Constant Bearing, Decreasing Range

This is the formula for a collision. Ask any navigator. It’s how you can tell if that blip on radar might be deadly — and a very good reason to change course.

Today, in the advertising industry, there are two such ominous blips on radar, but neither seems willing to change course: agencies and advertisers. They both have reasons to break off course, but are held there by seemingly inexorable forces.

Blip #1: Agencies

The symptoms of trouble are abundant. Brands are bringing services in-house at record rates. At least 21 big advertisers have placed agencies into review.

The agency rebate game is out of the closet, with the Association of National Advertisers (ANA) now hiring famously tough private investigators (K2) to sort out the truth.  

Holding company executives are backpedaling, saying they are not agents, but marketing services organizations. What part of “agent” didn’t they understand?



Some might think that was a course change, but it seems more like a rationalization to keep doing the same thing.

Marketing services companies around the world increasingly structure their services as client-direct, displacing agencies. This is not a result of any anti-agency sentiment on the part of platforms or clients, but mainly the simple result of the fact that a convoluted supply chain creates impediments to the flow of data-derived value-adds.

Broadcast TV, the saline drip for agency sustainability, is declining at the hands of content fragmentation and Internet distribution. This is happening fast. Consumers love TV content — but they want what they want, when they want it.

Agencies have plenty of talent and motivation to do a great job for advertisers, but (as is certainly their prerogative) holding company structures and incentives reward financial performance over quality advertising.

Blip # 2:  Advertisers

Brand advertisers — the big easy money for agencies — are in decline, and a sudden recovery seems unlikely. In their golden years, brands’ growth engines were technology (chemistry mainly) translated into product benefits, distribution savvy, and advertising acumen. Later came globalization.

There is trouble on all fronts. There may not be another revolution in chemistry for CPG (a better-yet toothpaste?). In distribution, powerful retailers wantonly borrow trademark-ish packaging from CPG brands and produce their own almost-copies sold at lower prices.  Contract packers easily replicate products.

In advertising, media muscle (“scale”) is not required to launch a brand, just a little guile and a platform or two.  Global markets are productive, but competition is fierce.

As demand for big brands softens, advertisers compensate by cutting costs. Marketing budgets are a great place to start.  Brand advertisers need to spend less money and get each dollar to work harder.

It’s existential. CEOs must feel like Captain Kirk in trouble: “Must … change … course.” But they can’t. Doing the same thing more energetically only hastens the collision.

So: Here we are.  Paralyzed by Wall St. expectations, with forensics experts ready to analyze agency books, agencies declaring they were never agents, special investigators ready to ferret out the truth, consumers actively blocking ads, brands stagnant, and buying departments launching reviews en masse.

But the blips keep converging, and we are already seeing sparks. Pepsi just fired its entire marketing procurement department. WPP leaked a memo advising its employees how not to cooperate with the investigation.

There may not be an explosion. Instead, volatility, uncertainty, complexity, and ambiguity will have their way for a while. Those who adapt best will be the winners — likely to be technology-centric companies ready for advertiser-direct relationships. A new wave of supply fragmentation will begin, confounding advertisers, and opening the door for a new wave of agency services to fill the inevitable gaps.

Message to pilots: Brinksmanship might prevent a telegenic disaster, but it will only set the stage for the next time. In a game of “chicken,” the only winners are the audience.

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