Creating Value - Issue 11
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Creating Value - Issue 11

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The "Creating Value" series from Ignition Consulting Group explores how advertising agencies and other professional services firms can innovate in pricing and compensation.

The "Creating Value" series from Ignition Consulting Group explores how advertising agencies and other professional services firms can innovate in pricing and compensation.

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Creating Value - Issue 11 Creating Value - Issue 11 Presentation Transcript

  • creatingVALUE Issue 11: 3Q creatingVALUE AFootinBothCamps? Advertising Agency vs. Consultancy 3rd Quarter 2009 creatingVALUE
  • 3 creatingVALUE 1 Issue 11: 3Q 1 2 3 Section 1 A Foot in Both Camps? To avoid the commodization trap, many agencies are attempting to move upstream. But the structure and business strategy of a consultancy is very different from that of the traditional agency. Section 2 Does Your Firm Have a Strategy Map? By definition, having a strategy means deciding to do one thing but not another. If your approach is to “keep your op- tions open” and “not limit yourself” then you actually don’t have a strategy – at least not yet. Section 3 12 Questions to Help Your Firm Capture More Value Agencies need to apply creativity to solving their revenue problems, just as they do to solving their clients’ marketing problems. Here are twelve good questions to help you capture more value. Creating Value is a quarterly exploration of the ways marketing communications firms are transforming themselves to become more valuable and competitive in the new multi-channel, media-neutral marketing environment. In This Issue Published by Ignition Consulting Group, Inc. Copyright 2009, all rights reserved. By subscription only at http://www.ignitiongroup.com/publications/creatingvalue.html creatingVALUE Page 2 Page 16 Page 9 creatingVALUE
  • Differentiating the Agency Brand 2 creatingVALUE 3 Issue 11: 3Q Imagine a restaurant attempting to serve both high-end cuisine and low-cost fast food. Such an enterprise would need very different talent, different “production” systems, different pricing, and different processes – not to mention different customers. Pricing power There was a time when the full spectrum of services offered by agencies was considered “high value” in the sense that few clients possessed the talent, ability, or equipment to do what agencies do. In the digital age, that’s simply no longer true. The fact that clients press agencies to do quick, inexpensive production work is because client organizations have the same computers and software that agencies do. A wise agency professional once said “There is margin in mystery,” meaning clients place the highest value on the things they couldn’t possibly do for themselves. How much “mystery” is in your products, services, and capabilities? If your list of services is identical to other agencies, you have very little pricing leverage, because clients believe they can buy the same thing you offer at another agency down the street. This is why clients compare lists of hourly rates and barter with agencies as though they’re buying peaches at the farmer’s market. Advertising agencies are facing competition upstream from marketing consultancies and brand strategy firms who seek to provide planning and strategy services to marketers. Downstream are production companies, independent freelancers, and even media companies who now aim to not just sell media but produce content. Agencies are arguably in the worst place of all – right in the middle. On the one hand, they are expected to be high-value strategists and on the other hand offer low-cost production services. The cost structures of these two extremes are vastly different, yet agencies attempt to continue to support an “under one roof” operation. A Foot in Both Camps?
  • 4 creatingVALUE 5 Issue 11: 3Q Two basic strategies There are really only two business strategies: low cost and differentiation. Offering products and services that have some “mystery” is differentiation. If you don’t differentiate, then you have no other choice than to be shopped, compared, and forced to compete on price. This explains the emergence of companies like New Zealand’s “Department of Doing,” which works as a virtual production department for some of the world’s largest agency networks. Argentina’s “Zoom” is based on a similar business concept, delivering “fast and cheap” in a most impressive way. Some of the multinational firms have created their own versions of free-standing production houses with lower cost structures, such as Ogilvy’s “Redworks”. Redworks calls itself “The Beautiful Factory” and lists core capabilities as: ■■ Traditional production (print production, pre-press, retouching, etc.) ■■ Digital production (landing pages, flash banners, html e-mails, etc.) ■■ Simple creative (adaptations, extensions, etc.) ■■ Video production (simple digital video, translation/ adaptations, etc.) ■■ Digital asset management Guess where many of Redworks’ centers of operation are? In countries where wages are much lower than those in the U.S. Production services company or professional knowledge firm? Are you more of a factory than a consultancy? No doubt today’s economy and market forces are shifting client demand even further down the “fast and cheap” spectrum, but the evolution of agencies from professional knowledge firms to production service companies was underway long before the current recession. If you staff and manage your agency as though you’re a professional knowledge firm (PKF) but your revenues come mostly from production services, you have a recipe for a low- A Foot in Both Camps?
  • 6 creatingVALUE 7 Issue 11: 3Q Work with junior or middle managers Work with middle and senior managers Concerned with efficiency Concerned with effectiveness Focused on producing the goods Focused on producing results People Chain of command Flat structure, clients access top people directly Junior people in leading role, senior people in supporting role Senior people in leading role, junior people in supporting role Human capital Intellectual capital Promotion Publish client lists and publicize new business wins Client information is kept confidential Focus on work samples Focus on achieved outcomes High cost of sale (competitive “pitches”) Low cost of sale (referrals and interviews) Present speculative work Present credentials and reputation Hired for what you do Hired for what you know to-no margin business. The solution is not raising prices on your production/distribution business; these services have been largely commoditized due to the dynamics discussed above. In a mature market for easily duplicated services, you have to have the cost structure, staffing, systems, and technology to deliver production/distribution services faster and less expensively than the traditional agency. This is the business model of the factory. The business model of the consultancy requires an entirely different approach. Advertising Agency Consultancy Product Old Hollywood model (everything under one roof) New Hollywood model (flexible talent management system) Doers Thinkers and doers Ideas with execution Ideas with or without execution Always the contractor, sometimes the architect Usually the architect, sometimes the contractor Primarily sell outputs Sell outputs and inputs Amateur project management (entry- level juniors) Expert project management A Foot in Both Camps?
  • 8 creatingVALUE 9 Issue 11: 3Q By definition, having a strategy means deciding to do one thing but not another. If your approach is to “keep your options open” and “not limit yourself” then you actually don’t have a strategy – at least not yet. By deciding to have low prices and broad selection, Wal-Mart is making a conscious decision not to have a high degree of sales help and ambiance. Given finite resources, Wal-Mart can’t deliver low prices and high service. Deciding what you’ll do at the expense of something else is the very essence of strategy. Process Accounts Engagements Long-term Fixed period Clients insist on category exclusivity Client see category depth as advantage Work for hire Earn revenue from intellectual property Place People at desks People working virtually anywhere in the world Modest use of technology Aggressive use of technology Like most agencies, you probably have a foot in both camps. But sooner or later, you’ll be forced to choose. Just don’t let the choice be made for you. A Foot in Both Camps? Does Your Firm Have a Strategy Map?
  • 10 creatingVALUE 11 Issue 11: 3Q The same is true of Southwest Airlines, which doesn’t attempt to fly to every destination, offer every class of service, and fly every kind of aircraft. Rather, they actively seek to “limit” themselves to being the leading domestic low-price carrier. By flying only the Boeing 737 to only America’s least- congested airports, Southwest has turned in 20 straight years of profitability. You can’t do everything, but you can do something At any given time, McDonald’s has close to 60 items on its menu board. By contrast, In-N-Out Burger has mainly four menu items; hamburgers, fries, shakes, and drinks. By doing a few things extremely well, In-N-Out Burger earns three times the profit margin (as a percentage of total sales) as McDonald’s, who must devote massive resources to inventory and deliver such variety. Especially in service businesses, a successful offering means determining which attributes to target for excellence and which to target for less-than-excellent performance. One very useful way to make these decisions is to develop a “strategy map” that shows which areas you intend to be known for. To get started, gather your management team together and put an “x” in the appropriate boxes below. Capability Low Medium High Category or industry expertise Business planning and consultation Marketing planning and consultation Marketing research Marketing communications planning Branding strategy development Customer insight development Mass media advertising development Digital marketing development Branded content development Sales materials development Brand identity design Brand packaging Environmental and store design New product development Channel planning Channel placement Does Your Firm Have a Strategy Map?
  • 12 creatingVALUE 13 Issue 11: 3Q Capability Low Medium High Sales training and support Multicultural marketing Promotional marketing Shopper marketing Local store marketing Franchise recruitment Web analytics Real-time campaign management Marketing effectiveness measurement Direct senior level involvement National presence and capabilities Professionally-certified project management Rapid response system Online collaboration and communication tools Digital asset management system 24-hour access to information and assets Proprietary IP Other: Capability Low Medium High Search engine optimization Search engine marketing (paid search) Digital pre-press and print production Website development Interactive programming Interactive application development Interactive usability and experience design Media training Media relations Employee relations Community relations Crisis communications Issues management Investor relations Government relations Political campaign management Voter initiatives Database marketing Customer service consultation and support Customer relationship marketing Events and experiential marketing Trade show support Does Your Firm Have a Strategy Map?
  • 14 creatingVALUE 15 Issue 11: 3Q Here’s yet another way to frame the strategy map discussion: What you offer 1. Offers high-level strategic planning processes and expertise vs. production and execution 2. Helps with the complete brand experience vs. not just brand perception 3. Has high-end design as a core competency vs. design as a sideline 4. Works in non-paid vs. just paid media 5. Helps clients with the sale and post-sale phases of marketing vs. just pre-sale 6. Provides product and business ideas vs. just marketing ideas 7. Experts in one-to-one marketing vs. just mass marketing 8. Helps build customer relationships (by understanding databases) vs. just customer transactions 9. Helps build the internal brand within the client organization vs. just the external brand 10. Creates branded content vs. just advertising 11. Works in collaborative, multi-disciplinary teams vs. individual functions 12. Provides big multi-channel ideas vs. discipline-specific ideas 13. Provides measurement and accountability vs. just creation, production and distribution 14. Has a business model of senior people supported by juniors vs. juniors supported by seniors Who you serve 1. Works for clients where marketing is viewed as a growth driver vs. marketing as a service 2. Takes on projects or engagements vs. just long-term ongoing relationships 3. Clients located close to home vs. clients located anywhere How you work 1. Highly organized approach to project management vs. standard account management 2. Offers creative compensation options vs. just hourly fees 3. High-end fees for higher-end work vs. low-end fees for lower-end work 4. Develops own properties and solutions for license to clients vs. always doing work for hire 5. High-touch approach to client service vs. high-tech where client accesses digital assets online Does Your Firm Have a Strategy Map?
  • 16 creatingVALUE 17 Issue 11: 3Q Now more than ever, marketing communications firms need to analyze their revenue streams and find more ways to extract value from the services they provide. “Business as usual” isn’t an option in today’s economy. Agencies need to apply creativity to solving their revenue problems, just as they do to solving their clients’ marketing problems. Here are twelve good questions to help you capture more value: 1. What opportunities could we pursue to develop or package our intellectual property for sale or license? Instead of making all our money in a “work for hire” model, do we have a knowledge base or proprietary information we could turn into a source of revenue? What would it take to develop and package it for sale? 2. Could we experiment with charging minimal fees for concept and production and then charging for usage? This is the business model of most of our creative services suppliers: photographers, musicians, talent, etc. If it works for them, why couldn’t it work for us? 3. What missed opportunities have we had to apply some creativity to pricing (rather than just estimating our costs)? This is the first and most essential question we should be asking. How can we get our people to understand that we’re not selling our costs, but rather our value? 4. Do we have any current clients with whom we could structure a simple compensation agreement in which we are paid for leads, inquiries, clicks, downloads, etc.? Which of our clients might be willing to pay us for the results we produce rather than the hours we work? 5. Which of our clients would be willing to pay us more money if we take more risk? 12 Questions to Help Your Firm Capture More Value
  • 18 creatingVALUE 19 Issue 11: 3Q 12 Questions to Help Your Firm Capture More Value Do we have a client who is sophisticated enough to want to “grow the pie” rather than focusing on how big of a slice they give us? Are we willing to accept a different form of risk (knowing that every client relationship carries some risk, not the least of which is the risk of not making money!) 6. Could we propose a “value audit” for current or prospective clients to help identify drivers of success upon which we could base a compensation agreement? Rather than jumping straight to “scope of work,” could we get some experience with the concept of “scope of value” Could we use this approach to help differentiate ourselves in a new business situation? 7. How can we help our clients identify their real brand success drivers and measure what matters (not just sales and market share)? Could we employ account planning or analytics to help our clients identify and test their real success drivers, then build our compensation around our ability to move these drivers in the marketplace? 8. Would we make more money if we raised our prices on “high value” services and lowered our prices on “low value” services? Could we make most of our profit on the services that are most highly valued by clients? 9. Could we add value to a particular service and charge more than other agencies? How could we take a “standard” service and differentiate it in a way that adds more perceived value? 10. Could we find a more efficient way to deliver a particular service and charge less than other agencies? Could we use technology or streamlined work processes in a way that would allow us to deliver a production/distribution service at a much lower cost than other firms? 11. Which 20% of our clients produce 80% of our profit? How can we cultivate more work from them? Knowing that a handful of clients produce most or all of our profit, how could we provide (and capture) even more value from these clients? 12. Who are our low-value, unprofitable clients? Unprofitable clients really offer us only two options: develop new compensation agreements with them, or resign them. What are we waiting for?
  • 20 creatingVALUE Issue 11: 3Q Independent agency Marcus Thomas proves the value it creates by developing simple yet powerful dashboards that track relevant brand success metrics. By making this information available online 24/7, agency associates and their clients can assess the progress they’re making against key indicators. Most importantly, it helps all parties stay focused on effectiveness, not just efficiency. Creating Value is edited for senior professionals in the marketing communications business. All content is copyrighted by Ignition Consulting Group, Inc. and may not be reproduced or retransmitted without express permission. Creating Value is available by paid subscription only, and is distributed as a downloadable PDF. To subscribe, visit http://www.ignitiongroup.com/publications/creatingvalue.html. Creating Value is published by Ignition Consulting Group, Inc., a consultancy devoted to helping marketing organizations create and capture more value. For more information about Ignition, visit www.ignitiongroup.com, e-mail info@ignitiongroup.com, or call 801.582.7297. Image Credits: A stream of mist - http://www.flickr.com/photos/miniozzy/265360833/ - CC BY-SA 2.0 Sky 3 - http://www.flickr.com/photos/fontplaydotcom/504443770/ - CC BY 2.0 Old maps - http://www.flickr.com/photos/futureshape/1800752012/ - CC BY 2.0 2006 September - Chef de parti - Shoot - http://www.flickr.com/photos/chapter3/3683535146 - CC BY 2.0 12 Questions to Help Your Firm Capture More Value