Hey, Madison Avenue: Buckle your Seatbelts! -- you could have a bumpy ride in 2024
Your growing digital and social Scopes of Work have generated decades of fees -- but failed to deliver reliable growth for your clients. AI will eliminate many paid manhours. What should you do?
Credit: Roz Chast, The New Yorker, The Cartoon Bank
Ad agencies and their clients rode the crest of the wave after World War II, when the invention of television and pent-up consumer demand fueled massive increases in consumer purchasing, ad spend and profits. Advertising’s role was to help drive economic growth and create strong brands that would perform well even after economic growth slowed.
Slower growth has been here for some time. TV advertising is on the wane, and digital / social advertising, with its promise of improved targeting and personalization, has taken its place. Integrated advertising must now work to help clients wage hand-to-hand combat for market share in today’s slower-growth marketplaces. Branded goods compete with one another and with store brands; every retail establishment competes with Amazon; fossil fuels compete with electricity. The competitive landscape is very, very tough and complicated.
Digital and social advertising have not done particularly well in creating growth. Too many major advertisers have had poor sales growth for more than a decade. P&G, which used to set the standard for effective marketing and advertising, grew its sales at only 0.6% per year since 2009, well below GDP growth of 2.1% per year for the past 13 years. Unilever, Colgate-Palmolive and Nestle did not do much better. Automobile companies face new competitors and innovative technologies. Finance, pharmaceuticals, and many other industries struggle to define successful growth strategies in today’s competitive and slower-growth marketplaces.
Marketing departments and their ad agencies configured themselves to plan and execute the huge volumes of digital and social deliverables that make up today’s Scopes of Work. This work is done by relatively junior people, who each crank out hundreds of deliverables per year. Senior (and expensive) agency strategists and account executives, by contrast, have been eliminated, casualties of procurement-led fee reductions.
If the junior folks and the manhours they represent are replaced by AI, and agencies have a current deficit of senior strategists and account executives, what are agencies to do? Their clients need effective marketing strategies and vigorous partnerships, but these evaporated during the past decades of cost reductions.
Agencies need to rebuild their organizations, change their missions (improved client performance rather than more-of-the-same) and revise their cultures. Agencies need to celebrate the retention and success of existing clients and wean themselves from believing that success comes from new business wins. All of this is entirely possible, but it takes highly focused CEOs to lead the changes.
Agencies need to pivot their strategic, technological and creative capabilities in order to dedicate themselves to helping their clients grow again.
Agencies need to marry the analytical and strategic capabilities of the strategy consulting firms with their own strong media, creative and technological capabilities.
Who is moving in this direction? Surely Accenture Song, Deloitte Digital, and agencies Huge (IPG) and Gale (Stagwell). Among the strategy consulting firms, BCG, Bain and McKinsey have set their sights on expanding their marketing capabilities, and they each have formidable resources and experience. There may be a handful of others who are working quietly to help their clients achieve improved performance.
What does not fit the bill are the mergers and consolidations of holding company agencies, which look more like cost-reduction efforts than strategic efforts to bring value to clients. Large, merged agencies create so many internal problems for themselves that they can hardly think about how they pivot their priorities to bring better analyses, creative business thinking and improved performance to their clients. They claim that their mergers “create scale,” but scale is not the critical issue. “Effectiveness on behalf of clients” is what is needed, one client at a time, and this means helping clients achieve better sales performance, one at a time.
In 2024, there will be industry innovators, on the one hand, and industry losers, on the other hand. So buckle your seat belts. The skies will be bumpy for everyone, not just for those who travel in Boeing 737 Max 9s. Neither marketing departments nor ad agencies will fly comfortably once AI takes a bite out of operations.
Great post, Michael. AI will cause disruption, but that's a commoditized word, especially in advertising. It will be an interesting year or 5 for sure. Thank you for sharing. I just subcribed.
Insightful as ever, but wonder if you'd entertain a friendly amendment or dos. If I read this right, you're pegging the headwinds to a toxic cocktail of dated business models, new tech, and improper focus—agencies, especially the holding companies, more motivated by what they see in the economic mirror than a deep understanding that efficacy is the sine qua non of survival. Unarguably valid, but I think you have to a two equally powerful drivers that, while not strictly in the SOW engine room, really are shaping the industry's long term prospects—the equally volatile mix of fragmentation, message overload, and however you'd describe the graywater swamp submerging data use and rights.
Each is serving as proof that the TV-to-digital transformation isn’t delivering either as hoped for or advertised. Each is a wrecking ball on its own; in combination, they’re demolishing efficiency, advertising's ultimate value proposition.
While I'm sure that you are completely right in arguing for modernized business models and practices, I'm entirely uncertain that until we hit the trifecta of solutions—Huge, Gale, the consultancies, or anyone else—is selling much more than operational Kool-Aid. Good to quench the immediate thirst, still insufficient to end a drought.