WPP's new chief executive has warned of a "fundamental" shift in the role of creative agencies because of clients' changing needs and laid out a number of examples of how the group is adapting.
Mark Read said turning around the fortunes of WPP's traditional creative networks, Ogilvy, JWT, Y&R and Grey, is a "business priority".
"They are the part of our business that is most under pressure as clients shift their budget away from ‘the traditional’ towards ‘the new’," he said, referring to digital advertising and marketing technology.
"I don’t want to blame clients. We need to have stronger creative agencies with stronger reputations that do better work and win share."
"My aspiration would not be to see our creative agencies decline forever. We need to return them to growth, as we do with the rest of the business."
However, he suggested that creative agencies will find it hard to have the lead position such as agency of record (AOR).
"The idea that creative agencies have an historic entitlement to the lead [role] – I don’t think it’s ever been the case, to be honest," he said.
"But I do think clients think about it in different ways today" in terms of what kind of agency should take the lead or be AOR, he said.
Read, the former global chief executive of Wunderman, gave multiple examples of where the role of WPP’s creative agencies has been reduced or is changing – in response to clients’ needs.
Read’s bearish view about the prospects for the creative networks was the dominant theme at his investor presentation when he gave a detailed view about the agency landscape, the merits of merging agencies, co-locating WPP agencies in the same building, putting staff on-site in client’s offices and the threats from in-housing and management consultants.
Investors quizzed Read on how much creative agencies are suffering
WPP said in its results that the creative agencies "remain difficult", particularly in north America, in contrast to the media agencies, which showed "significant improvement" in the first half of the year – an indication, perhaps, that questions over media-buying transparency are easing.
Analysts repeatedly quizzed Read and Paul Richardson, the group finance director, on-stage about the extent of this "polarisation" between creative and media in terms of financial performance.
WPP groups the two sets of agencies in one division, Advertising and Media Investment Management, which reported a 0.8% decline in net sales for the first half of the year, following a similar decline in 2017.
Richardson said: "There is a variation between [creative] networks and media [agencies]. It does vary by geography. It is really probably the most extreme in the geographies that are most challenged."
Read added: "It’s a bit more than +1, -1" – a reference to the difference in how media revenues were growing and creative revenues were declining.
Clients are shifting budgets away from traditional creative into other areas
Traditional, brand-led creative is becoming less important to some advertisers, which are thinking about the broader customer experience and adjacent areas such as e-commerce and customer relationship management, according to Read.
It means that brands are spending less on brand-led advertising such as TV.
"I don’t think it’s [just] a volume-pricing question," he said, explaining clients aren’t always thinking primarily about pressing down on agency margins.
"It’s a more fundamental question. Clients say, ‘I’m doing something for 10 [pounds or dollars], how can I do it for six? Because I’m going to spend 20% less on TV advertising and I’m going to do a third fewer ads, so therefore why wouldn’t I spend a third less money with you?’ – I think it’s [clients] thinking like that."
Read said WPP has been enjoying some success by changing the way it goes to market and cited the recent defence of Shell's global creative account.
"What’s interesting from the perspective of the creative pitch was the business was held at JWT where, let’s say, it was largely an advertising business," he said.
"We shifted the entry point from JWT, which was, say, a much more brand-led approach, to Wunderman, which is a much more customer experience-led approach.
"I think that resonated with the client and demonstrated how within the group we can give clients what they need in the future."
In another example of clients' focusing budgets on new areas, he said MediaCom had won Mars' global media account partly by drawing on other WPP agencies' knowledge of e-commerce platforms such as Amazon and Alibaba.
A fundamental reduction in the role of creative agencies?
Ogilvy, JWT, Y&R and Grey have competed fiercely with each other in the past but Read suggested that they need to be more willing to collaborate – another sign that the days of a creative network being the lead agency or agency of record may be numbered.
He explained how Unilever had pushed WPP to create a joint JWT-Ogilvy team to handle the work for its Sunlight brand in Africa.
"We put a network together across the continent of Africa that combined the strengths of both businesses, rather than, say, historically, have a JWT team and an Ogilvy team compete against each other and maybe we’d be successful, maybe we’d not be successful," Read said.
"The client said to us, correctly, that makes no sense. Let’s have one team work together and give them the best of WPP."
Campaign pressed Read about whether he thinks creative agencies are potentially seeing a fundamental reduction in their role given the Shell and Unilever examples.
"Yes and no," he said. "Creativity is critical to clients and ideas are critical to clients. Strong, creative agencies that have strong ideas will remain very important. But that’s not the only thing that clients are interested in, in the future.
"The idea that creative agencies have an historic entitlement to the lead [role] – I don’t think it’s ever been the case, to be honest. But I do think clients think about it in different ways today [in terms of what kind of agency should take the lead or be agency of record]."
WPP will merge more agencies, but not two creative networks or a creative and media network
WPP plans more internal agency mergers, after consolidating a number of subsidiaries in the last 18 months.
"We probably have too many companies and brands" and "we need to think about how we combine businesses", Read admitted, even though he said suggestions that WPP has 400 agency brands do not reflect how the company operates.
He said clients need WPP to be easier to navigate and he hinted that he could take inspiration from how he ran Wunderman.
"One of the reasons we were successful [at Wunderman] is we were able to show clients how we could do creative work but also bring in the technology that they need to build the platforms on which that work would sit and we didn’t get too confused about the brand names of all the people involved."
Asked about what mergers he was considering, he said: "I don’t know that it makes sense to combine two creative agencies with each other or two media agencies with each other."
He also said combining creative and media assets doesn’t make sense, pointing out that WPP’s media agencies, MediaCom, Mindshare, Wavemaker and Essence, "need to get closer, not further apart, because we need to share technology platforms, tools, trading [in parent company Group M] as well as having strong, independent media networks".
He said: "I prefer to think about the structure of the group, so the businesses that we have are positioned to grow and that may mean combining capabilities in different ways, so clients have access to the full range of services within a brand."
There is industry chatter about Wunderman absorbing JWT or VML tying up with Y&R, which could combine data-driven customer experience and creative capabilities.
Read said he would not comment on "speculation about any mergers of any entities".
Brian Wieser, the senior research analyst at Pivotal Research Group, said hypothetical tie-ups such as Wunderman-JWT or VML-Y&R are "great illustrations of the sort of combinations that you’d expect", Wieser said.
"Just because a name has been around 100 years, doesn’t necessarily mean it means anything any more," Wieser added.
He expects WPP will have "dozens" of agencies, rather than hundreds, in future. "They’re not going down a Publicis path where everything is branded Publicis," Weiser predicted on this week’s Campaign podcast recorded following WPP's results event.
Being agile and closer to clients and attracting millennial talent
Since Read took interim charge in April, he has stressed the importance of WPP’s agencies being more collaborative by co-locating in the same building and becoming more agile and closer to brands by placing staff "on-site" in clients' offices.
"Traditionally, some of our people have said, ‘I want to be based in the agency – how can I be sitting at a client?’" he admitted.
But agency staff working on-site is increasingly what clients want and Wunderman already does that with The & Partnership for News UK in London and for Best Buy in Minneapolis.
"Wunderman has just won a piece of business to put 15 people in an office in Chertsey [a town about 30 miles outside London] and is pitching something in Reading [another town outside London]," he said, explaining how Wunderman's on-site agency division, Wunderman Inside, is expanding.
Working in some of these locations is "not going to be quite as glamorous as Soho" in central London, but it requires a different mind-set – something that new entrants such as Accenture are happy to embrace and wouldn’t worry about, he said.
Read believes WPP and other agency groups face a threat from Accenture and other consulting giants entering marketing services, but he raised doubts about their motives and capabilities.
"Their agenda is to get their staff in there [a client's office] at three and a half times salary and they never leave. It’s ‘consulting/in-housing’ by stealth," he said.
In-housing – brands doing their marketing and advertising themselves – is a recent trend, but Read played down the risk to WPP.
"I don’t think clients are doing it because it's cheaper. I think clients are doing it because they think they can do it better. Time will tell whether or not that’s the case," he said, especially when it comes to digital media buying.
"I don’t know that a lot of clients are going to be that successful at running programmatic media businesses, dealing with technology stacks, integrating with dozens of different technology platforms.
"They’ll always be able to hire people to start that business but whether they’ll be able to provide that individual with a career path and development and that individual to be able to hire people [is less clear].
"If you think we have a hard time competing with Google and Facebook for talent, imagine you’re running another type of business that is a less attractive business than WPP."
Agencies continue to play an important role because "we add a lot of value to our clients", according to Read.
"We need to make WPP a destination for the best talent", particularly "millennial talent", by grouping agencies in more modern, contemporary offices such as Sea Containers in London and World Trade Center in New York, he said.
"If we look at the parts of the business that are not performing as well as we would like them to, talent is in many cases at the heart of it."