A recent survey by the National Advertisers Association of National Advertisers (Ana) found that 59% of brands opt for agency partnerships based on cost alone. That statistic should terrify all agency leaders reading this.
My previous article on how Gen AI has a significant impact on agency business models has sparked a considerable number of debates about the opportunities and barriers for institutions moving to upstream high value consulting services. It felt like it was time to share these insights with the industry.
A brief summary
Gen AI Revolution drives clients to move regularly within the company, hiring less boring but beneficial “business as business” jobs (BAUs) and attractive but unemployed “big ideas” works (BIWs). As most institutions have a mix of margin models, this shift destroys agency profitability unless they reinvent their business models and renegotiate how clients pay.
Within an existing skill set, the agency has two passes. Move upstream and become a creative marketing consultant, or go downstream and become an idea supplier. Yes, you could go sideways, but perhaps it means completely reinventing your business as a data analytics company.
Going upstream is where the real opportunities of most institutions lie.
Go upstream
Let me define what creative marketing consulting means. An entity that solves business problems through strategic and creative marketing thinking.
Many institutions may already see themselves like this. But their clients agree and, more importantly, do they pay the agency accordingly? 59% of statistics suggest that this is not the case.
The question is not whether you are strategic or not. It's what you're paying for: the business value you create or the assets you generate?
Value is subjective–Until it's not
The stickers signed by BlackPink are pretty unworthy for most people, but they do have a lot to do with true fans. Potential values are revealed in the correct context. It shows the eBay bid war, which even the ignorant of the stickers and ignorant people recognize its value. Similarly, if the client does not pay a “fair price” for the service, it is not worth it enough to justify the cost.
Solution: Talk about creativity and begin demonstrating its impact on your business. How well did your creative achieve that goal? What monetary value was created? How much revenue does the business would not have received without the initiative?
These questions seem obvious. In reality, most institutions and their clients do not even answer in specific business terms. That's the problem we have to crack.
Move from output to result
Here are the reasons for defining value contributions: You can move from price lists, hourly wages and FTE models to results-based pricing. If you can prove that you've created a 10% sales uplift that would otherwise not have happened, you deserve a share of it.
This approach will turn your role from a creative supplier to a business consultant. We advise CEOs, CMOs and CFOs on how to succeed through marketing. It's upstream.
Five challenges to overcome
Moving to value-based compensation is not easy, especially when existing contracts need to be revised. Five key challenges need to be addressed to that goal.
1. Expand your belief system
Too many institutions define success as “creating great ideas.” Business outcomes are considered a great by-product. Ask yourself: Would your agency choose Gold Effie (from the Marketing Effect Award) over Bronze Cannes Lion? Please be honest.
But when I ask my clients, many people choose Effie. why? Because our clients want business outcomes, not only great creative. They care about the “hole” rather than the “drill” that makes it.
The importance of great creative ideas is not an issue as they can increase the effectiveness of marketing. But Great Creative is the instrument of the end, ideally “commercial arts,” which brings business outcomes beyond expectations.
What to do: You need to expand your belief system from “creating great ideas” to “producing great results through great ideas.” You start measuring success when the results are delivered, not when the campaign is launched. Tackle business issues and see creative ideas in their commercial context. That brings me to the next point.
2. Define the contribution of value to the business
In our industry, there is a huge gap between marketing theory and practice. In theory, marketing has become more powerful than ever before. Advances in psychology, neuroscience and data analytics allow us to define more than ever before financial contributions to our business. Practitioners such as Mark Ritson and Byron Sharp provide substantial guidance to make marketing work better and more challenging.
In reality, many marketers (both institutions and clients alike) make decisions based primarily on the feel of the gut. The belief that we need to be faster and therefore “there is no time” to know or believe “the right thing.” Internal politics prevents better, new solutions. On the agency side, many have lost the ability to determine the business value of their initiatives, as lower budgets and reduced margins eliminate senior strategic talent.
What to do: Be interested in how marketing actually delivers results and how you measure these. One after another, we begin to see marketing as an ongoing process, not just one campaign. Use this knowledge to help clients succeed in their business. It proves that data-driven purpose-focused decision-making defeats gut instincts. Establish a client and testing and learn approach to solving business challenges.
3. Move beyond “budget holder” to “problem owner”
Many agency clients today are communications managers who manage advertising budgets. We are not responsible for solving business problems. However, if the client does not own the problem, it cannot assert the value of the solution.
True problem owners understand the cost of business challenges and therefore the value of the solution. To move towards value-based rewards, you need to directly engage the problem owner.
What to do: Recognize that attracting problem owners is critical to the survival of your agency and is likely to be a longer journey. You must:
-
Identify the owner of the problem
-
Find topics beyond advertising that matter to them (i.e. business-related topics)
-
Make sure your budget horse looks good in front of the problem owner
-
Propose the solution together to both stakeholders
-
Run, show results, optimize and repeat
-
Then renegotiate the compensation based on the proven values generated
4. Explore alternative reward models
Most agency contracts are based on a list of asset production. Translated into time or FTE (full-time employee) including four campaigns per year, 10 content pieces per month. However, such agreements force agents to focus on deliverables while ignoring business outcomes, as they do not affect the institution's compensation.
This is one reason why institutions are considered “creative producers,” and the existence of Gen AI makes them more and less relevant.
What to do: To the shift to value-based compensation and clients, this is a much better deal. A partner who shares both your successes and failures will fight hard for your business. The challenge is the willingness to change outdated models that no longer reflect business reality. This is especially difficult for small, independent institutions.
5. Industry-wide alignment of our value contributions
The advertising business has recently become cruel with reduced billing, erosion of margins, increased pressure and reduced time. The Gen AI crisis will affect all institutions around the world and reinforce these challenges. Most agents can't solve this.
There needs to be a strong narrative that helps institutions address these challenges, attract clients to difficult conversations and give them a good reason to renegotiate rewards.
What to do: It's time to realize that we are facing this crisis together, so I think we have to work together to resolve it. This requires industry-wide support. And the one who brings us in. My suggestion is: Ask the (neutral) industry associations of local and local institutions and marketing associations across APAC. A perspective like:
-
Charter that defines the agency's value contribution to client business
-
A framework for making value visible
-
Alternative Reward Models to Strengthen Client Agency Relationships
Rather than providing all the answers, we are to promote the critical conversations that our industry desperately needs to promote evolution.
A great example is the collaboration between the American 4AS (American Advertising Association) and ANA, and the development of agency compensation reports that explore how traditional methods of compensation do not match the complexities of modern marketing. They found that marketers wanted not only to fulfill tasks, but also to promote value, and accept rewards tailored to the business values created. APAC needs more of this.
The action time is now
The Gen AI revolution has not come. It's here. While we are pondering, our clients are driving Bau's work within the company. The choices faced by all agents today are either evolving into strategic business partners demonstrating measurable value, or being relegated to tactical suppliers competing in increasingly commercialized markets by price alone.
We recommend that you take the above five practical steps to get through the next five years. Some people can shift their client conversations from “How much does this campaign cost?” “How much revenue will this solution generate?” thrive in the AI landscape of later generations.
The rest will find themselves fighting for scrap in a market where they no longer need what they are selling. Your approach to this transformation, or lack thereof, defines what the industry will look like in the future. Make this future viable, sustainable, bright and fun.
Andreas Moellmann is the founder of Future Inc, a brand and marketing strategy consulting firm.
Sources to read more:
