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An Uphill Battle for the Ad Agency Alternatives

Forrester Research surveyed both client-side marketers and advertising agencies to measure attitudes toward agency effectiveness. Agencies believe that they play a critical role in marketing success, but marketers now see things very differently.

On aggregate, agencies score a dismal Net Promoter rating of -21 percent. This negative rating is reflected in the market performance of advertising holding companies -- despite sales growth, their earnings per share lag behind the S&P 500 and profit margins are being squeezed.

Despite the poor Net Promoter rating, traditional Ad and PR agencies still wield a great degree of influence in the marketing organization. Although marketers claim they are unwilling to recommend agency services, few believe that alternatives exist. However, marketers clearly need help to reach customers who increasingly tune out their marketing communications.

Advertising agencies started as media placement brokers in the 19th century, and some attempted to evolve into strategic advisers during the 20th Century. That said, shifting patterns in media consumption, driven by technology, now expose major weaknesses in traditional agency skill sets.

Today, agencies must deliver technology -- in addition to creative -- expertise, and many traditional agencies struggle to adapt. In fact, according to the Forrester study, marketers view advertising agencies as the least competent among their service providers to deliver marketing technology.

In the midst of this technology-induced media shift, Forrester believes that marketers realize the legacy agencies have all the wrong things in common:

They lack skills in emerging channels -- Marketers aren't convinced that their agencies can formulate new media strategies, and agencies apparently aren't fully convinced themselves. Huge gaps exist between marketer and agency perceptions of ability to deal with changes in TV, Internet, and consumer generated media.

For some unfortunate firms, their Ad and PR agency blunders have resulted in public embarrassment -- including programs such as Wal-Mart's fake blogs, GM's Chevy Tahoe/Apprentice user-generated ads, and who can forget the "non-viral video" pitch for Subway.

They overstate their role in marketing success -- Almost all agencies (93 percent) believe their contributions drive their client's marketing success, while only 63 percent of marketers feel the same. Both points of view may be correct, but the difference lies in a matter of scope. Agencies must take a realistic perspective of their fractional role in the marketing process, while their clients must orchestrate a broader mix of internal and external inputs to drive sales.

They must be held more accountable for results -- Despite the fact that agencies wield influence over a majority of the marketing budget, a staggering 76 percent of marketers do not measure the return on investment (ROI) of their lead agency relationship. Without measurement, marketers cannot hope to manage and improve performance.

However, Forrester says that marketers must measure the ROI of all marketing investments, not just agency work. As one marketer admitted, "We are only now beginning to measure our return on programs we implement." Moreover, while CFOs are pressuring most corporate departments to squeeze out more costs, CMOs have agencies on retainer that aren't prepared to do the work at hand; but they keep paying them regardless.

Frankly, I believe that the musical-chairs game of "agency reviews" is at the heart of this perpetual fiasco -- apathetic marketers simply recycle the same old big-name agencies over and over, under the belief that no CMO was ever fired for choosing a legacy multinational agency.

On this backdrop, small cutting-edge agencies, talented consultants and independent creative contractors attempt to break through this status quo. Given that the procurement process is based upon subjective criteria, and little or no meaningful measure of performance, it's no wonder that changing the dysfunctional behavior is truly an uphill battle.

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