Creativity, not cost-cutting, emerges as agencies’ test

Another quarter of missed results, another iconic brand losing market share, another CXO dismissal — these headlines seem to be repeating too often in the last few quarters to be ignored.

The proven model of creative-led demand generation and growth seems to be struggling for many brands, especially post pandemic. There are fewer examples of the holy trinity of brands, their creative agencies and their media agencies delivering magic in the recent past. Over 60% of CMO’s, globally, report declining marketing ROI post pandemic, as per WARC 2023 report.

The evolution of marketing followed the eras of ‘impact’ in the 1980’s and 1990’s, the 2000’s. Back then effectiveness was the focus. The mantra in the 2010’s was about efficiency and ROI.

However, recently there is no clear model with brands struggling with media fragmentation and media attributability, that too with an increasingly elusive consumer. Where once mass-reach TV delivered scale reach and memorability, now fragmented media forces brands into difficult tradeoffs between reach and ROI.

At the surface we are in a golden era with tools and trends better than we ever imagined, yet the quiet erosion of the very foundations that built enduring Indian brands makes it increasingly difficult to put these very tools together to drive growths.

The traps we all saw and fell into

“All happy families are alike; each unhappy family is unhappy in its own way.” That’s a line from Leo Tolstoy’s Anna Karenina.

A lot needs to go right for the ‘holy trinity’ to work well in this era, but for the brands struggling, there seems to be multiple forces or a combination thereof at play.

Firstly, there is the archaic agency remuneration models that do not match outcome to effort and the direction of effort. Time based compensation models do not drive accountability whereas ‘should-cost’ models and race-to-the-bottom pitches for the lowest bid are harshly punitive and work against brands in the long term.

Outcome needs to closely correlate to compensation. The ISBA/ PwC 2020 Programmatic Supply Chain report quantified this loss of value; only 51% of advertiser spend reached publishers. This shows how value lost in the media supply chain discourages bold investment by brands.

AI, the biggest force in the last century, has also helped agencies disrupt or get disrupted. Those that have used it only as a shiny new toy have lost out on effectiveness whereas agencies that have used it for efficiency alone have seen their billings as well as creativity go down.

Meanwhile, consumers have evolved. We have all read and witnessed the limited attention spans in the younger generations in an era of infinite content and hence choked mental availability funnels.

The circle gets smaller

Agencies have reacted by micro targeting at precision, a paradox which focusses personalised messages at narrower and narrower audiences, who are most likely to convert instead of driving penetration among broader audiences. A 2022 Nielsen report found that only campaigns with broad targeting and strong creative delivered 2.6 X more ROI than narrowly targeted ones.

Fragmented media has challenged agencies to deliver consistent messaging, with messages taking the form and shape that best suits the channel. Among these, few channels deliver higher ROI.

While traditional media ROI has dropped well below $1, the channels with low reach are delivering ROI greater than $1.5 (on a smaller base). These are digital audio, retail media and gaming. This warped matrix of high reach channels delivering low ROI and low reach channels delivering high ROI has made it difficult to extract high double-digit growths.

From a brands perspective, this has made matters worse, as per ANA’s 2023 report highlighting how CFO’s increasingly co-own marketing efficiency discussions. CFOs are also entering the domain of CMO’s to extract efficiencies leading to tightened creative fees and media budgets in the absence of growths and total ROI.

As a further consequence, in the absence of a powerful new growth formula, market forces are forcing consolidation on agencies to squeeze out efficiencies and cost synergies. We see further consolidation within the ‘Big Six’ holding companies or the recent news of consolidation between them. 

What would I do if I had a magic wand

‘There are far, far better things ahead, than any we leave behind’, said C.S. Lewis.

Agencies will have to go back to what made them great in the first place—creativity. In the changing consumer X shopper X media X financial landscape, they will have to show that it is the creative idea that can cut through to consumers and generate demand to unlock growths.

To quote a top CCO, creative agencies need to get obsessed about the ‘creative business’ and not just ‘business’. They will have to move from just being an Agency-of-Record to platform integrators in service of growth, helping brands navigate and win in the complex tapestry of fragmented media and omnichannel options. Not getting lost in the trillions of data points but crystallising them to project one consistent and focused picture to consumers.

Lastly for agency talent, one definitive change the era of AI will make is that there will be no room for mediocrity. So, either master AI or get ousted by AI.

This is a great opportunity for agency talent to enhance their talent multifold and evolve from specialisation to becoming all-encompassing black belts in service of what makes brands grow.

Accenture Interactive has leapfrogged as a creative agency by encouraging talent with tech and creative capabilities.  On another dimension, Publicis’ Marcel AI platform leverages AI to enable efficiency by dynamic talent/ resource allocation while supporting creativity.

- Nikhil Rao, chief marketing officer, Mars Wrigley India