By Michael Farmer
We're all familiar with "Plan B." It emerges out of the haze when Plan A has self-destructed for one of a thousand reasons. An unexpected snowstorm cancels our flight. We'll have to scrub a key meeting. Too bad. On to Plan B. If there is no Plan B, we'll have to improvise. We're usually unhappy with Plan B. It's a necessity, born of circumstance. We shrug our shoulders, wistful and disappointed. Oh, well. Plan A was so much better! But … it isn't happening.
So it is for ad agencies and holding companies today. Plan A is not working. Money and growth are drying up, and it's hard to recruit and retain talent. Something has fundamentally changed in the marketplace. Sigh. Do we work harder on Plan A or do we need a Plan B?
For agencies, Plan A was born during the heady media commission days, when TV advertising was new and the consumer economy was accelerating in top gear. Highly creative TV and print ads excited agency clients, who (encouraged by their agencies) spent vast sums on media, showcasing agency work. The better the creativity, the more clients spent on media and the better their brands performed. Creativity plus media spend generated positive results. Creativity plus media spend made agencies rich and successful.
Plan A for the holding companies was different. They acquired agencies that were commercially successful but poor at managing their operations. Agencies frittered away their high commission-based income. Agencies overinvested in headcounts, salaries and overheads. They underperformed in margin generation. They could be squeezed for better profit performance through holding company-imposed budgets.
These two Plan As were colossally successful for decades, through the '60s, '70s, '80s and '90s, but they fell on their face in the 2000s. Brand growth slowed, and no amount of Plan A creativity made the slightest dent in brand performance. Globalization, Millennials, e-commerce, procurement and fragmented digital/social media stopped Plan A success in its tracks.
Plan A cost-squeezing by the holding companies ran its course and surplus agency resources disappeared in 2005, leaving agencies with inadequate headcounts and underpaid resources to deal with their clients' complicated brand stagnation problems. Clients cut back on spend and invested in in-house agencies. Holding companies innovated with holding company relationships, but agency squeezing remained their primary strategy.
Plan A has played itself out for ad agencies and holding companies. Plan A strategies will not generate growth or positive returns in the future, and those agencies and holding companies that continue down Plan A pathways will pay a heavy price, indeed.
Oh, well. Time for Plan B.
Plan B must focus on restoring client brand growth. Lessons can be learned from the consulting firms, whose Plan As always involved 1) figuring out why clients underperform and 2) carrying out multifaceted action plans to correct the underperformance.
"Analytical creativity" served the consultants well. Agencies that poo-poo consultants for being uncreative need to take a harder look at the facts. Market success for the consultants has given them consistent growth over the past 30 years and the ability to pay handsome salaries and bonuses -- something that the cost-reduced Plan A agencies have not succeeded in doing. The consultants' acquisition of media and creative capabilities poses a genuine competitive threat, since these new skills are being added to their existing analytical and problem-solving skills.
Plan B for agencies requires a consulting-like makeover in thinking, purpose and skills. It will take strong CEO leadership to bring this about.
What about the holding companies? They cannot keep squeezing while their agencies rebuild along new lines. Holding companies need their own Plan Bs, and this should involve helping their agencies become Plan B successes. Holding companies could, for example, declare that the sole purpose of their agencies is to help clients improve brand performance. They could declare as a matter of policy that their agencies will be paid for all the work they do -- not for some guesstimate of how many FTEs the client is prepared to pay for.
Holding companies will have to re-educate their investors to lower expectations for near-term growth. It's a time to sell "rebuilding." It's also a time to mourn the end of Plan A. Mourning is appropriate -- the loss is real, and the glorious past should be remembered and celebrated. Life will go on in new and different ways … with Plan Bs instead of Plan As.
Plan A is dead. Long live Plan B!
Author: Michael Farmer is the author of Madison Avenue Manslaughter: an inside view of fee-cutting clients, profit-hungry owners and declining ad agencies, winner of four publishers’ awards for the best Marketing/ Advertising book of 2016 and 2017.