By Tim Williams

By Tim Williams

Advertising agency income “per unit of work” has fallen 40% during a steady 20-year decline.  So reports agency consultant and advisor Michael Farmer, whose research demonstrates that agency staffs are being squeezed to deliver increasing workloads at a time when fees are declining faster than costs.

The solution to better margins is obviously not to work harder or do a better job of collecting time sheets.  To be able to return to the profit margins they had 20 years ago, agencies need new, different revenue streams.

The immense brainpower and creativity in agencies is wasted on the increasingly routine and somewhat mundane production work that now accounts for around 80% of a typical agency’s revenues.  Many agencies have been pushed so far downstream that they now sometimes compete directly with printers, publishers, and production companies for work that is seen by clients as increasingly commoditized.

Marketing dollars are being spent in new and different ways, and the budgets that were usually allocated to traditional agencies are being reallocated to initiatives and channels that have to do with “marketing” but not necessarily “advertising.”

Marketing has three other P’s

It’s an unfortunate fact that the term “marketing” has become associated almost exclusively with only one of the four P’s of marketing: “Promotion.”  But of course, marketing is also made up of Product, Place and Price.  Agencies and client marketing organizations alike have been marginalized in the business world by allowing themselves to be boxed into just the Promotion business.

In the earlier days of marketing, which emphasized all four Ps, marketing was a board-level function in corporations.  Today that’s often not the case.  Marketing professionals are usually seen as the “advertising people.” Marketing as a profession has allowed itself to be moved downstream, and “business consultants” have come in to fill the void.

So here’s a call to CMOs and agencies alike; let’s move back upstream by redefining our role in also helping to shape the product, optimize the way its sold and distributed, and help lead strategic decisions about how the brand should be valued and priced.

Each of the other overlooked P’s of marketing – Product, Place, and Price – represent an area where agencies can create tremendous value for their clients.  Organizations like IDEO are already playing in this space, applying “design thinking” to marketing issues ranging from the optimal design for a bicycle to the experience patients have coming to an emergency room.

Because agencies have become so closely associated with just the one P called Promotion, some have concluded that to be taken seriously in the other domains of marketing a separate brand is necessary.

Creative powerhouse Venables Bell & Partners has created a consultancy called “Orange” whose mantra is “We apply design-thinking principles to real-world business challenges.  Prominent on their list of services is product development.

Matejczyk Hoffer not only created the advertising for the interesting new video conferencing solution called iMeet, but also helped develop the product itself.

The brain trust at Hyper Island, the country’s most progressive digital training organization, argues that agencies must stop thinking like entertainers and start thinking like product developers.

Butler Shine Stern’s Ed Cotton shrewdly observes that the best agencies already do a lot of the foundational work that can help clients in areas transcending “Promotion,” we just don’t about packaging it up this way.  Says Cotton:

“If agencies are doing all the hard work to understand consumers and throwing away 90% of it, we now have a use for it, because to help our clients develop products for the technological age, we need to think expansively about possibilities.”