Is the agency market over-supplied?
From most of the industry chatter and the ever-prevalent aggressive buying practices, we would be perhaps forgiven for thinking this is a stupid question. But is the agency market really oversupplied? Like a bursting sandwich spilling fillings everywhere, are there simply too many agencies in the agency-market sandwich?
The question matters for two reasons: if you’re buying agency services as if it is over supplied – but it isn’t - you could be losing critical value from the marketing services you procure. Value that could greatly influence your total MROI. If you’re buying agency services as if the agency market isn’t oversupplied but it is, you could compromise value by not getting the best available to you.
So, here’s some food for thought, in the form of a four-course meal, that might make us a little more cautious if we think it’s a buyers’ market for marketing services.
For starters – the explosions of choice
Yes, there are a lot of agencies these days, a lot more than there might have been at the beginning of some of our careers, there are certainly many more than at the beginning of mine. But since I started in advertising there have been three seismic changes. First, media explosion of formats, platforms, and channels – which has led to agency specialisation and therefore – more agencies.
Second – digital, data and the web – with more marketing tools at brands’ disposal than ever before it has led to yet more specialisation and – yep – more agencies.
And third, brand extensions, brand platforms and non-complete clauses. Many brands have extended beyond their core product – supermarkets are also banks and phone providers, retailers offer credit cards, and the high streets have been duplicated and then some by online brands – and with non-compete clauses in most agency contracts, the agency market has had to fragment further. Whereas it used to be a question of the top-ten agencies, for a long time such rankings have mattered little to many brands.
So, yes, there are a lot of agencies out there, but does that mean the market is over-supplied?
The soup course – there’s little evidence of other symptoms
But if this plethora of agencies meant the market was oversupplied, would we not see the normal indicators of oversupplied markets? Yes, margins have come down from the heady days of yester-year when the Saatchi brothers wanted to buy Midland Bank, but many agencies are making reasonable money and staying in business, and rightly so. However, we’re not seeing lots of agencies shut up shop and cease trading. Mergers and acquisitions aren’t running particularly high. In fact, over the last few years, we’ve seen a number of agencies successfully launch and overcome those scary fledgling days pretty quickly. Even during the twilight days of the current government.
The main course – are we really spoilt for choice?
And, if we were to assume the agency market is oversupplied, why would we need pitches? And why would brands need the help of intermediary companies like mine to help them identify the best agencies available to them?
The answer is that most tasks agencies undertake for their clients require them to solve problems that have unlimited possible solutions. Brand strategy, communication strategy, channel selection and mix, and of course creative ideas. And the optimal solutions for such problems relies on talent. And the talent is a collection of individuals which are dispersed unevenly, with subjectivity and selectivity across the base of agencies in which they can work. So, unless all the talent is equally gifted, all agencies will not be equalled endowed with talent and the value they can provide.
The job of a brand (or the intermediary it employs) is to skilfully identify which agency has the best match of talent to the brand’s tasks. Some tasks are easier than others, therefore some pitches might seem easier to run than others, but that does not mean that the market is oversupplied – it just means that not every brand has a big hairy problem that needs to be solved. But many brands have such large hairy problems, and they need to best available talent to solve them.
When it comes down to the end of the pitch process that has been run well, it might well be that it is difficult for brands to choose between the final three agencies. If an intermediary has done a good job that certainly would be the case -- after all one of the primary purposes of a pitch is to mitigate risk in sourcing a new agency; having a difficult choice to make between three agencies certainly does that. But I haven’t yet found a client who has been unable to express and justify a preference and make a choice. So, I still don’t believe that it means the market is over-supplied.
Cheese – is it a deliberate illusion?
The final thought I’d like to leave in this debate of sorts (I fear it is a little one-sided), is this: one of the bluntest instruments in the buyer’s toolbox is to make the seller believe that the buyer is spoilt for choice. In fact, it’s procurement strategy in many instances to try to convince important, strategic suppliers that the supplier doesn’t have the power they think they might have for exactly that reason. But if it reduces the price, where’s the harm?
The harm is the danger of buying less for less. Marketing is an investment. If you reduce your investment and want to same return you must be prepared to increase your risk. The problem is that marketers don’t enjoy the benefit of an alternative history with which to compare what they have with what they could have had. If the marketing investment is reduced by going to a cheaper agency it’s possible – or even likely – that they could solve the same problem, just less well. If the cheaper agency has less gifted talent or if they field their b team the brand has paid less, but got less. But that’s not an oversupplied market, that’s buying less for less.
Desert – help is at hand
Other than buyers protesting that the agency market is over-supplied, I haven’t seen any evidence of it. Caveat emptor still applies. If you have argument or evidence to the contrary, I’d be genuinely interested to hear it.
And I know I only promised four courses, but for any brands that might want help navigating running a pitch for value, contact me for a free consultation.
Founder, The HTBAG Company