Efficiency costs: why agencies playing the short game are destined to fail

Legacy practices of letting the media determine how agencies are structured have led to siloed thinking, operating inefficiencies and, ultimately, an inability to pivot at speed. It doesn't have to be this way...

During the last global financial crisis, P&G doubled down on creating brands with purpose that aimed to serve consumers rather than just market to them… and it paid off.  

Duncan Smith, US CEO at Journey Further, looks at why cost-cutting isn’t the answer to a cost of living crisis for performance marketers. . 

With the threat of a recession looming, the advertising sector continues to be bullish about growth and has seemingly rebounded well after the lows of the pandemic. But it’s hard to escape the feeling that the opportunity to pivot towards a healthier, more valuable and more sustainable model for all has been lost in favour of short-term cost cutting and consolidation. Ultimately, this move doesn’t benefit brands and clients that fund the work, or the talented and ambitious people employed to produce it. And if a recession does hit, that focus on short-termism is likely to come back to bite it. 

Marketing leaders transforming into Chief Growth Officers

But none of the above is a surprise. As all media channels become more measurable, it allows advertising to be held to a greater account. As marketing leaders transform into Chief Growth Officers, the need to see immediate return has never been higher. But this runs the risk of being a reductive exercise. We are focusing more on cost efficiencies and ‘in the moment’ metrics, at the expense of slower burn and more emotionally engaging work required to build and grow brands that last.

And this acceleration towards immediacy at all costs (or, more likely, the lowest cost possible) has had a direct knock on effect with brands, agencies, products and people. 

The value of brand purpose

The re-emergence of the debate around brand purpose and whether it’s really of any commercial value relates directly to this desire to see sales results, data capture and increased brand metrics, the moment the spend hits the market. In that environment, it’s hard to justify investment in something that takes a while to establish. Although it might be quicker to focus on encouraging clicks or blasting the competition, it’s at the expense of nurturing something of deeper value to the customer. 

This was a lesson that P&G learned during the Great Recession when they doubled down on creating brands with purpose that aimed to serve consumers vs marketing to them. They added greater value across their billion dollar brands by adding line extensions, creating more premiumisation, and price variation as a result, and increasing customer loyalty across the portfolio. That resulted in earnings per share increasing by over 35% from 2007-2010 with cash flow also improving by over 20% across the same period. That provided a foundation coming out of the recession that has continued to insulate the business to a large extent this time around.

However, with most brands focused less on the long-term (with some notable exceptions), and more on the short-term ROI, it’s understandable that this reactive thinking has affected the agencies and their output - from a product and a financial perspective.

Without the spark that a great brand or product purpose can deliver, it becomes infinitely harder to create engaging and emotionally impactful work - the kind of work that creates long-term memory structures, preference and loyalty. With seemingly less interest in investing in this kind of work, agencies (especially the larger ones) have had to insulate themselves against the volatility that this behavior brings – something exacerbated by the pandemic. 

Since the onset of COVID, we’ve seen some significant consolidation moves across the agency world, in public and behind the scenes. On the surface, these have been smart moves to provide a more single-minded offering or to re-energise legacy, but when you dig deeper one can’t ignore these efforts to reduce costs and gain efficiencies. 

The agency model anachronism

The drive towards more efficiency and lower costs has stripped away a lot of the purpose and meaning that agency employees felt about their chosen place to work.  

Arguably, nowhere has felt this more so than the media agencies. Beholden to legacy structures based around where they earned their money, not how real people choose to spend their time with media and brands, the agency model was an anachronism before the pandemic.

As revenue dried up, culture and collaboration eroded whilst the separation and centralisation of media activation away from clients and agency brands continued. In an effort to provide a more cost-efficient solution to defend against the external, the internal has suffered greatly and has become harder to believe in for employees. It’s why we continue to see record high attrition rates and open roles, especially across the larger, networked agencies. 

It didn’t have to be this way. And outside of those networks, it isn’t. Just as a forest will spring back to life after a fire, we are starting to see some new and exciting green shoots of how things can be different in our industry. Yes, some of those big, burnt out trees will remain looming over everything but, in a lot of ways, pre-pandemic behaviours have changed too much for those ever to take up as much of the light as before.

We’ve gone over the tipping point in so many areas from e-commerce to streaming TV. We’ve seen the rise of the individual as a merchant and media platform. And we now face a growing population that places as much value on the virtual as the physical. While all of this is powered by digital and measurable technology that delivers in the immediate term, more enduring, meaningful value and purpose on an individual level are the primary motivating factors driving these new behaviours. Working from home plays into this and when the ‘office’ is the same every day, irrespective of who you work for, the drivers of change can only be monetary or personal value.

Personal value counts more in the long run

The most successful media platforms and consumer brands today are those who have grasped that it’s the personal value that counts for more in the long run. As a consequence, it is the agencies that have also built their businesses around these principles that stand to win. Everyone else is quickly running short on vision, people and cash to pay the longer standing employees in line with their new recruits. 

By building organisations around how people want to engage with brands and media, and focusing on the value their employees get from their jobs, the next generation of agencies is able to deliver a better balance between short-term impact and a commitment to a long-term purpose.

It’s these agencies that will take their clients and their people further, deliver the best work, attract the most valuable brands and retain the best talent for the long-term.

By Duncan Smith


Journey Further