Industry Update Volume 26

Executive Summary – Monthly Recap:

This year’s ProcureCon Marketing event in New Orleans gave the opportunity for marketing procurement leaders to share their frustrations about the unpredictable state of the advertising industry, but also their hope to become more value-add contributors to the marketing organizations they serve. For too long, marketers have considered procurement professionals as “transactional” partners with little understanding of their everyday reality. Today, marketers are side by side with their procurement counterparts to drive value from their agency relationships, instead of simply relying on them to drive costs down or negotiate contracts. As evidenced by the topics covered at ProcureCon, many issues remain top of mind, ranging from the rise of consultancies in strategy/creative/media, the Facebook and Google disintermediation combined with the entry of Amazon, the debate about how much brands should move in-house vs. outsource, the financial pressure to move from retainer-based relationship to project based engagements, and more.
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Newsworthy reports and recent developments:

At AMS, we approach the agency management discipline as four distinct but complementary practice areas – Talent, Work, Financials, and Performance and Value— which is how we categorize the following developments:

TALENT: securing the right talent and resources

It’s quite impossible to discuss talent without acknowledging the impact of discussions about sexual harassment in our society, resulting from the Weinstein scandal and many others that followed in the entertainment industry, but also in advertising and pretty much every other category. The world of advertising is awakening to the leadership role it can and should play. The 3% Conference is gaining both visibility and momentum. Companies like HP and Verizon continue to foster diversity in their organization and the agencies they work with. Together, we can make a lasting difference.

• The sixth annual 3% Conference (referring to the low representation of women among creative directors) focused not just on gender inequality but on race as well this year, addressing a top-of-mind topic. Sessions included “manbassadors” discussing how male mentors can support and champion women. Some progress reported: for example, in the last 12 months, 30 percent of FCB’s jobs went to female directors.
• MDC Partners’ 72andSunny and WPP’s VML are the first agencies to become “certified” by the equality advocacy group “3%” for creating inclusive cultures in which both men and women can thrive.
• Automotive giant Ford is reevaluating its operating model with WPP’s dedicated unit GTB. Agencies Team Detroit, Blue Hive (the WPP units that serve Ford outside the US) and Retail First were folded under a single global identity called GTB (or Global Team Blue) to serve WPP’s largest global client, Ford. GTB, the largest of 48 WPP global client teams, has 49 offices. Ford recently tapped a non-WPP agency, Laundry Service, the Wasserman Media Group-owned shop and its content studio, Cycle, to handle social media for the Lincoln luxury brand.
• Bain Capital acquired 87% of Japan’s third-largest (after Dentsu, Inc. and Hakuhodo DY Holdings) ad agency, Asatsu-DK, through a tender offer. The new owner will work with ADK to invest in the expansion of the agency’s businesses in digital, data and content.
• New Virginia-based independent creative agency Arts & Letters Creative Co launched, the name representing the natural marriage of visual arts and literature. The agency has been working in partnership with Google Creative Lab on a range of projects and now counts Google as its first client.
• Digital agency DEG expanded its services in the ecommerce space by acquiring Moku Collective, a digital commerce consultancy and Salesforce Commerce Cloud partner.
• Los Angeles-based ad agency Idea Farmer launched a new content and commercial production house called Crop Circles. Prior, the production and content development the agency created for its clients was done in-house.
• Twitter is launching Promote Mode, a self-serve tool that allows advertisers to automate promoted tweets for $99 a month. The new offering is seeking to simplify the execution of ad campaigns for small businesses.
• The Marketing Group (TMG) launched a media agency, built on blockchain technology, promising advertisers 100% transparency and limiting upwards of 80% of erosion to media budgets that clients see across the media supply chain.
• Public relations powerhouse Edelman expanded its offering into paid media over the years. Its specialized unit, Edelman Digital Performance Marketing, now includes clients like Sears, Olive Garden, and Legacy.com.
• Dentsu Aegis Network bought a nearly 79% stake in CRM agency Oxyma Group to strengthen Merkle’s offering in the Europe, Middle East, and Africa region. Oxyma will become part of Dentsu’s Merkle operation and will be rebranded Oxyma, A Merkle Company.
• Havas US launched a brand consultancy called Triptk. The new agency includes researchers, strategists, futurists, and other specialists, and will focus on trend insights and consumer, cultural, and category market intelligence.

Noteworthy quotes:

• “In today’s fickle market, legacy creative agencies are akin to dinosaurs: lumbering giants fighting over clients’ shrinking budgets while slowly making that all-important pivot to digital.”—Patrick Coffee, senior editor, Adweek
• “I observe that small brands that have one decisionmaker are far better able to integrate communications disciplines, assuming they have access to the resources to invest in. The biggest marketers [have resources], but they can’t integrate. Smaller brands can integrate but they don’t have the resources. Somewhere in the middle of that is the opportunity for a PR agency to do more than just PR.”—Brian Wieser, senior analyst, Pivotal Research
• “The talent gap is real, and the gap is understandable as a long-term outcome of agency-advertiser working relationships that are less than desirable. Agencies need to up their game and help clients improve brand performance; advertisers need to treat agencies with respect and engage them seriously as long-term partners to deal with brand problems.”—Michael Farmer, Chairman, Farmer & Company
• “The opportunity [is] for agencies of all sizes to become guardians of clients’ budgets against fraud and inefficiencies by mastering all the science behind ad tech; programmatic, content syndication, social, etc. By taking the side of transparency, agencies have an opening to reclaim their role as trusted advisors.”—Judy Shapiro, CEO and founder, engageSimply

WORK: producing great work and outcomes

To get better work from agencies, clients must provide better briefs. This universal, ageless principle has never been timelier as advertisers move at light speed. That’s the conclusion of the newly released ANA whitepaper, “Better Creative Briefs,” which provides guidance for developing briefs and optimizing the briefing process to address previous alarming study results: 58% of clients believed they provided clear assignment briefings to the agency, while only 27% of the agencies agreed. Follow best practices, provide training, and implement automated solutions to gain adoption and support internally. Video continues to gain much momentum among advertisers. Check out the column by APR about 4K.

• Per the ANA whitepaper, “Better Creative Briefs“: 1) Great briefs inspire, 2) Great briefs are the result of a collaborative effort, 3) Great briefs are written by senior-level people, 4) Great briefs are brief, 5) Great briefs are clear, but not prescriptive, 6) Great briefs are profoundly human and avoid marketing jargon.
• Emotional connection. Per new research by IBM iX, six drivers contribute to the emotional connections between the brand and consumer: trustworthy excitement, compelling relationships, empathic innovation, everyday enrichment, empowered community, and activated purpose. According to the study, when a consumer feels that a brand belongs in their life, that brand can grow revenue at three times the rate of brands that perform less well in a six-year period.
• Europe’s General Data Protection Regulation (or GDPR), which goes into effect May 25, will require publishers to obtain explicit consent for the ways they use consumers’ data. The new regulation applies to anyone who does business in Europe as well as European companies. Failure to comply will result in a fine by the EU of 4% of overall annual revenue or $25 million, whichever is greater.
• Brand saturation. Per IBM iX’s study, the average consumer is exposed to 10,000 brand messages daily; attention spans have dropped to eight seconds, from 12 seconds in the past 15 years; and consumers switch between screens up to 21 times per hour.
• PepsiCo’s Mountain Dew’s 360-degree video campaign promoting an innovative virtual reality game achieved a 22% click-through rate and more than 100,000 views. The video trailer ran across ad platform Immersv’s network of publishers that either sold 360-degree inventory or had a VR app.
• The new FB Messenger Platform 2.2 now includes a customer chat plugin to enable businesses to interact with customers on both business web pages and Messenger.
• Per study by ID Comms, 41% of advertisers say they’re using media technology “ineffectively” or “completely ineffectively.” Only 15% believe they are using media technology effectively.
• In an attempt to catch up with Facebook and Google, Amazon is testing an application programming interface (API) aimed at brands, enabling a broader set of marketers to participate on the platform.
• The #HolidayIsHappening initiative will analyze all holiday-related Tweets via social listening agency Brandwatch to compile real-time insights into holiday shopping behaviors. Insights will include the most talked about gifts, top Tweeted emojis, and most-mentioned hashtags, spanning various categories, such as gadgets and toys, etc.

Noteworthy quotes:

• “I strongly believe in co-creation. Good work comes from an outstanding collaboration between the agency and marketer. At the end of the day, you want your work to be memorable, and if that merits rewarding, that’s icing on the cake.”—Nuno Teles, CMO, Heineken USA
• “Put together, agencies that enable transformative success for their clients through purpose will open a floodgate into consultancy solutioning for themselves and the agencies that follow.”—Kimberly Gossard, Marketing and Brand Strategist, Mirum
• “The value of video may be higher to consumers than advertisers but it’s clear that advertisers who make platform specific assets for relevant products will be most likely to succeed.”—Rob Norman, chief digital officer, GroupM
• “It’s much easier to make brave decisions if you have the right information. But it’s very stupid to make brave decisions without data.”—Andrew Clarke, Chief Marketing Officer, Mars

FINANCIALS: driving efficient use of resources

Projections for ad spending are flat. Few CMOs expect major budget increases this year, unless it’s in digital. Expect to see more budget cuts and more scrutiny across spend categories in 2018. Doing more with less is the motto. Advertisers will continue to look at martech and technology to reduce waste and operationalize every aspect of marketing. There is no shortage of ways to do this.

• Forrester predicts that ad spend will be flat in 2018, leading to a “painful correction in the agency and adtech markets.” The report suggests that CMOs will shift spend from traditional ad channels and invest in martech to deliver individualized experiences at scale, and decode digital platform algorithms, among other things.
• Per Gartner, only 15% of CMOs expect major increases in their budgets next year, while 52% predict a slight boost, and 33% expect them to stay the same or be reduced. 67% of CMOs intend to up their digital advertising spend.
• Per Adobe, the 2017 holiday shopping season will produce $13.9 billion in online revenue, growing 19.8% year-over-year. Revenue from smartphones rose to 24% of purchases—up 40% YoY.
• Per the IAB Data Center of Excellence and the Data & Marketing Association, US companies will spend $10.05 billion on third-party audience data this year, and $10.13 billion on solutions to support its activation (hosting and management, data integration, processing and hygiene, analytics, modeling, and segmentation).
• Facebook is growing strong. The company’s third-quarter ad revenue reached $10.1 billion, up 49% with mobile ads accounting for 88% of total ad revenue. The platform’s daily active users hit an average of 1.37 billion in September, a 16% year-over-year increase. Marketing costs for Facebook rose 29% to $1.2 billion during the same period.
• Per Publicis Groupe Zenith’s latest report, Programmatic Marketing Forecasts, two-thirds of the world’s digital display advertising (67%) will be traded programmatically by 2019, or $84.9 billion.
• WPP reported the continued rise of digital search and social platforms, which now accounts for 75% of digital advertising and 30 percent of total advertising for the holding company.
• Holding company financial results:
  • Dentsu: Dentsu reported a revenue gain, but a drop in profit for the first nine months of the year. Revenue was up 11.7% ($5.8 billion). Earnings before interest, taxes, depreciation, and amortization fell 7.3% for the period or $942 million. For the third quarter, organic growth fell 2.1% overall.
  • Havas: Havas reported consolidated group revenue essentially flat with $1.9 billion for the first nine months of the year, with a revenue drop of 2% for third quarter or $618 million, citing exchange rate fluctuations as a key reason for the decline. For the first nine months, the firm remains in negative territory at -0.3%.

Noteworthy quotes:

• “You can’t cut your way to prosperity. At some point you’re going to have to invest … otherwise you get a downward spiral in terms of volumes getting lower and lower.”—Martin Sorrell, CEO of WPP
• “The “holy grail”: “A compensation-beyond-fee arrangement based on the success of your idea.”—Harris Diamond, Chairman and CEO, McCann Worldgroup
• “We’ve talked about the incentivized/performance-based model for years and years. Most often, the agencies don’t come up with metrics to make it worthwhile and clients find it hard to manage a cash flow if it’s incentive-based compensation.”—Ken Robinson, partner at Ark Advisors
• “Too many clients cut into the bone and don’t realize that they get what they pay for. If you’ve been cutting fees the last three or four years, it will directly correlate to the level of talent on the business and the level of satisfaction you have with the work from the agency.”—Jackson Jeyanayagam, CMO, Boxed
• “While it’s hard to say that the pace at which like-for-like fees are compressing has increased, in the wake of the K2 transparency report, clients have generally tightened up contract language to have the effect of eliminating some of the ways in which agencies generated some of their revenues over the past decade.”—Brian Wieser, analyst, Pivotal
• “CMOs claim they don’t know how to budget for an agreement, the cost of which could not be accurately predicted. My own answer was: Set your budget on the assumption of success. If we don’t deliver the results, then you’ve got extra money at the end of the year, so you’ll look good either way.”—Keith Reinhard, worldwide chairman emeritus, DDB

PERFORMANCE: driving stronger performance and value from the partnership

If we can’t improve what we can’t measure, it’s no surprise that advertisers are focusing on putting in place better metrics and analytical capabilities to better stretch their limited budgets. Advertisers also invest in up-leveling their agency evaluation programs to assess and often reward for top performance, but also to allow for timely course corrections. They are evaluating their agencies several times throughout the year, and tailor their evaluation to address the different agency types.

• Per a WFA study, 96% of brand advertisers have a formal agency evaluation program in place, and the majority feel that those help build and maintain strong client-agency relationships. 30% of CMOs are now directly involved in providing input on agency performance.
• Per a Cision®/PRWeek global survey, 75% of PR/communication executives believe aligning metrics to the bottom line is the biggest challenge when measuring communications. 69% don’t feel that they have enough data and analytics to properly attribute how their earned media programs impact the bottom line, and 71% don’t feel they are fully capitalizing on all the benefits of technology and data.
• Snapchat released a tracking tool called Snap Pixel, which enables brand advertisers and agencies to track how the app drives website visits, sign-ups and purchases. It also launched a new ad unit called Audience Filters, which can be purchased via its self-serve platform, Audience Manager.
• MediaPost’s agency of the year winners include the following: Havas Media Group (media), Big Spaceship (Digital), Dentsu Aegis Network (holding company), The Media Kitchen (social), Merkle (search), R/GA (mobile), MullenLowe Mediahub (creative).
• The International Andy Awards revamped the way it’s giving prizes, eliminating categories as a whole—all 75-plus of them—to celebrate the best creative ideas and simplify entries. Similarly, Ascential, parent of The Cannes Festival of Creativity, is restructuring its Lions awards program, eliminating more than 100 subcategories including Cyber Lions, Integrated Lions, and Promo Lions. A new entry cap means that each piece of work can only be entered into a maximum of six separate contests.
• Research firm Forrester published its Search Marketing Agencies Wave report, listing 12 top search agencies based on 25 factors to evaluate search marketing agencies like acronym, Catalyst, Forward3D, iCrossing, Mirum, neo@Ogilvy, Rise Interactive, and Wpromote. Performics, Merkle, 360i, and iProspect led the list.
• Per the CMO Council, 63% of consumers respond better to ads when they’re on trusted media sites as opposed to on social media, but 48% would consider boycotting brands that advertise next to content they deem objectionable.

Noteworthy quotes:

• “[There’s] a sigh of relief from the CEO or CMO when they hear that we’re willing to share their risk. We want to do great work, but we’re no longer walking in with a preconceived notion of what’s right.”—Stephen Goldblatt, founder, Partners in Crime
• A “results-based” agreement is better than a “performance-based” agreement because the latter allows the client to make subjective judgements at the end of the year about aspects of agency performance that have nothing to do with results. “They took two days to answer my phone call” could drag an agency evaluation down from a score of five to a score of four and allow the client to pay a lesser bonus. Whereas an agreed upon result that’s achieved is hard to argue.”—Keith Reinhard, worldwide chairman emeritus, DDB
• “People were laughing at the beginning and some of our competitors were looking at us and saying, ‘Oh it’s a small thing.’ Now they are all considering that the idea of the Power of One is a great disruption in the industry. That being one company and eliminating the holding company level is something that is sensible to best serve our clients.”—Maurice Lévy, chairman of the supervisory board, Publicis Groupe
• “It’s not Facebook and Google; it’s not consulting; it’s the distortion caused by low interest rates” which has led to low growth, low inflation and limited pricing power.”—Martin Sorrell, CEO of WPP
• “We kind of chased the dream of endless supply of websites and places to advertise. What we found is yes, you can buy anywhere, and you can get it really cheap. And you get what you pay for.”—Marc Pritchard, Chief Brand Officer, P&G
• “Awards are very important to me, not because of the prestige, but because over my career I’ve seen that marketing that is creatively special cuts through with consumers. This helps brands stand out and ultimately sell more. Winning awards helps build the confidence of both the brand and agency teams. A confident team thinks big while others play it safe.”—Greg Lyons, CMO, PepsiCo North America Beverages

AGENCY REVIEWS AND ROSTER CHANGES

According to the latest data by our partner and research firm COMvergence:
Based on Q1-Q3 2017 data:

• The US dominates the media pitch activity in Q1-Q3 2017 both in terms of spend volume ($6.1bn) and number of account moves assessed (70). US-only pitches/moves represent 73% of the total spend reviewed
• The average retention rate (across the 21 countries) has increased vs. Q1 and Q2 reaching 22%
• Clear dominance of local pitches – representing 71% ($10,3bn) of the total spend reviewed across the 21 countries
• Ongoing major pitches to be completed in 2017: Global/regional: Bose, Campbell Soup, EDF, Jaguar Land Rover, Marriott, McDonald’s, Lego, among others. US: Adobe, Subway, United Healthcare , among others
• MDC Partners’ Anomaly and independent agency Droga5 were tops in new US account wins for the first nine months of the year. Both shops recorded five wins among 80 major brands that shifted agencies during the period.
• Major concluded global and regional pitches in Q1-Q3 2017 (total media spend reviewed: $5.3B):

Note: Results from the AB-InBev ($1,2bn), Amazon ($900m) and Deutsche Telekom ($450m) pitches were publicly announced in October/November – and therefore have not been included here.

• Major ongoing global & regional media pitches (total of $3B):

Disclaimer: The reviews listed often capture larger review activity reported in the industry trade press, which we understand to be only a subset of total review activity. Specialist reviews (digital, social, PR, etc.) are rarely reported in the trade press. Also, due to the increasing number of project reviews (versus AOR/retainer reviews), many of those are not receiving media attention and therefore are not included here.

• Cruise company Carnival hired Los Angeles-based independent agency Omelet as its creative AOR for the Carnival-owned brand Princess Cruises, following a review. The agency will handle integrated marketing and digital efforts. Omnicom Group’s Goodby Silverstein & Partners, its prior creative AOR, stopped working with the brand earlier this year.
• Telecom giant T-Mobile selected independent agency Mother to handle its US brand creative, following a review. Publicis Seattle will keep its agency of record status from the past decade and will continue to handle retail.
• Dean Foods (brands include DairyPure, TruMoo, Caribou Iced Coffee, Uncle Matt’s Organic, Mayfield, Dean’s Country Fresh, and Steve’s ice cream) hired Kirshenbaum Bond Senecal + Partners (KBS), part of MDC Partners as its new AOR following a review, replacing incumbent Curiosity Advertising.
• Kellogg selected TracyLocke to handle its shopper and promotional marketing AOR duties, following a review.
• Women’s retailer Chico’s named The&Partnership its creative and media agency of record after a review. Media agency m/SIX, the full-service media agency within The&Partnership and backed by GroupM, will lead media planning and buying.
• L. Gore and Associates selected WPP AKQA to handle its branding and advertising work for its patented Gore-Tex product worldwide. The agency will work across b2c and b2b channels to promote the waterproof product line.
• IHOP Restaurants (aka International House of Pancakes) selected New York-based Droga5 as its new creative agency of record, replacing incumbent IPG shop Campbell Ewald. The new agency will lead creative strategy and execution for the all-day breakfast QSR chain, including TV and radio initiatives.
• Car riding giant Uber selected MDC Partners’ 72andSunny as its global creative agency. The North America business that Deutsch won last summer, following a review, is not expected to change.
• Fast food giant McDonald’s consolidated its customer relationship management assignment with Omnicom’s RAPP, following a review. The agency is expected to embed staff within the McDonald’s US AOR We Are Unlimited, the team built by Omnicom to serve the brand.
• Financial management software Intuit selected two Omnicom agencies to handle creative and media duties for its QuickBooks business unit, following a review: TBWA\Chiat\Day Los Angeles as creative global agency of record and sibling media agency Hearts & Science US as media agency of record.
• Store chain Ulta Beauty named IPG McCann New York and MullenLowe Mediahub as its creative and media agencies of record, following a review, replacing MullenLowe North Carolina, which held the creative and media duties since 2014.
• Japan’s largest airline, All Nippon Airways selected Y&R New York as its first US agency of record without a review. The assignment expands the brand’s relationship with WPP – WPP PR consultancy Hill+Knowlton handles US public relations.
• Microsoft Office named IPG’s sponsorship and experiential agency Advantage its partnership marketing agency. Both parties worked together previously.
• Telecom giant Deutsche Telekom announced a revamp of its media marketing strategy by bringing its media strategy—in-house to ensure media-neutral strategy and team collaboration between its various agencies. WPP GroupM will handle campaign planning and buying services. Other agencies include Mindshare, MediaCom, and Wavemaker.
• Technology giant Cisco selected San Francisco-based independent media agency DWA for global media duties, following a review, replacing incumbent Omnicom’s OMD. The agency has extensive experience in b2b technology marketing.
• Luxury auto maker Fiat Chrysler’s Maserati selected Accenture Interactive to deliver the brand’s customer experience across its digital channels. The agency will be responsible for digital brand strategy, digital advertising and content production, campaign management, and analytics services. The brand will also work with Accenture Interactive sibling creative agency Karmarama for advertising and content development. Accenture Interactive already works with Fiat Chrysler on smaller-scale projects.
• Hilton Worldwide selected TBWA as its global creative AOR following a review. Incumbent London-based Fold7 is expected to stay on the agency roster in some capacity. The agency will focus on the company’s “enterprise” creative, including the Hilton master brand that sits over Hilton’s 14 sub-brands and Hilton Honors loyalty program. The brand will continue to work on specific brand creative with GSD&M, HZDG, and The Martin Agency.
• Toy giantThe Lego Group selected IPG Mediabrands-owned Initiative as its global media agency, following a review, replacing US incumbent since 2004 Publicis Media’s Starcom. The decision was based on the agency’s digital-first approach, international reach, and strong local insights. Initiative will collaborate with sibling agency R/GA which will handle shopper marketing.
• Opel/Vauxhall selected GroupM’s MediaCom as its media AOR for Europe, replacing Dentsu Aegis Network’s Carat. The decision further consolidates Groupe PSA brands with MediaCom, which was awarded the auto company’s Peugeot, Citroen, and DS Automobiles business.
• Stonefire Authentic Flatbreads, part of FGF Brands, hired Cincinnati-based Curiosity Advertising as its agency of record. The agency will handle all creative and strategic development, as well as media buying and planning for the brand.
• Videogame publisher Take-Two Interactive hired Butler, Shine, Stern & Partners (BSSP) as the new AOR for the basketball-centric videogame franchise and its NBA 2K account, following a review, replacing incumbent MDC Partners’ CP+B LA. The agency will handle television, digital content, partnerships, and point-of-sale for both the console and mobile versions of the game.
• Athletic shoe and sports gear company Adidas kicked off a global media agency review. Dentsu Aegis’s Carat is the incumbent in the US.
• MetLife selected GroupM’s MediaCom as its new media agency of record, following a review, replacing incumbent agencies MEC and Merkle. The agency will handle all of MetLife’s business lines in the US.
• Procter & Gamble selected CHI & Partners to handle creative ad duties for laundry product brand Lenor across Europe, replacing incumbent Grey London.

Disclaimer: The AMS Monthly Industry Update is a summary and analysis of newsworthy agency/client developments picked up in recent trade related publications and news media.
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A summary of newsworthy client/agency relationship developments and relevant marketing or agency management trends from the past month. Download a print-friendly version here.