Connecting the dots to the future

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Connecting the dots to the future

• Presentation by Hamish Pringle, Director General,
  IPA
• Worldwide Partners Conference
• Costa Rica, 26th April 2007

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Contents four dots

• What is the future of advertising?
• What sort of agency will be needed?
• Where will new business come from?
• How will agency remuneration evolve?

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1. What is the future of advertising?
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A possible answer

• The Future of Advertising and Agencies
• Future Foundation modelling of media spend
• Three future scenarios (of many possible)
• A new segmentation of the media market

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Future Foundation modelling
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Future Foundation modelling
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Three future scenarios (of many possible)
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A new segmentation of the media market

• Display versus Classified
• One way versus Two way
• Named versus Not named
• Screen versus Non screen

With very different market shares, depending on
scenario
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2. What sort of agency will be needed?
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Overall need to deliver a coherent brand

• The word brand is a shorthand for the complex
  and evolving relationship between the
  organisation and its stakeholders

A brand is a promise from its maker that exists
in the customers mind
A promise that is reinforced, kept, undermined or
broken with every brand experience
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But 86 of Clients use multiple agencies
Source IPA/ISBA/MCCA/PRCA 2006
Lead Agency
All Agency
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47
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One Stop Shop
Dont know
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So three big pressures to re-integrate

• Client demand for integrated communications to
  build their brands most effectively
• Procurement demand for cost efficiency
• Digital media requiring creativity with technology

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And now brands need new kinds of twigs

• Brands are like birds nests
• Jeremy Bullmore

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New roles for agencies

• Network creators
• Data providers
• Data aggregators

• Media brand owners
• Joint venture partners
• Content collaborators
• Programme producers

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Future agency must have Magic and Logic
Published in London, 22 May 2006
www.magicandlogic.co.uk
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3. Where will new business come from?
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New business comes from discomfort zone
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Discomfort zone offers added value
Advertising Promotions Direct mail
Web 2.0 RSS CSR
Low spend Added value High margin
High spend Commodity Low margin
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But requires agency investment in RD

• Agencies should invest in developing expertise in
  areas with strong client need to know factor
• Enable them to answer the CEOs corridor
  question
• These new business projects will attract
  prospects
• and also help retain existing clients

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4. How will agency remuneration evolve?
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Recognition of a post-commission era
Source ANA Trends in Agency Compensation
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How agencies view procurement
Stage 1 Shock Stage 2 Resentment Stage
3 Shared learning Stage 4 Collaboration
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Current approach unsustainable
Personal bonus based on achieving cost reduction
of -20, per annum
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Waste is our mutual enemy
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Money wasted in pitch process

• Agencies spend 15k per pitch on outside costs on
  average, excluding equivalent fee income for time
  spent (Campaign, Aug 2004)
• 716 pitches x 4 agencies x 15,000 43 million
  so 32 million is wasted by losing agencies
• Worse, 50 of the winning agency work never runs

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Money wasted in briefing process

• Client and agency research conducted in
  developing The Client Brief guidelines revealed
  serious weaknesses in the current process
• We estimated about 13 billion worth of marcoms
  work is poorly briefed in to agencies annually
• Need to eliminate waste throughout the process

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Core principle agreed with ISBA and CIPS

• Profitable ideas (for agencies) that make a
  profit (for clients)

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Agency remuneration a new model
Inputs

• The resources needed
• Designated team
• Their daily rates
• Agency overhead

• The deliverables
• Strategies plans
• Insights and ideas
• Production media

• The ideas impact
• More customers
• Higher customer spend
• Increased market share

Resource package fee
IP licence fees
Payment by results
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What does good performance look like?

• Operating profit margin of 1520
• 35 agencies out of UK Top 50 did not achieve this
• Gross income per head of over 80,000
• 27 agencies out of UK Top 50 did not achieve this
• Employment costs gross income of 5055
• 34 agencies out of UK Top 50 did not achieve this
• Operating profit per head of over 10,000
• 28 out of UK Top 50 agencies did not achieve this

gtHalf top 50 agencies make lt adequate profits
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IPA argues for 20 margin

• To be able to recruit, retain and invest in top
  talent
• To be able to invest in new technologies
• To be able to invest in consumer and media
  research
• To provide creative continuity for clients
  brands
• To provide good returns to shareholders

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IPA Five Year Plan to achieve this objective

• To raise the real and perceived value of
  advertising and marketing communications
  agencies in the IPA membership
• (Through increased professionalism, leading to
  better work and better client agency
  relationships, and resulting in improved
  remuneration ).

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Our intended virtuous circle

City perceives marketings key role in building
intangible brand assets
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A good example PG Gillette

• PG recently paid 31 billion to acquire Gillette
• Gillettes balance sheet mentions tangible assets
  of about 4bn
• Therefore 27bn is attributable to intangibles
  such as brands (13bn), relationships and patents
• Brand Finance value Gillette brand at 4bn, with
  Duracell at 2.5bn, Oral B 2bn and Braun 1.5bn

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Proving agency ROMI is crucial
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O2 It only works if it all works

• BT Cellnet, was a troubled business being
  squeezed between Orange and Vodafone
• Transformed into O2 by Lambie-Nairn who invented
  the name and the bubbles in water motif
• VCCP developed identity into full marcoms idea

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O2 campaign
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O2 It only works if it all works

• The O2 campaign by VCCP won the IPA Effectiveness
  Awards Grand Prix in 2004
• 4,799m in incremental margin for O2 business
• VCCPs It only works if it all works campaign
  for O2 paid for itself 60 times over
• O2 sold to Spains Telefonica for 18bn in 2006a
  bonus for agency and client?

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4. Summary conclusions
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Summary four dots

• What is the future of advertising?
• Buoyant, but challenging new segmentation
• What sort of agency will be needed?
• More professional, more integrated, more
  accountable
• Where will new business come from?
• From need to know, added value, and creativity
• How will agency remuneration evolve?
• Profitable ideas that make a profit
• Rewards for Inputs, Outputs, and Outcomes

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QA

• www.ipa.co.uk
• www.ipaeffectivenessawards.co.uk
• www.adfact.org.uk
• www.magicandlogic.co.uk