Below is the text of my recent talk to the Institute of Advertising Practitioners in Ireland (IAPI) - pdf version here.
Future Consumers, Future Agencies: a marriage made in heaven…or hell?
The Big Divorce
I’m afraid you’ve been sold this morning’s event under false pretenses. You see, I’m not here to talk about ‘marriage’: I’m here to talk about divorce. To paraphrase David Ogilvy: ‘the consumer isn’t a moron, she’s your ex-wife’!
If the Sixties witnessed the whirlwind romance between marketing and consumers, the Nineties and early Noughties were the honeymoon period. But, alas, the honeymoon has ended and so, with the onset of The Great Recession in recent years, we are witnessing the trial separation. Will it end in divorce? Or will the ‘marriage counsellors’ (that’s you, by the way) help re-kindle the embers of romance before it’s too late?
We shall see.
But before I get to your future role as marriage counsellors, let me step back to take a look at the bigger picture. We cannot talk about the future of advertising agencies without talking about the future of marketing. And we cannot talk about the future of marketing without talking about the future consumer. So let’s start there, and see where our journey takes us.
The Future Consumer
This year Irish consumers will spend about €81 billion. About the same as they spent back in 2005. But it doesn’t feel like 2005, does it? What has changed? Quite a lot and not very little, it would seem. The big changes are obvious: back in 2005 just 40% of adults used the Internet in Ireland – today it’s 80%. That’s a big change – and Facebook and smart phones are growing at an even faster pace. But what hasn’t changed? In a word: debt. Back in 2005 Irish consumer loans stood at about €105 billion, today they stand at… about €105 billion. Unfortunately the unemployment rate has tripled in the meantime and house prices have collapsed. Remember, wealth is an opinion but debt is a fact.
Not surprisingly, Amárach’s monthly tracking survey shows that ‘paying down debts’ is the number one financial priority of Irish consumers. That’s one reason why it doesn’t feel like 2005. But back to the future: what can we discern from the Irish consumer zeitgeist in 2012 that will guide us in 2013 and beyond? Let me share just three of the things we see at Amárach:
The Collapse of Trust
We live in an age of radical transparency. The web now means that every brand is being evaluated 24/7 by consumers around the world. The collapse of trust experienced across the world - whether trust in politicians, banks, churches or even brands - now presents one of the biggest challenges for businesses and their agencies. Though it helps if you don’t make a disastrous situation even worse (Ulster Bank please note)…
Today there is nowhere to hide for product and service brands - their reputation requires honesty and transparency as never before. Moreover, brand claims are subject to constant evaluation - the consumer’s motto is ‘trust but verify’. The fact is: brands are ‘always on’, even if their branding activity isn’t.
Broken trust creates barriers. Hence the emerging ‘privacy backlash’ that we see in our focus groups and survey findings: to put it frankly, a growing number of consumers feel that marketing is becoming ‘creepy’. Witness the furore over Orbitz using behavioural targeting to present dearer hotel options to Mac users than to PC users, as they found through browser tracking that the former were willing to pay more for their accommodation!1 Expect a growing interest in the ‘do not track’ feature on web browsers over the coming months.
The Intention Economy
But the search for a new privacy – as an antidote to distrust – is only in its early stages. You’ll all have heard of Customer Relationship Management: CRM. But look what’s coming next: we are witnessing the emergence of ‘vendor relationship management’ or VRM. Literally the consumer taking control of their relationships with brands, rather than the other way round. Doc Searls calls this The Intention Economy2. He argues that we are slowly evolving from the Attention Economy (the world of advertising and marketing that we all grew up with) to that of the Intention Economy - a world in which consumers both individually and collectively employ agents to get the best deals on their behalf, whilst protecting their anonymity until the deal is done.
You can see this happening in the UK already. There, the British Government is working with companies3 to enable consumers to take their individual customer information held by utilities, banks and supermarkets and to share it with competitors in order to get better deals. The initiative is called Midata4, and it heralds a new era in which consumers are empowered to control their interaction with brands, including the sharing of data, in a radically new way. Furthermore, new data protection initiatives in Europe (including the ‘Right to be Forgotten’5) will further strengthen the VRM trend. To put it another way, your ex-wife has found a new lover…
One final thought to share with you on the Future Consumer is about the long run impact of The Great Recession (which, alas, has some way to go yet). The bottom line is that there’s no going back: consumers in those economies that have experienced economic uncertainty in recent years will have a different set of values when recession gives way to recovery. Already there is evidence of a resurgence of family values, partly in response to the shrinking ‘circle of trust’, and also because debt-burdened governments are not in a position to meet all the needs of debt-burdened consumers.
The challenge for brands will be to align themselves with emerging values: those that do might even get back inside the circle.
Furthermore, consumers are not only older but wiser as well - they are more mature and therefore even after the recession they’ll be harder to sell to. They are also less likely to be blindly loyal to brands - they are more confident shopping around, and asserting their preferences for better service and keener prices. This is one reason why so many retailers have become nothing but showrooms for price savvy consumers, who use their smartphones to check out the online price of the store item they want to buy.
It isn’t just older consumers who have become recession-savvy. Amárach’s recent study of 3,000 young, Irish mothers with eumom6 shows that mums are using social media and smartphones to help one another make purchase decisions. Peer-to-peer marketing has gone digital, and brands haven’t been invited.
The Future of Marketing
What, then, about the future of marketing? In a nutshell: there isn’t one. At least, not as we currently understand marketing. But that’s alright, even if the transition to something better will take time and push us well beyond our comfort zones along the way. Let me share with you some of the key drivers shaping the future of marketing, for your clients and therefore for all of us acting as their agencies:
The End of Growth
This is my fourth recession since I started my business, but it’s different to the others. And not just for me. Economists are talking about ‘The Great Stagnation7’ - the failure of modern, Western economies to generate sustainable growth in productivity and living standards in recent years – or even decades (other than through the artificial growth afforded by debt).
Marketing is about growth, whether top line growth or market share growth. But what if the developed world is ‘ex-growth’? What role for marketing then? Marketing has had a bad recession. It is the CFOs who now hold sway on the client side. That’s normal enough – the accountants always manage the recession. It is the job of marketing to manage the recovery, assuming there is one.
But marketing can’t wait for recovery, and nor can their agencies. Indeed, it seems to me that the most important task of marketing should be to find the next source of growth - by identifying, stimulating and serving new demands for products, services and brands. This isn’t just about invention and innovation - stimulation and persuasion are just as important. Remember: Apple was a follower in mp3 players, tablets, and mobile phones - it just did the design and marketing, i.e.: persuasion & stimulation much better than everyone else.
Chief Revenue Officer
Just as we’re getting used to the C-Suite of acronyms now populating our clients’ upper echelons – from CFO to CMO to CIO – along comes another one: the CRO. That’s the Chief Revenue Officer to you and me. It sounds like a very important job and it is. A growing number of companies are replacing their sales and marketing function heads with CROs. But it’s usually the sales guy who gets the job. Worse still, marketing doesn’t sit at the top table any more - and the shift towards short term sales is accelerating the decline.
Indeed, CMOs and brand managers enjoy even shorter tenures in the face of revenue pressures and missed sales targets. The explosion of new media in the meantime means that the old rules and formulae for marketing success with traditional media don’t work anymore. But the new rules and formulae for marketing success have yet to be written. Furthermore, marketing traditionally has been a discipline focused on the long term - building brands that enhance customer lifetime value - but the dominance of short term thinking undermines branding strategy. The result: a further decline in marketing’s credibility.
The good news from all of this is that the traditional demarcation between Sales and Marketing is breaking down. The old model of the ‘sales funnel’ – with marketing creating awareness and interest at the wide end and sales converting prospects to sales at the narrow end – is out-of-date. In a world of ‘always on’ branding, the sales funnel has been replaced by the ‘customer cycle’. The job of marketing is to manage the customer relationship from before the sale to after the sale in order to maximise repeat business and cross-selling potential. At least it should be: but the prioritising of recruitment over retention (and sales over marketing) works against the long-term potential of the customer cycle.
There’s another problem with seeking to enhance long-term customer value: it’s risky. A lot can go wrong in the short-term. So sales this quarter inevitably trump customer value next year and the year after. Perhaps the most obvious manifestation of this risk-aversion is the dearth of creativity: one of the biggest frustrations for the agencies I work with is getting clients to commit to genuinely creative strategies.
Sure, some clients are open to breakthrough, ‘brilliant’ creative strategies - and will somehow find the budget. But sadly many others are content with ‘good enough’ advertising: happy not to fail and to get the next promotion when it comes around. Moreover, marketing success isn’t rewarded like it was before in terms of recognition and promotion within client companies (no CMOs at the boardroom table and all that) – so yet another reason to play it safe.
And yet when brands are failing to invest in their marketing, there is an emerging risk that brand heritage will be lost as traditional brands fail to gain traction with younger generations. Of course, connecting with younger consumers has never been easier - social, mobile, search etc - but marketers are still struggling to find the right combination of messages, media and creativity to build sustainable brand relations.
And the fact that online and digital is transparent and measurable can sometimes create even greater pressure to ‘show me the money’ when it comes to return on marketing investment. Or to spend small amounts in case you ‘get found out’.
Despite all these changes, it is important to recognise that the job of marketing hasn’t gone away: being the voice of the customer, defining target markets, enhancing lifetime customer value, and bridging the sales/marketing spectrum remain vital tasks. However we are going back to the way it used to be: remember, marketing didn’t exist 100 years ago. Sales and marketing were the responsibilities of the same people in businesses back then. We are witnessing an unprecedented breakdown of silos within organisations as they re-structure themselves around ‘Big Data’, CRM and social media in order to respond to the changes and challenges now under way. The job of the Chief Revenue Officer, working with her team and agencies, should be to ensure that all the resources of the company are aligned and focused on enhancing the value of the customer cycle in the short, medium and long term. And if not with her current agencies then with the right ones…
Given all the changes we are witnessing in terms of the consumer and the client, what does all this mean for the Future Agency? As someone who works in an agency myself, it’s fair to say that I have some sense of what you are going through – I feel your pain!
But let me pick out just some of the main drivers for the future of advertising agencies:
Not surprisingly, the Purchasing or Procurement Department is now the main influence on client/agency relations - and rarely for the better (for the client or the agency). As I see it, client/agency relations have been weakened by the insistence of Purchasing on a fairly crude, utilitarian relationship driven by one-dimensional calculations of time and costs. As a result, purchasing practices are leading to a commoditisation of marketing communications services, exacerbating the short term thinking and behaviour of marketers on the client side. Indeed, I am told that some purchasing departments are even influencing media choices and scheduling in order to keep an even tighter rein on marketing budgets. Commoditisation is the biggest threat to most marketing service agencies right now: and it isn’t helped by the number of agencies doing some work for free!
But just as it couldn’t get worse, some clients are responding to cost pressures by creating their own ‘internal agencies’ - for design, advertising etc, encouraging a ‘DIY approach’. You can see this in market research as well: the success of Surveymonkey, for instance (though you know what they say about paying peanuts :). But this trend is unlikely to go the whole hog – getting rid of agencies entirely. The reality is that one of the greatest benefits of working with agencies is that separation creates friction - and friction creates innovation. In other words, there’s less risk of group think…
The pressures of purchasing departments on the traditional ‘mark-up’ model of profit margins means that agencies must work differently. Some have responded by outsourcing media buying, planning and even creativity, e.g.: to organisations like 99Designs8 and CrowdSpring9 to name but a few. Some agencies have even become virtual – such as Victors & Spoils10 – though most have avoided the fatal extreme of becoming Amazon Mechanical Turks11: a ‘match-making’ service that reduces jobs to their component tasks and then finds the lowest bidder for each task.
Still others may respond to the downward pressure on margins by the purchasing department by ceasing to be agencies altogether. Or at least by investing in their own ideas and innovations to capture more of the value for themselves, ‘renting out’ proprietary platforms and solutions to multiple customers, and not just one client.
The fact is that it has never been easier or cheaper to start-up a tech or other business thanks to the web, to mobile and to social media. Nor has the size of the prize been bigger – just look at Instagram. Some agencies are now leveraging their innate skills in creativity and imagination to identify real opportunities for profitable innovation and entrepreneurship. Think of it as taking ‘trendspotting’ to the next level - becoming ‘trendvestors’.
Here’s just one example, a company called Quirky12 - they crowdsource new product ideas, test and develop them, then pitch them to client companies to manufacture/licence and sell. Some agencies I know are already developing software based solutions that they have invested in and are now selling to existing and new clients - or even getting clients themselves to become investors. Open innovation and all that.
And if you want a tip: take a look at The Intention Economy and the world of VRM now opening up. And if you do become the next Instagram then just remember the little people who helped you along the way…!
The Right Stuff
But we can’t all be ‘trendvestors’ or ‘mindventure’ capitalists. Clients still need agencies who can manage and deliver the process beginning with analysis, then insight, then strategy and finally creative that is at the heart of effective marketing communications planning and execution.
Someone once said that the job of marketing is to ‘decorate reality’. That takes artistic flourish and real ambition on the part of agencies. It also requires a willingness to take risks on the part of clients. But how to convince Procurement?
The ideal solution is to make room for creative experimentation. Instead of the old style approach which entailed:
Think something different > Do something different > Get different results
Marketers and their agencies need to switch to an approach which is more like:
Do something different > Get different results > Think something different
It’s about careful experimentation at the margins – not betting the entire shop all at once – and learning quickly from the results. That way marketers and agencies will learn more about what works and what doesn’t work (or not yet) as they seek to identify the new rules of the game. Indeed, such a switch can be achieved by applying the 70/20/10 investment principle to creativity:
* 70% of the marketing budget should go on ‘proven’ strategies & tactics
* 20% should innovate off what usually works, and
* 10% should go on high-risk ideas that will be tomorrow’s 70% or 20%
There is no doubt that some agencies will continue to succeed through excellence - by simply being the best at a particular, vital task or service that even the purchasing departments know they have to buy. Others will succeed by clearly demonstrating the return on investment they continuously secure for their clients - using compelling, transparent measurement (delivered by really good market research agencies, ahem!) to reassure the client that the strategy is working… and so is the agency. And still others will become ‘trendvestors’ – breaking with the agency/client model entirely. Though whichever path is taken, agencies will need to acquire new skills to meet the evolving needs of clients: hiring so-called ‘T-shaped people’, i.e.: people with broad commercial awareness and deep knowledge of a particular discipline. They’re not that easy to find unfortunately, even in a Great Recession.
So back to the consumer: your ‘ex-wife’ in my earlier analogy. What are the prospects for reconciliation? I would say they are good, though only on her terms. The recession has combined with the social and mobile revolution to change the terms of engagement between marketing and consumers forever. There’s no going back to the way things were.
We all know that. We’re just trying to figure out what it means for the future. I hope that the ideas and insights I have shared with you this morning will inspire you along the path to future success, and to a successful reconciliation between your clients and their customers – with you getting the proper kudos as marriage counsellor extraordinaire! Thank you.
7 See: http://www.economist.com/blogs/freeexchange/2011/01/growth_2