Much discussion has occurred on the outlook for agencies since we last wrote about the changing economic headwinds. It’s time to revisit the topic and layer on some additional considerations, with a focus on what agencies should be doing now.
First, let’s be clear that the overall mood is not one of panic. While there have been several well-publicized cases of agency layoffs, most agencies have been able to avoid them. Likewise, while some brands are pulling back spending, others have indicated they do not plan to cut marketing budgets significantly and will shift them instead. We are also not seeing a significant pause in opportunities for our client partners.
“Pessimism” was frequently invoked in media coverage of the recent IPA Bellwether Q2 2022 report, but that was a term put forth by the study itself (the other option(s) being “optimistic” and presumably a midway choice between the two). “Pessimistic” may not have been a term the respondents would have chosen to use otherwise and doesn’t seem reflective of the mood we’re seeing. “Cautious,” “anxious,” and even “proactive” are better representations.
Even with the decline in pitches, industry insiders are remarking on the cyclical nature of new business and expecting things to improve before long.
“Markets are cyclical and there will eventually be a surge of new-business activity, so the agencies that have an agile end-to-end business development strategy and have used the time to strengthen client relationships, agency reputation and nurture talent will be the ones who will ultimately come out on top and have less to worry about.”
Tobi Asare, Business development director, OMD UK (in Campaign)
The real concerns for agencies right now:
- What are the smartest moves to make?
- Where are the best opportunities?
- What should we avoid doing?
Here’s a round-up of what we’ve seen and heard:
- Lean into current client relationships. Your easiest and best opportunities right now will come via organic growth and client retention. Tighten up on communication and client engagement, and keep bringing clients new ideas and solutions—if you don’t, someone else will!
“Havas’ recent client/agency barometer revealed a significant satisfaction gap – with about half of respondents saying agencies overpromise and underdeliver and highlighting a disconnect between what they need and what agencies offer. Is it any surprise they’re not calling pitches? The bottom line is we need to get better at partnering our clients and adapting to their evolving needs…”
Tracey Barber, Global chief marketing officer, Havas Creative Group (in Campaign)
- Stay on top of clients and prospects that are undergoing layoffs. In-house agency resources may be among the first cut at many organizations, which means marketing needs may quickly change, potentially creating new opportunities. The same goes for companies that can't retain their in-house marketing talent, which has been an ongoing challenge for both client and agency employers.
- Approach your workforce investments like brands should marketing: don’t take your pedal off the gas in a downturn. This is particularly important now, as the World Federation of Advertisers (WFA) just reported agencies are facing their “worst-ever crisis” in recruitment (via The Drum). Talent challenges impact client-agency relationships, ability to execute client campaigns, agency growth, and bandwidth to tackle new business opportunities. To retain clients now and position for future success, agencies should continue to invest in areas like employee training, management, salaries (which should be rising for inflation), work-life balance, purpose, and ongoing DE&I initiatives.
- Mike Kapetanovic, founder of GrowthLab, suggests agencies explore opportunities in the public sector—not just federal (which, he points out, collectively spends over $2B a year on marketing communications services), but also local and state governments, which can be easier to break into.
- Consider M&A opportunities. Kapetanovic also suggests considering whether it makes sense to combine your agency's resources with a rival—or sell to a PE firm. You might even consider selling your agency to its employees. Archer Malmo, a Memphis-based independent agency, recently made headlines for doing just that.
- Identify industry sectors and categories less affected by the downturn and adjust your new business strategy accordingly. For example, Propeller’s Jody Osman writes that tech companies are increasing digital display spend and that value retailers will benefit as consumer spending decreases. There may also be new opportunities with comparison websites that help customers locate deals. Previously, the latest IPA Bellwether Report identified travel, entertainment, and hospitality as areas of opportunity.
- Offer recession-proof services. When ad spend contracts, services that offer structural growth still provide value. Campaign’s Gideon Spanier says that includes “digital transformation, CX retail media, connected TV, gaming, and pharmaceutical marketing.” Even the most resistant companies have leaned into digital transformation since the pandemic, and it continues to be in demand. According to Propeller's Osman, digital transformation has been prioritized because "CX is vital for differentiation and can help avoid competing solely on price."
- Don’t lower your prices. If asked to cut your rate, find a way to reduce expected deliverables or services accordingly. Once you agree to do more for less and reduce your prices, it will be nearly impossible to raise them again with the same client.
- Focus on demonstrating value. Center the value you bring to clients rather than X number of hours or deliverables for a set price. You need proof of results and meaningful metrics to shift the conversation to value.
- Be proactive about offering flexible, fluid solutions for clients. In this environment, brands want the freedom to pivot quickly and don’t want to be locked into longer commitments, particularly those lacking options. For example, “set it and forget it” digital, social, and programmatic media plans aren’t practical now.
- Embrace project work. With pitch opportunities on the wane, expect to find more fruitful relationships via projects. This is not a negative development. Firstly, reduced pitching opportunities offer a much-needed respite for agency teams that have been stretched too thin for new business demands. The reduction in pitches may well reflect marketers’ heightened sensitivity to that. Secondly, pitches are costly for agencies. Every agency should be aware of the true costs and time to profitability when taking that path to pursue business. Comparatively, project-based work with growth potential is a great way for agencies to start client relationships and show what they can do.
- Diversify your new business paths. When it comes to investing, diversification is a must. So too, should agencies invest in multiple opportunity streams. That might include referrals, personal connections, invited pitches, partnership or network relationships, and agency marketing (such as PR, thought leadership, and inbound leads). It should also include targeted outreach to generate leads. Though typically a longer play, ongoing new business outreach can help you maintain a full pipeline, invest in future opportunities, and enable you to opt out of business you don't want.
What else is working for you right now? If you’d like to share an idea, let us know in the comments. In the meantime, stay proactive and keep in mind that this too will pass.
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Image credits: Photo by Greg Rakozy on Unsplash; Photo by Artem Beliaikin on Unsplash