Ad Agency Version 2018: Three Primary Models Are Emerging

  • by , Op-Ed Contributor, January 9, 2018

As we enter 2018, there’s little doubt that the ad agency industry is undergoing serious change. We’re experiencing a transformation in the business models we’ve used for the last few decades, a new age marked by what I call agency polarity.

Three primary agency types are emerging. They’re not based on size, nor does geography play an important role. The key to each model is focus and intent, founded by: Insightful Expansion, Efficient Transaction or Combined Services

Let’s examine each one.

Insightful Expansion. Many agencies offer communications strategy. The new paradigm requires deeper commitment. Strategically-focused agencies will migrate upstream with increased offerings, making them resemble the consulting companies that began infiltrating the industry in 2016.  These agencies will sell business strategy and problem solving to a select portfolio of ambitious clients who know and value the difference between tacticians and strategists. Already, they’re embracing the idea that productivity translates into the number of good things produced. Not the total produced.



Time sheets will be history when the proven advantages of this approach prevail. Value-adding factors are delivering results, new market opportunities, and insight. These will become the lifeblood of the strategy-focused model. Healthier profit margins will require services tied more into variable measures of positive client business impact. With this less orthodox framework, an agency needs to hire outside of the industry—the perk being fresher perspective. The necessity to interface with higher-level client teams, too, will be paramount to filling in industry gaps and evolving the client relationship structure.

Efficient Transaction. For the production focused models, here’s where the tacticians and analytics come in. The numbers, to some extent, will do your divining. It’s classic, reliable industrial capitalism at the executive level. You can keep making money if you have scale and you produce volume.

The challenge is that similar offerings already exist worldwide. Competition is undeniably hot. Outsourceable design studios beyond the U.S. produce marketing communications programs for less than their American rivals. Efficiency models are bound to a textbook stake of Smithian capitalism, relying on commodity as the defining factor—and the competition isn’t necessarily chained down. So the key here is flexibility, speed, and the ability to pivot with agility.

Combined Services. Agencies offering combined services used to be called “full service.” The days of genuine full service shops are numbered. Compared to the previous incarnation, this model is paring down and can’t have a defined lens like those transcending the legacy models. Though, anything can be rationalized based on the prospect of the day. These agencies have always handed over the tough stuff to a get-it-done team. Played it safe. Thrown bodies at jobs. Some of them always will.  Drifting isn’t safe or savvy anymore. And pandering to client whims isn’t a solid strategy. When your stance for specific competency dissolves, clients can see that.

Asking why I believe these trends are inevitable is fair. Simply put, the transformation is happening now because clients are seeing greater value in each distinct approach. Never has there been more methodologies for reaching consumers, more content to consider, more analytics for measuring success. They’re under pressure to deliver results faster than ever. Marketing is becoming more about math than the promotional in many regards.

Uncertainty reigns when marketers find themselves in a world of overwhelming choice. They’re facing two options: think expansively and look for breakthroughs in business strategy, or, evaluate risk minimization to find efficiency.

Business is not linear. There’s no binary. The skill sets and resources needed to support clients in these options are vastly different. Given that most agencies are considerably smaller organizations than their client counterparts, the strategy of specialization is imperative.  

4 comments about "Ad Agency Version 2018: Three Primary Models Are Emerging".
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  1. James Smith from J. R. Smith Group, January 9, 2018 at 5:12 p.m.

    Bob: Good, practical insights. Really did a good summary in the last three paragraphs. Thanks.  Jim

  2. Michael Farmer from Farmer & Company LLC, January 10, 2018 at 12:57 p.m.

    This is a very smart and insightful article.
    Clients are not paying differentiated pricing for the three types of services, except when they hire management consulting firms for Insightful Expansion. Consultants get premium fees for premium services.
    Clients pay agencies, though, at commodity rates based on headcounts, using benchmarked salaries, overhead rates and profit margins.
    This lowest-common-denominator pricing ensures that agencies underdeliver when it comes to Insights. 
    If all pricing for agency services is commodity-like pricing, then it's a joke to think that agencies can offer strategic insights. All agencies get driven to being paid as if they're doing nothing but transactions.
    My analyses show that they're even underpaid for this!
    Agency ignorance of pricing is ruining their operations, eroding their capabilities and spoiling their clients, who get used to underpaying.

    Michael Farmer
    Author: Madison Avenue Manslaughter

  3. Bob Bailey from Truth Collective replied, January 11, 2018 at 7:14 a.m.

    Thank you Jim, I appreciate your feedback on this piece.  We live in interesting times!

  4. Bob Bailey from Truth Collective, January 11, 2018 at 7:22 a.m.

    Thank you Michael, I appreciate your comments very much.  My agency is relatively new and we were founded with many of the core beliefs you write about as it relates to pricing and value to clients.  We choose to focus on being productive vs efficient. And instead of fearing the consultants entering our field, we are building the consulting capability ourtselves.  We are striving to begin with the "business of the business" of our clients (product, pricing, channel strategies) then layer on the brand straregy and comms to power the growth. I'm finding it's easier and faster to build this approach from the ground up than to transform a legacy agency into something that resembles this. Thank you again for reading my piece and taking the time to add value to it Michael.  Best to you. Bob  

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