Agencies, beware a downturn

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Technology has kept the economy soaring for the past few years, enabling tech agencies to choose or reject clients--and set the terms of the relationship. Recent market "corrections" prove that the economy continues to be cyclical, and the party can't go on forever. Today's dot-com layoffs could be the beginning of the return trip to reality. What happens to the agency business when the engines cool down and we have a "soft landing" (not even a recession)?

It will be a buyer's market, something the industry hasn't seen in long while. Agencies will compete for clients again. The current trend of consolidating into larger holding companies makes agencies more profitable, but also limits them to properly serving large clients only. Will they continue to be able to afford to ignore smaller clients?

THE LAST LAUGH

Clients held for ransom in the form of high rates and agency demands for equity during the recent gold rush will have the last laugh. They will remember the days of auditioning for agencies, and the greed and opulence of many practitioners. The shoe will be on the other foot, as agencies have to look for new business instead of new business looking for them.

Agencies will be held even more accountable to cost-justify everything they do. Wasting clients' money by trying to make an impression on the media with overnight packages (often to the wrong journalists at old addresses) will stop. Marking up services and expenses will be a fleeting memory. Leaner, less costly, but equally effective agencies will appeal to efficiency-conscious clients.

Some of these leaner agencies will be located in the same suburbs as the clients they serve. Clients will realize that they're buying marketing communications services, not real estate. Agencies don't need a downtown address to do good work, and clients will insist on paying for results, not for plush lobbies or conference rooms with skyline views. Gateway's recent switch to smaller, independent shops and individual practitioners may be the start of this shift.

Some clients may demand agency fees based on results rather than a retainer. If this demand comes from larger, blue-chip accounts during leaner times, some agencies will give in to win or keep accounts. Smaller accounts and start-ups, often ignored by agencies in today's economy, will become attractive once gain. These clients may want to pay project rates, and agencies--no longer in the driver's seat--will comply. Some agencies will even cut rates to keep current accounts or win new ones. Agency profit margins will be squeezed even tighter. Like today's tech start-ups, agencies will have to work even smarter, faster and cheaper than they do now.

SMALLER CAN BE BETTER

Smaller, independent contractors/agencies can react and adapt to change faster than a large holding company. As companies and agencies downsize, economically astute clients will outsource marketing communications to contractors that can pick up the slack and provide senior marketing communications professionals at reasonable costs.

Even in a down economy, agencies will continue to have difficulty attracting and retaining top talent. Practitioners have now experienced a free agent economy, and those with the business acumen to match their marketing communications skills will be able to present themselves as the best marketing communications solution when money is tight. As a marketing communications outsource, a senior practitioner can provider better value than can an agency with high overhead. Senior marketing communications pros will continue to "just say no" to adding two hours of commute time to their day. There will still be work for suburban clients closer to home. Trendy restaurants near a downtown agency don't mean much when money is tight and there's a family at home to have dinner with.

BECOMING COMPETITIVE

Through boom and bust, the changing face and pace of business will lead to even more agencies that resemble consulting firms. Despite the fact that many pre-IPO options are proving to be worth less than the paper they're printed on, some agencies already are offering telecommuting and flex time in order to compete with corporate-side options and benefits offered to MBAs and other high-demand candidates.

A change in the economy will cause an evolution that redefines who is fittest to survive. Undoubtedly, some kings of today's jungle will become the extinct dinosaurs of tomorrow.

Mr. Boroshok is president, TechMarcom (techmarcom.com), Westford, Mass., an independent marketing communications outsource for newsworthy tech start-ups.

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