Is it the end of the Communication Agency as we know it?

The global economic roller coaster ride is directly affecting advertising investment. After being hit hard in the turbulence of the real economy in 2009, the advertising sector has since rebounded to display steady growth over the last two years at around 4% annually. According to data provided by ZenithOptimedia, it is hoped that this trend continue, and even show modest gain, reaching 6.1% in 2014.

Upon closer examination of this data, two traits can be identified, which, in my opinion, warrant further analysis. On the one hand, around 60% of the expected growth in advertising investment for the coming years will take place in developing countries, evidence of the growing importance of these markets within the world economy. On the other hand, the considerable and constant growth in advertising investment on the Internet, especially advertising in social media, (with an increase of around 20% annually until 2014), confirms and reinforces the idea that advertising investment is migrating towards digital media.

However, we are not seeing this upward trend in advertising investment in companies around us, nor is it expected to occur for some years to come. On a daily basis, we are reminded of how the serious situation of the Basque and Spanish economies is negatively affecting sectors across the board, and how advertising investment is particularly suffering. In fact, in 2011 advertising investment in Spain dropped by 6.5%, a trend that, in absolute terms, amounts to a 40% loss over four years, with print media especially taking the brunt.

We must, though, avoid being fatalistic by placing excessive blame solely on that common enemy which “the crisis” has now become. The truth is that, prior to the recession the communication sector was already going through profound changes in terms of consumer behaviour, namely audience atomization and the proliferation of TV channels and screens to access more information than ever. Add to this the ubiquitous social networks as a medium of expression and connecting with others, which combined with increasingly competitive pricing structures, have led to a situation where many companies are trading traditional advertising Euros for digital cents.

To further compound the situation, some consumers, especially the younger generation, have developed a certain indifference, if not outright rejection, of traditional publicity formats while having begun to explore new ways of establishing a closer relationship with their favourite brands. Moreover, these consumers want to know much more about their brand and are more prepared to contribute to its promotion by recommending new products and product launches, etc. with their personal network of friends and family. In the most literal sense of the word, they are fans since they become a prominent, long-term high value asset for the brand.

Without a doubt, there is great opportunity opening up to companies who understand and know how to avail themselves of the changes that are transpiring before us. As a result, these companies are now demanding that communication agencies play the role of “translator” between the communication needs of the companies and the needs of the new consumers.

Consequently, and given the growing complexity of publicity platforms and formats, agencies need to staff their organisations with true “Renaissance men”, people with multimedia competencies in a variety of disciplines, people who have a thorough understanding of how complex their clients’ needs are. These professional “All-Rounders” would offer comprehensive solutions to the client by incorporating and capitalising on the particular traits of each medium and format in new and cost-effective business models. At the end of the day, this means passing these lower costs onto clients, ultimately giving them “more bang for their buck”.

A client-agency relationship model should be based on being sensitive to needs, trust and solid teamwork, while allowing for, and encouraging, agency-level project development without the client having to be used as guinea pigs to test out either new initiatives, or innovative and profitable business models. This independent development would, in turn, grow into an additional income stream for the agency which could be later adapted and applied to clients. Furthermore, an internationally stable agency, (either in its own right, or via its network of partners), and based in key locations within the framework of a multi-local business model, would allow access not only to future markets, but also to specific knowledge wherever necessary.

It is a well-known fact that communication agencies are currently traversing a critical moment in the transformation of the sector. Despite this, however, and to answer to the question in the title of this article, we must rest assured that the traditional agency model, as we know it, will NOT vanish overnight.

What is taking place, instead, is an evolutionary process over the short-term which is pushing big companies to the brink of collapse simply because they insist on applying out-dated models of success. Additionally, this process is moving a second group of traditional companies attempting to adapt to the new currents and trends. Finally, and of note, we see the emergence of a third group of smaller-sized, dynamic and creative companies, accustomed to working on-line from the word go, who are active on the international scene, and are not only sensitive to their clientele, but extremely savvy in both technology and strategy.

Of the three groups we have observed, it is in this last one where the true potential of the communication agency of the future resides: the ability to transform their clients.

*Published in El Economista, 19/09/2012 (Spanish)

Written by Iñaki Pertusa.