What Ad Agencies Should Be Doing to Demonstrate Their Value in 2022

What's the purpose of an ad agency? It's a bit of a loaded question for agencies and industry observers. Agencies are so much already and, in 2022, will continue to expand their services to creatively solve their clients' business needs. There are 13,000 ad agencies in the U.S. alone, doing everything from creating TV spots to buying the TV spots (and buying across a continuously expanding litany of media channels), not to mention social commerce and out-of-home advertising. There’s even a metaverse agency of record now. As agencies build stronger relationships with clients, they're getting ever more deeply involved in their clients' businesses and acting as consultants in many cases. But as Marla Kaplowitz, the president and CEO of the 4A's, pointed out to me, ad agencies "have always acted in a consultative way." The problem is that agencies typically don't rake in the high rates that the consultancies of the world do. While consulting arms are fast-growing units within the holding companies, most agencies are still duking it out with one another in a crowded field for project work and agency of record relationships, trying to show their added value to create mutually beneficial partnerships with clients. In 2022, agencies need to do a number things to strengthen their value, including establishing their own brands, helping clients make their agency rosters more efficient and negotiating better revenue structures. "Clients are hopefully going to continue to be looking to agencies to offer the external perspective, the provocative point of view and to give a sense of what's going on in culture," Kaplowitz says of the core value agencies provide. What's an agency's 'superpower'? To demonstrate their full value, agencies must brand themselves effectively. Just look at Adweek's Agencies of the Year—The Martin Agency does purpose-driven, culturally relevant work; Mischief @ No Fixed Address is fearlessly creative and TBWA has famously branded itself as the "Disruption Company." Industry observers stress that agencies need to spend 2022 understanding what they do best and defining themselves around that trait. It will help them differentiate themselves in a crowded marketplace. "Where agencies fall off is when they try to be all things and they're not sticking to what their core focus area, specialty and expertise is," Kaplowitz says. Reunited (and it feels so good) Decades ago, the creative and media sides of the business split. But in the world of digital marketing, digital agencies, which dominate Adweek’s annual Fastest Growing Agencies, have owned every step of the process. They oversee content ideation, production and deployment. In 2022, convergence is coming to all aspects of marketing, not just digital. Brands will increasingly look to remarry creative and media, either through consolidation within holding companies or with independent agencies that can execute both capabilities. In today's multichannel world, creative and media must work together to make media dollars go further. In Adweek's recounting of the 10 most notable creative and media accounts to change hands in 2021, four were consolidations into a single holding company: Coca-Cola with WPP, and Mercedes-Benz, Philips and Home Depot with Omnicom. "Mercedes-Benz (Omnicom), Coca-Cola (WPP) and Philips (Omnicom) might well be harbingers of things to come—huge global assignments all centralized under a single holding company—with creative, media, digital and data coming back together,” said Greg Paull, co-founder of consultancy R3. It's a sticking point for Pete Carter as well. During his 40 years with P&G, he interviewed hundreds of ad agencies to learn their secret sauce and pair them with the right brands within the company's portfolio. Now, he has his own consultancy, Creative Haystack, where he does the same thing. "I'd go interview [an agency] and say, let's figure out what their superpower [is]. What can they do better than most guys? And that's why we would use them," Carter says. The problem, he adds, is that most agencies are oblivious to what their superpower might be. Lisa Clunie, the co-founder of Joan Creative, spent time researching agencies' purpose statements to help define her own. "It is uncanny how many agencies say the exact same thing," Clunie says. "For agencies who pride themselves in creativity, to think that you're saying exactly what everybody says—it's a hard pill to swallow." But the more successful you are at defining your agency, the less you have to pitch, Clunie says—clients know when to come to you to meet a specific need. When consolidation makes sense Agencies that can effectively tout their value and specialization can help withstand the growing trend of consolidation. We saw consolidation of services on a grand scale in 2021, most notably with Coca-Cola and Mercedes-Benz consolidating their agency rosters by selecting WPP and Omnicom, respectively, to handle their marketing. While holding company pitches are appealing to bigger brands, agencies have the power to show clients that's not the only path. Brian Wieser, global president, business intelligence, GroupM, explains that while consolidating into one holding company can simplify how a brand works with its agencies, it's only optimizing a narrow sliver of a marketing budget. Brands should think more holistically and be willing to pay more upfront for the right mix of partners in order to save money across their entire marketing spend, which will in the process create better outcomes. Agencies need to show how different moving parts can function together to create more agile and responsive teams. Smaller agencies can provide more value to clients by working with each other. Carter recommended, for example, that independent creative shops find smaller media agencies they can work with in lockstep to reel in larger clients. As Martin Sorrell told me, S4's decided to focus on digital marketing to evade the race to the bottom clients have created by pitting the holding companies against one another—Sorrell went as far as suggesting multiple holding companies should consider a merger to lessen the supply and drive up their value—as its model relies on snagging the top talent. "The great thing about digital is it's about brainpower, not brawn," Sorrell says. "When you're buying media in a nanosecond, the need for brainpower rather than brawn becomes more and more important." Agencies aren't banks Agencies have increasingly looked to turn their expertise into services—it was something Mat Baxter, CEO of Huge, emphasized with me during a chat about his 45-day plan as the new chief executive of the digital agency. The idea of creating marketable products has come up over and over again in conversations with industry execs as agencies are increasingly trying to diversify their revenue, getting as far away from billable hours as possible. For instance, agencies can set defined terms to help brands build their in-house units or redesign their ecommerce experience. Agencies are also clamoring for better payment terms—a necessity for the industry in 2022. There's been a growing movement to abandon 120-day and 90-day terms, which immediately narrow the field of agencies a brand can work with. If a brand is forcing an agency to float nine-figure sums each quarter, there are few agencies equipped to handle that. What are the most important capabilities agencies need to master to remain valuable to their clients in 2022? “It can’t be overstated how critical flexibility has become for businesses and agencies alike, in terms of keeping up with the many consumer switchbacks and speed bumps brought on by the pandemic. Agencies need to reflect this agility while expertly guiding brands towards opportunities to drive authentic consumer connections in 2022—ideally without getting bogged down by layers of approvals. Today’s agencies need to be nimble; they need to understand the (ever-changing) digital and social landscape, and they should be empowered to drive the right kinds of KPIs for their clients.” —Danielle Wiley, CEO of Sway Group Agencies aren't banks, and when brands take advantage of their agency partners, it sends ripples through the ecosystem. Longer payment terms disproportionately impact diverse-owned agencies and BIPOC freelancers, who often don't have access to as much capital. In 2021, Dentsu cut its payment terms to 30 days for minority-owned media businesses. The rest of the industry, including brands, needs to follow suit. If they want to walk the walk on diversity, equity and inclusion, one of the simplest improvements is to have shorter payment terms. Check out all of our Outlook 2022 coverage here.