Why Big Ad Agency Models Will Struggle to be Sustainable

Today, AdAge reported research findings from the 4As that “Chief creative officers at large U.S. agencies, on average, billed $964 an hour to clients in 2008.”

Pardon me, but that’s insane.

If that’s what clients are paying, they’re not even close to an ROI. Most of these are at agencies owned by holding companies which are publicly traded companies with blue chip clients. Didn’t IPG land on a list of one of top 10 companies likely to file for bankruptcy this year? Gee I wonder why? Creative directors should start asking for raises. Perhaps the agency biz needs to be raked over the coals the way the financial services businesses currently are over compensation. Granted I will say that if the $100 million dollar man at Citi earns the company a billion dollars, give the guy what he wants. But I digress.

There are companies that have said they’ve changed the agency model but let’s be honest, that’s a crock. If it looks like a duck… They’ve changed the COMPENSATION model NOT the BUSINESS model. No one has. And clients haven’t demanded it of them. In general, large and mid-sized agencies are often given Carte Blanche to “move the needle”. And research is designed to show how “I’ve moved the needle”. Clients, how about empowering your employees and demanding more of them to ensure they are not using the agency to make them look like heroes?

And as the universe of consumers lean towards microtrends and microbrands, big agencies can't service these companies because they charge too much. They have to charge too much to pay for the exorbitant overhead.

Here’s what I think? The :30 spot doesn’t mean what it used too. Heck, corporate web sites don’t mean what they used to.

A good friend is the founder of a student loan marketing company. If you do a search on student loans, there’s probably a one in three chance you’ll land on one of his sites. It’s a pretty ingenious business and I admire him greatly for what he’s built.

He shared with me an effort for one of his financial services clients that he represents for student loans and credit card products.

I think it speaks volumes about how much companies miss opportunities in understanding their customers and prospects and how disconnected middle management is from senior management.

On one of his several web sites he has a student marketing blog. He posted a blog comparing two credit cards aimed primarily at college students. He also conducted a poll. The poll suggested a pretty clear winner. The winner was a rewards card. There were 250+ comments which further suggested that what students cared about was rewards but they also cared greatly about rates. The comments are in essence qualitative research and could help the company figure out what to probe for in formal qualitative research or what to ask in quantitative research and can also help folks at an agency in developing communications that are far more relevant and appealing to the target audience.

Furthermore, one may discover that a way to use the broadcast medium is to drive people to this blog as opposed to directly to the corporate web site or 800# where the prospect will be hit with a hard sell and likely be apprehensive. The blog, poll and corresponding comments would validate and support the prospective customer’s decision. Yes, as a company you’ll lose a little bit because of the shared revenue with your marketing partner but arguably you’d make that up with stronger close rates.

Isn’t that what everyone’s goal is?