COMMUNICATIONS REPORT: Is Advertising Passe?

How below-the-line services are threatening the once-mighty TV commercial Sipping cabernet on the beach at the American Association of Advertising Agencies confab in Bermuda, the CEO of a top agency mused on WPP's newly announced acquisition of Y&R: "It would have been much more interesting if Andersen Consulting or McKinsey had bought it." True. But Martin Sorrell's successful bid to make WPP the largest communications company in the world shouldn't obscure just how profoundly agency economics have changed since his acquisition of Ogilvy & Mather. While there has never been a time when the need to build quality brands has mattered more, it is also true there has never been a time when traditional advertising has mattered less. The new reality--which a handful of the more honest agency executives will concede--isn't so new anymore. For a growing portion of key clients, public relations and promotions consistently play a greater role in branding and positioning than an ad campaign. Indeed, when he is not busy shelling out $4.7 billion to acquire pricey advertising agencies, Sorrell proclaims to the world that WPP isn't a collection of agencies but a global "marketing-services" firm. During the hottest American economy of the postwar era, the rate of growth and profitability of the so-called below-the-line portion of "advertising" agencies has outstripped the above-the-line portions. In sheer business terms, direct/database marketing, promotion and PR have been unambiguously better businesses than brand advertising. They have consistently delivered lucrative returns to investors. The issue now centers on which is now more important to building the client's brand equity--advertising or marketing services? There are many good reasons why big TV ads are less important than below-the-line executions. The best is the growing strength and versatility of direct marketing infrastructures, aggressive entrepreneurship by a new generation of PR executives and, of course, the Internet. But let's not forget the more obvious explanation: Traditional advertising is less important than it used to be. Why? Because it uses bad metrics, such as CPM and Recall. Plus, too many creative advertisers have contempt for their colleagues in the rest of the organization. The result? In less than a generation, advertising has slid from unquestioned dominance to first-among-equals to just another expensive arrow in the client's marketing quiver. When you connect brand advertising to a direct response infrastructure or a PR campaign, it becomes something else. This is what so many agencies--and their slower clients--have taken forever to grasp. Integrated marketing redefines the "unique selling proposition" of brand advertising. In fact, sophisticated clients are moving away from the conventional notion that advertising builds brands and toward a belief that advertising builds brand awareness. In the real world, marketing-services' infrastructures have turned advertising from a brand builder into an attention getter whose primary function is to drive traffic. The ability to cut through the clutter should never be confused with the ability to build a brand. Attention management is not the same as brand management. This is particularly true in the high-tech arena, where word of mouth, press coverage and investor relations are essential to marketplace success. "For many of our clients, PR really does drive how the brand gets defined," asserts Pam Alexander, whose eponymous AlexanderOgilvy--not incidentally, owned by WPP--is one of the hottest high-tech PR firms. The reason is shockingly simple: The networks Alexander traverses--with its nodes of market analysts, journalists and investors--yields fundamentally different conversations than the focus-group debriefings run by creatives. Different conversations inevitably reveal different branding propositions. The better PR firms often have a stronger understanding of how value is articulated than the ad agency. The fact that PR firms don't yet have the same brand vocabularies as their advertising counterparts is merely a matter of culture and time. The AlexanderOgilvys and Ruder-Finns expect to have the same access to top management as the advertising agencies. Indeed, in the current market, they reject or resign clients that won't provide such access. The result? PR firms often have more influence on branding and positioning strategies than the ad agency of record. "Our best clients are the ones that integrate advertising and PR from the beginning," says Ruder-Finn San Francisco managing director Cathy Litzow. "So it's difficult for me to say if PR is more important than advertising. But we've seen lots of cases where clients rely too much on advertising to try to build their brand in communities that don't pay a lot of attention to advertising." For example, the "New Economy" books are fat with ads. Advertising in them is expensive. But as brand advertising becomes more of a high-priced commodity, PR and news coverage understandably command--and get--more of a premium. Press and media coverage become far more important in building the illusion or reality of credibility. For marketing executives and brand managers in high-tech, telecom or almost any ultra-competitive marketplace, good editorial coverage matters 10 times more than good advertising. Let's be harsher: mediocre coverage now matters at least 20 times more than mediocre advertising. That's because nobody remembers mediocre advertising, while there's at least a fighting chance that the right people will remember a decent mention in a legitimate publication or video broadcast. In some respects, history is simply repeating itself. The birth and rise of the advertising agencies made a PR meister like Ed Bernays more important, not less important, in defining how new products should be positioned and promoted. David Ogilvy inherently understood this integration--even as he positioned his firm as a brand champion. In fact, his intellectual origins were direct. Similarly, as companies struggle to differentiate themselves while preserving their brand equity, it seems only logical that the below-the-line functions graduate from being supporting players to equal partners. Why? It's not because brand advertising is a "mature industry" with limited prospects for growth and profit. Quite the contrary. Great advertising will rewrite the rules of the game--just as a blockbuster novel, movie or Web site can alter their respective pop-culture industries. The problem is, clients can't count on blockbuster advertising. The reason why below the line will win is precisely because direct, promotion and PR are such immature industries; they are ripe for the transformation new technologies bring. Bluntly put, "below the line" has more potential than above the line. If and when executives or entrepreneurs figure out how to integrate the two effectively, the dichotomy will vanish. The myth that brands are about advertising and advertising is about brands will vanish, too. That's why, it would have been more interesting for the industry if Andersen Consulting had acquired Y&R instead of Martin Sorrell. K Adweek editor-at-large Michael Schrage is also co-director of the MIT Media Lab's eMarkets Initiative. Schrage is the author of Serious Play: How the World's Best Companies Simulate to Innovate, recently published by the Harvard Business School Press.

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COMMUNICATIONS REPORT: Is Advertising Passe?

Michael Schrage

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Michael Schrage