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Is the Traditional Ad Agency Model Obsolete?

MediaPost reports that a recent study by the Winterberry Group finds that the traditional marketing model is changing fast. Technological advances have ushered in a proliferation of channels that has diminished the impact of tried-and-true platforms such as television and print.

At the center of this industrial transformation, the role of the ad agency has been "challenged." Once considered core to the marketing effort (and a trusted counselor to executive decision makers), the ad agency has seen its portfolio of responsibilities fundamentally altered; first, by the advent of non-traditional channels, then by the emergence of nimble "specialty" players, including media-specific competitors, interactive shops, management consultants and media buying agencies.

The Winterberry Group conducted an extensive series of interviews with over 70 senior executives at leading ad agencies across the nation. The panel includes representatives from "full-service" agencies, shops providing specialty services, those serving the needs of niche markets, and select marketing services professionals from outside the "agency world," as well as marketers in the corporate and not-for-profit sectors, private consultants and other parties with extensive marketing industry knowledge.

Consumers, reports the study, weaned on the power of the Internet and weary of intrusive media bombardment, expect that relevant product information will be available at their fingertips. Marketers, meanwhile, are confronting new rules of customer engagement as well as enhanced ROI demands from the C-suite, resulting in the ascendance of "below-the-line" promotional channels once thought of as supplementary to the primary branding effort.

Anthony J. Hopp, chairman of the Association of American Advertising Agencies, is quoted as saying "The agencies that will succeed are the ones... that can find the new ways to engage and connect with consumers. If you're not doing that, you're not going to be in business."

I commend Mr. Hopp for his bold statement. However, since most traditional ad agencies have been unable to evolve beyond their legacy business model of generating most revenue from mass-media advertising related purchases -- and market segmentation clearly isn't their forte -- does this mean that we should anticipate continued agency consolidation?

Furthermore, even the non-traditional ad agencies are apparently puzzled about how to react when they encounter new Internet trends like the viral video phenomenon. The attempt to pitch the Subway restaurant chain with a video they posted on YouTube is probably just the first of many misguided ad agency experiments.

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