If there is a forbidden word around the quaint, seaside offices of ad agency Innocean's Huntington Beach, Calif., headquarters, it's "in-house."
"We don't use the term here," said Exec VP-Chief Operating Officer Jim Sanfilippo, tasked by Innocean and Hyundai in late 2008 with forming and staffing the agency, which today is building non-Hyundai clients abroad, and will soon begin a push for new clients in the U.S. "It's not how we feel, and it's not how we operate."
Innocean drew snarky whispers when it was announced in late 2008 it would be assigned the Hyundai business. It had a tough act to follow in celebrated shop Goodby, Silverstein & Partners, which had won the coveted auto account after a shootout against four other agencies in 2007.
The undertone of that whispering was negative, skeptical even, that a shop so closely tied to the client could carry out needle-moving creative work. Innocean, operating in 12 countries, is part of the Hyundai Group chaebol (Korean conglomerate). It is also owned by Hyundai Motors chairman Chung Mong Koo and his daughter Chung Sung-yi. Such an arrangement, while anathema by current corporate-governance practices in the U.S., is the cultural norm in South Korea where the biggest companies -- Hyundai, Samsung, LG -- have long been controlled by Korean clans.
But so far, Innocean's work has been pretty solid. And there is plenty of pressure to keep it that way from Hyundai CEO John Krafcik, who recently hired former General Motors advertising executive Steve Shannon to be marketing chief. In a habit developed when current GM global marketing chief Joel Ewanick was at Hyundai between 2006 and 2010, the U.S. arm of Hyundai likes big media stages: Super Bowl, Academy Awards, Olympics and national political conventions. "Make no mistake, there is no place for Innocean to hide if they aren't doing [breakthrough] creative and strategic work," said Mr. Krafcik.
He conceded he didn't have much of a choice in hiring Innocean. "It wasn't so much a question of if it was going to happen, but rather when," said Mr. Krafcik. "But I was intrigued from the start by the idea of them creating an agency from scratch around our needs."
For Innocean's executive creative director, Jeff Spiegel, who joined the agency in mid-2009, the decision to come to Innocean was not that hard, he said, once he understood the plan. "It is really a very well-funded startup agency that we can shape from a clean sheet of paper -- that's a very attractive thing," he said. Don Longfellow, the strategic planning chief at Innocean, echoes the sentiment. "I have been able to design the planning function, integrating traditional and off-line (digital) functions exactly the way I want to without legacy operations, systems, politics ... it's been a great opportunity."
It is also true, though, that for most of the past two years since opening its doors in the U.S., Innocean has largely carried out a brand brief written by Mr. Ewanick and Goodby. Centered on the tagline, "Think About It," the strategy originally had been intended to remove any perceived risk in buying a Hyundai (based on a legacy reputation of bad quality in the 1990s) by emphasizing warranty protection and third-party endorsements from the motor press.
"Goodby's work was very good, and I was happy to continue down the road that was laid out," said Mr. Spiegel. The biggest evolution of the strategy by Innocean has been to go from asking car buyers to "reconsider" their perceptions about the automaker to one that confidently challenged the assumption that Toyota and Honda are not peer brands of Hyundai.
But now there is at last some new direction. Starting with the most recent Super Bowl, Hyundai began using "New Thinking. New Possibilities," a global strategy that Mr. Sanfilippo said was hatched by Hyundai's marketing group in Seoul and later adopted as a tagline. "We are moving from a strategy of removing obstacles to purchase to pride in ownership," said Mr. Longfellow.
Innocean's creative has ranged from steady message-centered work like the recent Elantra launch ads that emphasize its 40 mpg highway fuel economy to more humorous stuff. One recent ad showed a sheep driving a competitor's car; a holiday end-of-year retail effort featuring an eclectic and campy couple whose music act is called Pomplamoose that pumped showroom traffic in December and went viral on YouTube.
Not that industry award shows are the last word in creative achievement, but Innocean's U.S. office made the Cannes short list at the International Advertising festival in 2010 for the first time. "That was a big deal for Innocean, and a big source of pride," Mr. Spiegel said. "We are definitely pushing and reaching all the time to produce the kind of work that will be recognized on a world stage."
It's being noticed. Hyundai has become the fifth-largest automaker in the world, and, in the U.S., it has been one of the fastest growing brands. In March, the company sold more than 60,000 vehicles, including nearly 40,000 Sonatas and Elantras. Hyundai and sibling Kia Motors together sold more than 100,000 vehicles in March, just the second time in the companies' U.S. history they reached that mark. Hyundai is attracting customers with credit scores higher than those of Toyota, according to Mr. Sanfilippo, who cited proprietary research. And its risky foray into luxury cars with the $35,000-plus Genesis sedan has been met with critical success from the auto press, and sales success at the dealership. In the Southeast, Hyundai's share of the luxury car market is already above 10%, according to data supplied to Hyundai by R.L. Polk.
Last November, Hyundai grew even bolder in the luxury segment, introducing a $60,000-plus Equus positioned above its Genesis, and Innocean built a mobile app that digitally replaced the Equus' owners' manual. Hyundai supplied Equus owners a free iPad with each Equus and shot a commercial cleverly depicting an owner reviewing a highly animated "owners manual" displayed on an iPad. It caught competitors flat-footed and was deemed one of the best automotive applications so far.
Innocean grew out of the 6-year-old (Hyundai Group-owned) World Marketing Group, a low-key operation by design that consolidated Hyundai's and Kia's media buying. That operation was more reminiscent of the old Hyundai, which was often reticent to assert itself publicly. Coming off a horrific period of product quality, bad publicity and falling sales in the 1990s, Hyundai often flew under the radar in marketing. That anonymity, which extended to not even having a WMG phone-book listing, said Innocean Senior VP-Media Operations Cynthia Jensen, made it tough for the agency to hire top talent or even get early cracks at some media opportunities.
That changed a lot when Mr. Ewanick took over marketing in 2006 and WMG hired Initiative to handle buying for Hyundai and Kia. Ms. Jensen, who had held senior posts at Y&R on Ford and FCB's Irvine, Calif., office before WMG and then Innocean, is largely responsible for both Hyundai and Kia often getting some of the most plum media buys, such as Hyundai's placement as first ad on CNN coming out of Barack Obama's acceptance speech on Election Night.
Ms. Jensen is just one of a handful of seasoned agency executives who makes up the senior management team, deflecting the idea that client-owned agencies can't attract top talent from other agencies: Mr. Spiegel came from DDB, Los Angeles, where he was group director on Wells Fargo and Activision and clocked 10 years at Team One on the Lexus business before that; Senior VP-Director of Planning Mr. Longfellow, who came to the agency from Ogilvy & Mather's L.A. office, where he was planning chief on brands such as Yahoo and Cisco, and before that Saatchi & Saatchi, where he worked on 17 Toyota model launches; Senior VP-Creative Account Services David Minkin, who held senior posts at Ketchum launching the Acura brand for Honda, and at Team One on Lexus; Senior VP-Creative Director Ed Miller, who leads all the retail-driven advertising came from TBWA/Chiat/Day, where he held a similar position on the Nissan business; and Account Director Valencia Gayles, who had been chief operating officer at multicultural shop True.
The team was assembled largely by Mr. Sanfilippo, who was recruited from Team Detroit to WMG in June 2008, and soon got a call from Mr. Ewanick. "He said 'Start an agency from scratch and get it ready to handle Hyundai in six months'… I was flabbergasted."
Mr. Sanfilippo had plenty of history with Hyundai. From 1986 to 1994, he held a series of posts with Hyundai's agency, Backer Spielvogel Advertising, eventually running both the national and dealer accounts before landing at Kia Motors America in 1995 as director-planning and then head of marketing. He also had worked at Volkswagen, Chevy, and WPP's Team Detroit, and is known for having one of the deepest Rolodexes in the car business.
After a few months of occupying fairly anonymous-looking space in Irvine, Calif., Mr. Sanfilippo persuaded Innocean to go for the Huntington Beach office space. Korean management thought the location -- a walking-friendly village of retail, restaurants and boutique offices -- somewhat unconventional at first. His reasoning -- that the space, situated on the oceanfront and away from bland highway-side "dental" office parks, would both distance the agency from an "in-house" image and help in talent recruiting -- won them over. There is a total of 35,000 square feet stretching across three separate but literally bridged spaces, and another 3,000-square-foot studio space, with more to come. Surfboards adorn the walls, and there is a combination of windowed as well as interior offices that could easily be mistaken for space created by leading agencies such as TBWA or Crispin, Porter & Bogusky.
Because of the growth in business just from Hyundai, the agency is looking for additional pockets of space around the village to create a "campus"-like office atmosphere.
Innocean's Korean management is anxious to prove its chops beyond handling Kia and Hyundai. In Seoul, more than half the agency's revenue is said to come from non-Hyundai-Kia business. And though it's been open just six years, it's in a dozen countries, with plans for four more in the next year.
Innocean and Mr. Sanfilippo are looking for a rainmaker who can help get curious, if reluctant, marketers to at least have a look-see at the agency's team and approach. It should help in the U.S. that Innocean has a handy case study of success with Hyundai and Kia.
But industry consultants say it will not be easy. "The tricky part is that clients who feel they might be overshadowed by Hyundai will want to see an effective firewall between Hyundai and the non-Hyundai business, but then again you want the people who have been key to Hyundai's success working on your brands," said Cameron McNaughton, consultant at McNaughton Auto Perspectives.
Mr. Sanfilippo has experience at agencies heavily dominated by a single automotive client. He worked at Ford's agency, Team Detroit, as CMO in 2006 to 2007. That agency has several non-Ford accounts.
Messrs. Minkin and Spiegel both worked at Team One, though that shop has never been too successful in attracting non-Lexus work, proving the difficulty Innocean may have. Mr. Minkin said the key will be to show "we are interested in other clients with real vigor, which we are. ... If you don't, the new-business consultants can smell that in an agency and it doesn't work."
The source of new business may initially come from multinational Korean companies that do business with Innocean in Seoul and elsewhere. There aren't many of those, though, because the biggest Korean companies, like LG and Samsung, also have their own ad shops. That model would also make Innocean look much like Dentsu USA, which for years has had a client roster dominated by Japanese companies that do business with the agency in Japan.
While there has been some growth through the "rebundling" of important services as Innocean proves its prowess, some assignments, like dealer meetings, auto shows and the Hyundai Golf Tournament, can come through a request-for-proposal process, and in some cases are assignments that it had previously pitched for and lost. Both Hyundai and Kia have a huge appetite for marketing services, but "they aren't handing us anything without us working for it," said Mr. Sanfilippo.
There is some speculation that Innocean will eventually be given the Kia Motors business in the U.S. (Mr. Sanfilippo denies this) since the agency handles it in South Korea and the other markets around the world. Innocean already handles media strategy and oversight for Kia. Kia's creative has been handled in the U.S. by David & Goliath since 2000, and D&G works closely with Innocean. That agency also has significant other business, such as Mattel, Bacardi, Universal Studios, California Lottery and Carl's Junior. Because of this, some have speculated that Innocean and D&G would make a good fit, but David Angelo, chairman and chief creative officer, seemed to brush off that notion.
"We are flattered to have been approached, through the years, by a number of holding companies with an eye for acquisition. The truth is, we have had no acquisition conversations with Innocean to date, and we are perfectly happy right now as a leading independent agency," he said.
The biggest issue at a shop such as Innocean is keeping creative tension with a client that technically is one of its owners. Innocean's Hyundai account director Ms. Gayles who has worked at Deutsch, said it's not an issue. "They probably won't fire the agency, because of the way it is set up, but we know in this business we are all replaceable, so we keep tension at a healthy level by taking nothing for granted and challenging Hyundai to do new things."
Can Innocean find its own signature despite being owned by Koreans who have a very different culture but who are also its biggest client? Ms. Gayles said she thought Deutsch's culture was a bit like USC, "almost athletic in the way we wore our brand on our sleeves." Her idea for Innocean: "More like my alma mater, Columbia, where the sports programs aren't very good, but a lot of smart people go there."
As for sports, there's always surfing.