3 Challenges Creative Agencies Must Confront, Thanks to the Rise of Consulting Firms

The digital marketing consultant has arrived, and agency creatives are feeling the heat. Backed by years of strategic expertise, deep technical resources and existing client relationships, consulting firms are encroaching on the digital space once dominated by agencies. In fact, four consultancies cracked Ad Age’s 2017 top 10 largest ad agencies list.

Meanwhile, digital ad spending is on the rise – predicted to hit $305 billion in 2019 up from $230 billion this year, according to eMarketer. With all that spending up for grabs, it raises an important question: How can creative agencies compete with large, tech-driven professional services companies like Accenture, Deloitte and EY?

What’s causing the disruption?

The emergence of new technologies and client demands for more flexible service models have left agencies feeling like the ground is shifting beneath their feet, to the benefit of consulting firms.

In many ways, the crisis boils down to three challenges. To compete, creative agencies must address these challenges and develop new strategies that enable them to capture a larger share of the marketplace.

A fragmented agency business model

The creative agency business model is fragmenting like never before. Large agencies are merging and acquiring other agencies to form multiple branches housed under a single umbrella, with each branch maintaining its own identity. Boutique agencies, on the other hand, are going deep into their own specialties. They may not be able to assist across industry practice areas, but they are focused on becoming experts within their own verticals. Meanwhile, consulting firms are swooping in with strategic expertise and pre-existing client relationships, offering one-stop shops which threaten creative agencies.

Solution: Build more agency partnerships

Agencies must unlock offerings by forming stronger strategic partnerships. The challenge will be achieving mutually beneficial results that make these partnerships worthwhile for all member agencies. However, creative agencies’ specializations and expertise are most valuable when they are complemented and supported by other agencies’ capabilities and offerings.

The rise of the new client relationship model

As the agency business fragments, the retainer model may not be the most logical engagement structure for working with clients. Although retainers aren’t obsolete, clients don’t always require long-term partnerships with their agencies, sometimes only needing access to their creative skills and abilities on a project basis. Clients prefer to be strategic about when to pay for specific agencies’ skills, and the retainer model just won’t hold up in these scenarios.

Solution: Think outside the retainer model (when appropriate)

Understand that there are circumstances in which the retainer model is appropriate – it’s just not for all scenarios. Many marketing departments still require long-term partnerships with their agencies and prefer that their agencies are always on call for strategic knowledge. In those cases, retainers are beneficial, but agencies should be open to customizing the service model to suit the needs of the client.

Increasing Technical Demands

The sheer number of digital media channels has ballooned in recent years. Agencies are feeling the pressure to maintain expertise on every new channel, including the rise of podcasts, VR, and new social media channels. Besides mastering the ins and outs of each channel, agencies are also under the gun to generate creative and innovative work that is measurable and capable of driving leads.

Solution: Make investment in tech talent a priority

While agency partnerships can also be a helpful resource for improving technological proficiency, the plain truth is that agencies must present themselves as an attractive option to top tech talent within the job market – especially if they want to compete with consulting firms’ deep pockets for tech talent and resources. This is particularly true for creative agencies hoping to specialize in emerging digital channels. However, advertising agencies have seen a 25 percent net talent loss compared with competitive industries in recent years, suggesting talent is actively on its way out of the industry. The need for better retention strategies is clear.

For now, creative agencies are operating in the shadow of consulting firms. By shifting their views and practices on agency partnerships, retainer model and tech recruitment, agencies can improve their chances of staying competitive – and staying top-of-mind for clients.

Patric Palm

CEO & Co-Founder at Favro
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