Three Unsolved Strategic Problems for Madison Avenue

There won't be a future if agencies can't 1) help clients grow their brands again, by 2) rebuilding agency strategic capabilities and 3) generating growing income in an AI-dominated world.

Credit: Edward Koren, The New Yorker, The Cartoon Bank

None of these goals are easy today, but the need is obvious.

Client brand growth was practically automatic from the ‘60s to the early 2000’s, at least from an agency perspective. This period was marked by “mass marketing” to a homogenized population that watched the same TV shows and ads on 3-4 TV channels. Agencies focused on developing highly creative ads and did not have to worry about client brand growth. Success seemed automatic if ads were creative enough. P&G, Unilever, Nestle and Colgate Palmolive, taken together, grew their brands at 6-8% per year for nearly 50 years. Did creative advertising drive the growth, or did the growth happen anyway? No one cared; the system worked.

Beginning in 2009, though, brand growth came to a screeching halt. Was it due to the shift from mass marketing to “targeted marketing” and the adoption of digital and social advertising? Was it due to the incredible availability of lower-cost private label products? Or from e-commerce? Or due to the fragmentation of society in general?

Brand growth is not an automatic outcome anymore, and agencies, for the first time, have to get smart about how to rekindle brand growth. If they do not, they will continue to suffer from fee declines, staff-liquidating downsizings, and too many RFPs as clients terminate relationships in the never-ending quest to find agencies whose work “really works.”

Agencies, though, are not strategy consultants. They have neither the skills, nor the staff, nor the experience, nor the support of their clients to engage in brand performance analyses.

But they must begin now, because in the absence of client brand growth, their services and costs will be viewed as commodities, easily replaced by lower-cost alternatives.

Agencies must commit themselves to a new mission: finding the way to rekindle client brand growth. It is not a natural mission for themselves, and they’ll have to muddle their way to competence, but the mission is possible if agency CEOs make a clear declaration that it is the only way forward. Once this happens, then “let the learning begin.”

However, the mission cannot be accomplished if agency staffing remains as junior as it is today. The 20 years of chronic downsizings and agency mergers have liquidated senior staffs, leaving juniors to crank out thousands of minor digital and social ads. AI will now liquidate the need for many of these juniors. What’s left once they’re gone? Very little. So, in advance of this AI incursion into agency staffing, agency CEOs need to rebuild their agencies’ senior strategic, problem-solving capabilities, reversing the trends of the past 20 years.

In effect, agencies need to build a consulting capability to master the art of driving brand growth, and in the face of man-hour (and revenue) losses to AI, to charge premium prices, like the consultants, for the work of these senior-level strategists and problem solvers.

That’s a long way from “creativity,” as it is currently conceived, but it is “creative problem-solving,” which is the way that creativity needs to be redefined.

Agencies used to be able to rely on a predictable set of outcomes for their efforts: happy clients, growing brands, stable relationships, highly motivated and well-paid staffs, and fair remuneration for creative work.

All of that disappeared with the advent of digital and social advertising, on the one hand, and the fragmentation of consumer choices and behaviors, on the other hand.

The old ways of doing business are now ineffective. New ways of thinking and working are required.

The transformation job falls squarely on the shoulders of agency CEOs, who must now do more than meet holding company needs for predictable financial performance. Agency CEOs must set new strategic agendas for their agencies:

1. “Our mission is to help our clients grow their brands again. For this, we need to analyze the reasons for the decline in brand performance and identify the kinds of media and creative scopes of work, among other things, that will rekindle brand growth. We need to develop strategic, analytical and consulting-like skills as part of this mission.

2. “To fund this effort, while AI is reducing our junior man-hours, we’ll need to shift remuneration to ‘pay for the work we do and the success that it achieves.’ Man-hour billing must cease, otherwise it will lead to 20% or more declines in revenue.”

Agency CEOs, to date, have acted more like “custodians” of annual budgets than “change leaders” who address today’s complicated industry and strive for long-term, sustainable success.

It’s time for CEOs to step up to their new challenges.