Agency of the Future: Does It Even Exist (Yet)?

A friend of mine, we’ll give him the fictional first name of Hal, writes this deceptively simple query [and let me quote his intro because it was so flattering that I, oh-so-briefly, thought I might have the answer]:

Dear Andrew:

“You are so “well traveled” in this advertising industry and so wise, I thought to write this request of you. The world is changing around us inexorably. The advertising you and I have grown up on is diminishing, becoming eclipsed by the digital revolution which to me is really “the revenge of direct marketing”. Much more one-to-one communication than mass communication. Real and actual dialogue between companies and their consumers. Consumers are getting the upper hand. Companies HAVE to be completely transparent, or risk “getting pantsed” by their not-so-loyal consumers in a scathing blog. Mobile device media placements. Social networking…..

You know the rest. You know it all. I don’t have to beat this [dead] horse. But I have a simple request: Who do you think is “there” or ahead of us? Who should we study, model ourselves against? What agencies are leading the charge?

Regards, Hal

---------

Dear Hal:

After giving this question a great deal of thought--well at least an hour's worth--I discover that I have only glimmers of a new day aborning to offer. First there is no perfect agency of the future--just as there wasn't five years ago, when I wrote the reasonably perceptive, modest little book, “Casting for Big Ideas.”

One issue you have to address is how well do you want to “speak digital” without losing your leadership in traditional advertising, something Robert Greenberg of R/GA diminishes as “old line story telling?” If you really wanted to become thoroughly literate in digital, then you would have to remake your agency to go up against the likes of AKQA, AvenueA/Razorfish, Tribal DDB and Digitas. And as my favorite Irish Catholic priest would say, even on a good day they would kick the bejesus out of you.

So I'd be careful about following this path. So far the only mainline agency of size to take this route is Crispin. If you're a client and you give them an assignment, you can be sure that they're going to come back with a multi-layered, multimedia idea, that probably will start on the Web and finish in traditional as an afterthought.

A second line you could pursue is as a hybrid, as I believe Goodby, Wieden, TBWA, and to a lesser extent Martin, Mullen and Lowe/ New York are doing today. Hybrids have the ability to come up with “story-driven” ideas that live in traditional media as easily as they can come up with innovative, Web-based campaigns. And clients are comfortable paying full fare for their ideas and work--at the same time they may hire a digital agency to carry through on the digital part of the campaign--to assure they are getting the best of both worlds.

Then there are many agencies which really haven't made the adjustment to digital -- and are still swimming happily in the old world--because more often than not they are paired with strong digital players, and don't want to tread on another agencies “turf.” In fact, in many pitches these kind of agencies--which for the purposes of this blog will remain nameless--are invited to pitch paired with “their little brother” [translation: digital agency] in a joint effort, where the big, networked, old-line agency will be responsible for integrating all the work across all platforms.

In other words, Hal, if you were really to break with your profitable past and totally remake your agency, you would be one of the first to do so successfully.

A decade ago, I would have thought that one or two of the new “hot” boutiques in New York-Anomaly, Strawberry Frog, Taxi, 72andSunny, would have made this leap. But they didn't, really. Like I say, Crispin is the closest example we have of a successful big, medium-sized agency which is truly media-neutral. If there is another I don't know of it.

Signed,

Baffled

Brand Loyalty – A mile wide, an inch deep.

The news for brand managers was not good. A study by the CMO Council. which represents chief marketing officers, and Catalina Marketing’s Pointer Media Network, found that by this year more than half of a typical U.S. brand’s most loyal shoppers in 2007 had switched brands.

Based on a study of 685 grocery- and pharmacy-stocked brands, using data from 32 million consumers’ supermarket loyalty cards, found that in 2008 the average brand lost about a third of its highly loyal customers.

Of course every recession pressures consumers to start looking for deals. If for no other reason than the credit card and bank cards that fuel their purchases changed the rules and either raised interest or required maintenance of higher balances. Meanwhile, many people lost their jobs or felt threatened with loss of a job, and that along with media hype about the recession, caused consumers to cower in fear.

But still the loss is serious, because many of those customers will never return. “Defection is top of mind for brand managers,” says Eric Anderson, associate professor of marketing at the Kellogg School of Management at Northwestern University in Chicago.

At the same time, Brand Keys, a research consulting firm, found that there were still plenty of brands which were able to recruit and hold loyal customers, providing that the brands didn’t change their message or value to core customers and they delivered or over-delivered on their brand promise.

The 2009 winners of Brand Keys annual Customer Loyalty Engagement Index included Jet Blue and Southwest Airlines, which tied in the airline category; Nike in Athletic Footwear; Toyota in Automotive; Sam Adams in Beer; Cheerios in adult Cereal and Frosted Flakes in kids’ Cereal; Allstate in Car Insurance; Olive Garden in Casual Dining; J. Crew in Clothing Catalogues and Retail Apparel Stores; Dunkin’ Donuts in Coffee; Apple in Computers; Canon in Digital SLR Cameras; Samsung in DVD players, HDTV (Plasma and LCD); ABC in Evening News; BP in Gasoline; W in Luxury Hotels; and Embassy Suites in Upscale Hotels/Motels; Tide in Laundry Detergent; Verizon in Long Distance Carriers; Konica Minolta in Office Copiers; Amazon.com in Online Books & Music; FedEx in Parcel Delivery; Domino’s in Pizza; McDonald’s in Quick Serve Restaurants; Avis in Rental Cars; Walmart in Discount Retail Stores; Best Buy in Electronic Stores; Staples in Office Supply; True Value in Home Improvement; Google in Search Engines; Pepsi in Soft Drinks and Diet Pepsi in Diet Drinks; Grey Goose in Vodka, iPhone and Samsung, tied for Wireless Handsets; and Verizon Wireless in Wireless Phone Service.

Looking over that list there are not too many surprises. For all that Starbucks has tried to do to put back an emphasis on experience and reward into a cup of coffee, Dunkin’ Donuts still holds sway, having been able to serve the same quality cup of joe for half the price.

United, American and Delta have tried to improve the service they provide for their still overpriced cost of travel, but, in the end, Jet Blue and Southwest beat them on price and service.

GEICO has sold itself well on providing a price break for car insurance, but Allstate still has given you the feeling that they’re going to give you better service for the price, especially when something awful happens and you suddenly need help.

Cheerios, Pepsi, McDonald’s and FedEx—these are American brand icons which have been careful to continue to maintain the quality of their service or product while supporting the brand with consistent communications.

What’s interesting is that Jet Blue is still in the money. The airline two years ago received a lot of bad publicity when its passengers were trapped in Jet Blue planes for hours at several Northeast airports due to a snowstorm . The incident cost founder David Neeleman his job as CEO. But the airlne apologized for the unusual service lapse, embraced a new passenger Bill of Rights that involved giving free tickets to passengers who were inconvenienced and took measures to improve operations.

It reportedly cost Jet Blue $30 millionl. But the cost was relatively small if as the current survey shows the airline was able to save its good name.

"Don't Wait. The Time will Never Be Just Right."--Napoleon Hill

One of my hobbies is to follow firms which are making a killing in a down market. Fortune in its Aug. 31 issue has done the heavy lifting. So let me focus on a couple of companies that seem to be making a joyful noise in these terrible times.

First up, Research in Motion [RIM], makers of the Blackberry. There seems to be no denying this great player, whose earnings per share grew at an annual rate averaged over the last three years of 84% with actual revenue for the past four quarters of $11 billion, making it No. 1 in Fortune’s Top 100 rankings. This is a tremendous achievement and shows what can happen when a leader decides to build on its existing franchise, to the point that it even outdistanced Apple, which had only 46% EPS growth over the last three years, with revenue in last four quarters of $33.6 billion. This despite the fact that in that period Apple introduced different versions of the iPod, upgraded its computer offerings and improved the iPhone (which had sales of 5.2 million in the quarter ending June 30).

After telephony, my attention turned to media which is in such a state right now that it wasn’t even represented in the top 100. The closest contenders from media’s sister tracks were first Dreamworks which because of its distribution deal with Walt Disney came in at 63, followed by Marvel Entertainment, creators of Spider-Man and the X-men, which managed to rank 64.

Retail, as you might imagine, took a pounding. There were only two apparel manufacturers listed: Deckers Outdoor the shoe company that makes those super-warm UGG boots topped out at 35 followed by Guess, the global retailer that is having such success in Europe, at 36.

In the fast food category, two chains made the rankings: Buffalo Wild Wings a sports-themed restaurant chain, at 82, and Chipolte Mexican Grill, which features 100% naturally raised chicken and had EPS (earnings- per-share) growth over three years of 40%, at 83.

Garmin, maker of portable navigation devices, many of them installed by car-makers at the factory, saw earnings grow 36% and was ranked 84. The company sold just under 17 million units last year, a 38% increase over 2007. So they are a brand to watch.

Many of the top 100 are technology and engineering companies you probably never heard of. But many are companies, which with improved marketing could do even better.

We don’t know what most of these brands are spending—but we know most of them [and I’m not including Apple here] are spending a lot less than they should.

For instance, according to the Brandweek 2009 Directory, Chipolte Mexican Grill only spent $5 million in measured media in 2008—most of it through its lead agency, DeVito Verde. By contrast, Buffalo Wild Wings, based in Minneapolis, spent a respectable $20 million through agency 22quared, Inc. in Atlanta.

UGGs isn’t even on the Brandweek radar yet, so it’s hard to know what they’re spending on advertising and marketing, if anything.

On the other hand, Garmin, with offices in Olathe, Kansas and Georgetown in the Cayman Islands, which has been a favorite of mine for several years, spent $51 million in measured media in 2008, all of it through Fallon in Minneapolis. Obviously they sense the opportunity to drive revenue by increasing consumer demand for their interesting product line of dash mounted GPS locators, and, through intelligent marketing, they are supporting the decision of some automakers to install their products at the factory.

Another brand I have recommended that agencies follow is Green Mountain Coffee Roasters, and I’m delighted to report they came in at 11 in the rankings—with revenue growth of 51%. Their coffees are sold in single-cup servings that require an investment in Keurig-like coffee brewers. But they’ve discovered that not only convenience stores like to stock their coffees—people want them in their homes. But they are not allocating enough dollars to marketing. According to Brandweek, in 2008 they spent only $36,000 [through Brandbuzz, an agency that specializes in word-of-mouth]. Obviously this is an exploding brand that needs to drive sales in the next three years by dedicating more dollars toward more traditional marketing.

Anyway I encourage you to get a copy of Fortune or download their rankings from the Web. Because these fast-growing, smaller brands are the kind of companies that ad agencies and marketing service companies should nurture early in their trajectory.

Business development people are always asking me what tomorrow’s hot brands will be. It’s interesting that few of them realize the answers have already been published for all of us to know and act on. So read this list and get going. These brands are hungry for smart marketing help.

Proof, if any was needed, that 50 years after Woodstock we live in a very different, not-so-Mad, Mad, Mad world.

There has been a lot of wingeing recently about the way the world of advertising is changing. And perhaps it’s evolving even faster than we imagined. Several disparate proofs of this have crossed my desk in the last week:

Consider a report from the Gartner Group predicting that mobile ad spending (worldwide) will grow 74% this year to just under $1 billion and then in 2011 will take off and by 2013 will pass $13 billion.

Can you imagine the trajectory of such a medium? The line on the graph is pointed almost to the vertical.

What is going on to drive velocity-fueled usage? The number of hours people spend on their handhelds is increasing because the new smartphones allow you to do so much: make and receive phone calls, receive and send email, download music and short videos, book a restaurant, check the news, Twitter a friend, check the stockmarket and your Facebook page, surf the Internet and on and on. There are already 50,000 apps for my iPhone. I’m going to need an app just to decide what apps I want.

But in order for this forecast to be realized three things need to happen.

First, the per month usage cost of a smartphone or iPhone needs to come down from just under $100 to an affordable $50 or so a month.

Second, Internet browsers like Yahoo!, Google, Microsoft and AOL need to incorporate new ad formats into their content or open up new templates, that allow people to access ads when they want to without interrupting tasks like Web access and GPS positioning-related activities.

Third, ads either have to deliver a service or product or be so entertaining they rank up there with the best of YouTube.

Meanwhile, the business model for TV, magazines, radio and outdoor will continue to self-destruct and constrict as less and less ad dollars are available to support content—or the content will have to get better, as is happening with the stories in my Economist and New Yorker, to justify a higher sub price for the consumer.

 Old media will be able to find a place in the digital world for some of its content. So Sports Illustrated can deliver scores and player profiles and betting tips. But not long features.

Vogue might be able to capture some readers who want up-to-the-minute celebrity gossip or deals on shoes and clothes between monthly issues. But not long-form.

It’s a digital world. There are still great fortunes to be made. But not in the old way at the old levels. So where does that leave sex, drugs, alcohol and rock-and-roll that used to fuel this industry?

For that we need to turn to that iconic raconteur and culture maven, Jerry Della Femina.. Now, at 73, chairman of what, by my count, is the fourth agency bearing his name, he talks vibrantly, in the August 30 issue of USA Today, about the time when three martini lunches were standard.

He recalls how he and his colleagues at Della Femina Travisano & Partners in mid-town Manhattan would go to the Italian Pavilion (now Michael’s) and, as they walked through the door, the bartender would automatically mix their first round. Everyone would down that, and then as they started to look over the menu, the second would arrive. That would be downed and then as they were placing their lunch order the third would arrive. To me that’s Hunter Thompson’s definition of perfection: drugs are dripped into your system at a constant rate without any need for communication.

As for sex, there was always lots of that going on. Della Femina says the agency even had an “agency sex contest” at the end of the year, where in a blind vote, the winning couple would get a weekend at The Plaza Hotel.

“Nobody drinks or screws around like that anymore,” says Della Femina who today is chairman of Della Femina/Rothschild/Jeary and Partners. “It all stopped [by the mid 1980s] when the financial guys took over. Maybe agency chairmen can still drink, but not the soldiers. Today it’s about people looking at the bottom line. It’s changed as a business. Mad Men is celebrating a time that no longer exists.”

Today, all the license for abuse that was underwritten by the 15% commission is gone. But there is still room to have a lot of fun in advertising and publishing or broadcasting, and I know a lot of people who do. Jerry Della Femina thinks it was “the financial guys” who ended the Bacchanal. I think it just ran its course and now all things digital are forcing on us a new communications model for a different age. 

A Sad Story: The Rise, Fall, Rise and Fall of Motorola

Motorola is one of America’s proudest brands. Started by the brothers Galvin in Chicago in 1928 as a battery company, it moved to manufacturing car radios, hence the name a combination of “motor” and “Victrola.” In 1943 the company went public, after producing the first walkie-talkie for the military and all kinds of cellular infrastructure that made possible the cell phone of today.

It pioneered developments of solid-state technology which led to the transistor radio. Beginning in 1958, it developed two-way radios for NASA space flights, allowing Mission Control to communicate with astronaut Neil Armstrong as he stepped on the moon in 1969. It began manufacturing televisions in 1947 developing the first truly rectangular color TV, a business it later sold to Panasonic.

In 1983, it came out with the first commercial cell phone, a DynaTAC 8000X. Along the way, it also invented Six Sigma, a quality improvement process Jack Welch at GE made famous.

But with all these inventions, Motorola was perpetually developing products which ultimately some other company did better—often after buying the brand, a team of engineers and their management from Motorola.

Nothing is sadder than the tale of what happened to the RAZR. This amazingly thin, handsome clamshell phone was developed by Motorola in July 2003 and introduced a year later. Shortly before that, I remember being at a board meeting of the VCU Brandcenter when Geoffrey Frost, Motorola’s marketing chief, slyly opened his fist and passed around this most intriguing jewel. Geoffrey, who unfortunately died two years later at age 56, planned and executed the “Hello Moto” campaign that launched this product, and was around long enough to see it sell 110 million units worldwide, boosting Motorola for a time to second only to Nokia in handheld phones.

But before long competitors began to come out with better features--rich 3G phones that cut into its sales. Manufacturers, including Motorola, began slicing prices in a battle for market share. Though some people still swear by it—Israeli’s former foreign minister Tzipi Lini still carries one—even before Steve Jobs introduced the iPhone in June, 2007, the RAZR was doomed.

Motorola, under CEO Ed Zander, never was able to get a second act. Today Co-CEOs Greg Brown and Sanjay Jha are trying to save the company, now based in Schaumburg, Illinois, as it moves away from producing cellphones to other phone-related technologies. But its revenues fell last year to $30 billion and it had negative net income of $4.2 billion.

This is a case where marketing can’t save a brand, no matter how revered. As Sony has discovered with micro digital music storage and delivery systems, it’s no good being almost as good. You either have to be cheapest or the best.

Cheapest means allowing price to overcome value and turning your inventions into commodities. Being best lends itself to great marketing, but only if you can maintain that top-of-the-hill technology ranking. Even Apple has had either to cut the prices of its new iPod-like devices, or keep innovating and introducing new technologies. But Apple now has another advantage that will confound competitors. It owns “best of class” ratings in two separate categories, digital music storage and delivery and 3G “smart” cell phone telephony. And all its devices synch to one another. So it’s very hard for competitors to outdistance it.

At the beginning of this decade, the field in handheld technology was wide open. There were Nokia, Sony Ericcson, Samsung and Blackberries, among others—fighting Motorola in cell phones. For Motorola to have gained the lead not only in image but volume and then lose it due to a failure in innovation and vision seems particularly unfortunate. And the blame must be laid first at the feet of Zander and his management team.

Some in the blogosphere say that the RAZR killed Geoffrey Frost through overwork. Maybe so, but one thing is certain: whatever Geoffrey did to carry Motorola to the mountain-top, it wasn’t in his remit to keep it there. The story of Motorola’s collapse only makes Jobs’ accomplishments at Apple all that more astonishing

Motorola. What a treasure. Will it end up like Schwinn bicycles, Polaroid cameras and Frigidaire refrigerators, with a place in America’s brand pantheon—but without a dominant entry in today’s marketplace? Or is there still time for Motorola to stage a comeback? If it does, the brand’s heritage will be waiting.