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.