New Marketing Agency Models
Something as simple as an ampersand is signaling a tectonic shift in the global marketing agency sector. Only it’s not that simple. The new face of the industry is taking shape around changes in internal culture and customer relationships. In the middle, the key lies in the integration of services and demolishing traditional silos and skills barriers.
The age of the mass market is already a matter of history. As business strategy thinkers like Tom Peters have been telling us for some years, the future is in professional service firms offering one-to-one relationships with clients and customers. The marketing industry knows this, but has been slow to re-tune its practices to the new game that has landed in town.
Jim Schroer puts it bluntly: “The ad agency is dead. This is the age of the ‘& agency’. People no longer get their messages from mass advertising campaigns,” he says. “What we have now is bookmarked, or favourite site, marketing – it’s bookmarked in people’s browsers.”
Schroer has been in the Asia Pacific and Australia as global president and CEO of Carlson Marketing, to look after the firm’s regional operations. He and newly appointed managing director of Australia and vice president of Asia Pacific, Michael O’Sullivan, have held gatherings of Carlson’s Australian clients to reinforce the advantages their ‘& agency’ concept offers.
Like the tale Ancient Mariner, the story they relate is compelling. The seed is from previous phases in Schroer’s career with DaimlerChrysler, Ford Motor Company and Booz Allen Hamilton, where he was often the dissatisfied marketing client. His first step in the remaking of Minneapolis-based Carlson Marketing, which began two years ago, was to hit the road and visit more than 100 of its US clients during a three-month tour.
The reaction mirrored his experience in the motor industry where, for DaimlerChrysler, he cut the marketing budget by $US250 million in 2001 and doubled the budget for the Camp Jeep event marketing program to $US16 million.
Camp Jeep is a three-day jamboree for Jeep owners to test their vehicles and off-road driving skills. The company sold between 500 and 1500 more Jeeps after each of the three camps held every year – “a lot more than that amount of money would buy from mass advertising,” Schroer says.
Carlson’s clients repeatedly told him the same story on his road tour. Overwhelmingly they wanted an integrated service to manage their marketing, sales and incentive programs, loyalty programs, call centres and the back-end information technology. Everything but mass media advertising campaigns.
A generation had grown up in the spell of television – an era in which President Kennedy was elected by network TV – but dispersed around the turn of the millennium, as the phenomenon that Silicon Valley calls Internet 2.0 took force.
“We now have a seismic shift that is seeing a lot of marketing move out of TV and print and into interactive connections with consumers,” Schroer says. “Time Magazine caught the mood in 2006 with a cover that put the person of the year as You. Time explained its judgment was based on the fact that today’s world story isn’t about conflict or great men, but about community and collaboration on a scale never seen before.”
The 2006 Advertising Age Agency Report, which ranked Carlson as the world’s 10th largest marketing agency, backs Schroer’s contention. The report observed a marked trend away from mass media towards alternate forms of marketing to reach consumers in their regular walks of life – at the office, on the net, playing games, on cellphones and DVRs, in stores and on the street.
Schroer believes that today, the most effective advertisers – Apple, Google, Commonwealth Bank and Virgin Blue as Australian examples – have moved from one-way mass marketing towards two-way engagement. “Proctor and Gamble, one of the biggest mass advertisers, is heading the same way, even with the marketing of toilet paper,” he says. “There are vast numbers of every product on the market – 256 different brands of PDA, for example, and all with a good price value – so how do people make the choice? It is all in the way the company engages with them to create an opt-in world for the customer. The difference is who treats me the best, who I like doing business with and who the best corporate citizen is.
“To build a direct conversation with people, whose whole lifestyles and outlooks have changed, companies have to contract their spend from the traditional mass market into events, loyalty and rewards programs, and interactive connections on the internet, such as advergaming, via email and for PDAs and cellphones.”
Then comes the factor that Schroer describes as the power of design. It’s all in the style and look that has made an unlikely contender, Target, the big winner in retailing in the US over the past 10 years. It’s about accepting the heresy that employees are more important than an advertising campaign in selling the brand.
Carlson ran a program, based on this philosophy, for staff working the aisles in the big homewares chain Home Depot. This did not involve employee training, but was a brand program to tune up employees to build customer loyalty from the everyday one-to-one relationships in the stores.
Schroer’s makeover of Carlson has captured the shifting trend in marketing. First, he says marketing has become an amplifier for the change in design. This is mass advertising in reverse. Instead of the look and design feel being developed initially for the TV commercial, the design of the product or service becomes the brand that then flows into marketing.
The second element centers on the structure of the agency. Carlson is a big global agency, with more than 3,000 people in 21 countries, but operates as a creative boutique with the power and strength of a global presence.
“We perform like a global jazz band,” Schroer says. “We’re innovative and highly creative, and have the ability to morph on a moment’s notice to provide flawless delivery and measurable results. To this end, the left and right brains – the analytical and creative – are equally important. We’ve therefore brought together the very different cultures of our creative, IT and measurement people to give the team a new rhythm. Our internal profit centres have been collapsed into cost-to-serve centres, and performance is judged on cost and client satisfaction surveys. This gives clients a measurable guarantee.”
Consequently, clients are offered an integrated service as part of a single, coordinated account. And this defines the third element – the transformation of the company from an advertising agency into an integrated marketing services agency. It marks the shift to the ‘& agency’, a jazz band of aggregated skills that provides clients with compelling new ideas and rock solid execution.
Virgin Blue in Australia was one of the early converts to the concept. As chief commercial officer, Stefan Pichler believes, Carlson’s integrated service was a neat fit with Virgin’s philosophy to enter partnerships with specialist service providers. “We’re an airline, not a marketing services firm,” Pichler says.
Virgin Blue signed Carlson to run its entire Velocity loyalty program from its launch in December 2005. Carlson manages all the processes, loyalty software, database, call centre, warehouse and shop, and products and services provided by partners of the Velocity program.
The integrated service has produced a stunning result. In the second year of the program, Virgin Blue now has around a million loyalty members, which Pichler says makes it the most successful program of its kind introduced in Australia.
The underlying sums make the case for Schroer’s evangelism for integrated marketing services and one-to-one marketing. The mass advertising cost per thousand audience is 10 times what it was 20 years ago, but audience recall is only one-tenth. That means the average TV ad is only one-hundredth as effective as it was 20 years ago.
Meantime, the cost of direct marketing has come back from being prohibitive – in the order of $100 per individual for direct mail – to being incidental, for example a fraction of a cent for an email.
Despite the size and sophistication of the North American market, Schroer says the shift to interactive consumer connections is even more pronounced elsewhere in the world, particularly Australia because of its high take-up of technology, which has opened new channels of communication. He also credits Australian marketers with getting better at tailoring the market down to a segment of one.
For the global industry’s future, Schroer sees change as an insurmountable barrier to the bulk of the agencies. Their profit models are anchored to mass advertising, which makes it hard for them to recommend their clients move to something less profitable.
“An increasing proportion of the spend will go on two-way dialogue, while the people who stay in the old mass model will get spammed out,” says Schroer.