest Complete, Olay Total Effects, and Tide Total Care. Can one laundry detergent really stand for protecting color, enhancing softness, cleaning thoroughly, fighting stains, and preserving fabrics?

After years of marching down the “complete” path, P&G is realizing that a single benefit brand is often stronger for the simple reason that it stands for something. It promises to do a specific job extremely well instead of attempting to do a lot of jobs moderately well.

What’s true for package goods brands is true for agency brands. There is no competitive advantage in doing simply what others do; or worse, attempting to do everything others do.

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.

By Tim Williams

At every turn, leaders of advertising agencies are faced with critical questions and decisions that can – and will – determine the success of their firm.  The most basic questions are the most critical.  What kind of services should we offer?  What kind of people should we hire?  What kind of prospective clients should we pursue?

Ignition has come to believe that the only way to answer these questions effectively is to first find the answer to a much bigger question: What is our positioning?  Unless you know what the agency stands for, how can you possibly make effective decisions about how to run it?

Effective answers to good questions

Consider how a clearly-defined positioning can lead you to good answers to critical questions like:

Product
What kind of services should we offer?
What kind of business partnerships do we need?
What kind of knowledge do we need to acquire?

People
How should the agency be structured?
What kind of people should we hire?
What kind of training should we provide?

Promotion
What kind of website should we have?
What should we say in our self-promotion materials?
Who are our best new business prospects?

Place
What should our offices look like?
What is the right kind of office layout and working environment?
What kinds of tools and resources do our people need to do their jobs?

Alignment is everything

Every decision an agency leader makes will be a better decision when made against the backdrop of a well-defined positioning.  And every decision either contributes to or detracts from the agency brand; very few are neutral.

Your next offsite planning session will yield much better results when you force your executive team to first 1) Agree on what the agency brand stands for, and 2) Set all your objectives in context of what it will take to make that brand real.

Strategy before operations

Think of it this way: its virtually impossible to make good tactical decisions in the absence of a good strategy.  Business decisions can’t be made in a vacuum or based on some vague notion of “excellence.”

The agencies that make the best decisions are the ones with the clearest view of who they are and what makes them different.  In other words, agencies with a positioning.