FORUM: AGENCIES FACE NEW BATTLEGROUNDS: SORRELL: IN FIGHT FOR CLIENTS, WATCH CONSULTANTS, BOUTIQUES

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The following are excerpts from WPP Group Chief Executive Martin Sorrell's speech to the annual meeting of the American Association of Advertising Agencies this month.

The worldwide total of nearly $1 trillion spent on marketing services is made up of many millions of individual decisions -- all voluntary and all, to some extent, reluctant. By that I mean none of our clients want to spend money.

It may be good news for the media and for advertising agencies when advertising expenditures rise year-on-year, but it's not for clients. If clients could achieve the same competitive gains while spending less, they'd be delighted.

Recessions may force client companies to hold back for a while. These occasional cutbacks serve as involuntary expenditure-level experiments. We may not like them when they happen, but in the medium term they strengthen our position and reaffirm our value.

So, yes: We may not be always absolutely clear about what it is we sell. But the hard, pragmatic evidence seems to suggest that, whatever it is, marketing companies need it and will go on needing it and paying for it.

And if an agency is run with average competence and efficiency, that sort of revenue should lead to perfectly satisfactory margins and profit . . . It is when we stray beyond the numbers that I begin to feel a certain unease . . .

BECOMING `WANT-ABLE'

One of the reasons, I remain certain, for the continued growth in demand is a widespread recognition that -- when all the efficiencies have been introduced, when all the waste has been eliminated, when all the cost-cutting has been undertaken -- then the only way forward in most competitive markets is to become more want-able; to compete not just on performance and price, but on personality as well. To add value; to strengthen your brand.

That is what, at their best, advertising and advertising agencies do well. And, at their very best, their contribution is literally priceless: It is not possible to put a true figure on the value they add.

So if the need to add value has become more and more recognized, and adding value is what good agencies do, why am I confessing to a certain unease? . . .

What I feel a certain unease about is myopia, the marketing myopia that can blind specialist operators to the real nature of what they are in business to provide, and so open the door to new and unexpected competitors.

I am bullish about the continuing demand for marketing services in general. I am less bullish about the continuing ascendancy of traditional agencies and their ability to manage change.

Niall Fitzgerald, chairman of Unilever, in [a] keynote address, stated the following:

"First, the good news. Unilever believes in the paramount value of brands; in the necessity of sustaining those brands through marketing communications. And, putting its money where its mouth is, it spends *4 billion a year on its marketing activities.

"Now the bad news. I haven't mentioned advertising.

"As I look at the way the world is going, and then I look at the traditional advertising agency, I believe I see an alarming discrepancy developing between what our brands are going to need and what contemporary agencies are good at.

PROFITS FROM TV :30S

"For 40 years in the United Kingdom, and even longer in the U.S., agency skills, agency reputations and agency profits have been centered round -- almost to the exclusion of all else -- the conception and production of 30-second spots for network TV. In the major markets -- in yesterday's major markets -- they have served us well.

"But . . . there are vast and irreversible changes taking place in the world of communications, and not one of those changes will favor network TV . . .

"I do not believe this great change will be mourned by real people -- by our customers. Nor will it be mourned by companies such as mine -- because the opportunities that the new world offers are more exciting -- and, in some important ways, more satisfying -- than the very limited nature of the world it replaces . . . "

For client companies anxious to become more flexible and creative -- but equally fearful of the effects of such a change on their own internal structures and traditions -- the steady hand of an established consultancy could be very desirable indeed. And particularly one that has learned to speak the language of brands with such warmth and familiarity.

You may well believe the number of client companies seeking creative help with strategy and systems will be limited; that the great majority, and perhaps an increasing majority, will believe themselves strategically self-sufficient; and that the only creative contribution they will willingly pay for will continue to be communications.

Even if this should be the case, we are still vulnerable.

IDEA FACTORIES

If all clients want is ideas -- lots of them, from which they can pick and mix to their hearts' delight -- they won't want conventional, full-service advertising agencies. They'll want fast, flashy, fee-based idea factories; factories that take the client's strategy with no questions asked, and come back within days with a hundred different executions.

We haven't heard the last of the CAA/Coca-Cola story. And the CAA/Coca-Cola story will not be the last of its kind that we hear about.

So we face competition. Not just from each other, as we all too comfortably sometimes think. But from two relatively new sources.

From further upstream, where the strategy starts and the client's chief executive gets deeply and personally involved, we face new competition from the established but still ambitious consultancies.

And from further downstream, happy to serve clients who have no identified need for a strategic partner, we face competition of another kind: from companies capable of generating ideas and designs and promotions and commercials at a speed and a cost far closer to that of newspapers and broadcasting than to the stately deliberations of conventional advertising agencies.

At exactly the time when the traffic is getting faster and louder and coming at us now from both directions, the middle of the road may prove an extremely uncomfortable place to find ourselves.

AGENCY ADVANTAGES

Now let me tell you why we start on this new creative age with some worthwhile advantages.

We are the only professional group that has, for a great many years now, been consciously turning the talents of creative individuals to clients' business advantage.

We are the only group to recognize out loud that business success and progress depend on hunch, intuition, trial and error, and inspiration -- as well as analysis, precedent and the rigorous application of research.

Above all, perhaps, we are the only group of business advisers that consciously works from the ultimate consumer backwards.

Aldo Papone, of American Express and BodyShop, is a man who's been choosing and employing agencies, design houses and consultancies all over the world for 30 years or more. And he makes this important point. To buy, from a management consultancy, a thorough and accurate analysis of your company's market -- its strength and its weaknesses, its competitors and its future -- is always worth doing. But you're still, as management, left wondering what to do with all this information.

The wonderful thing about a good design company or a good agency, says Aldo, is that the analysis can be just as thorough, but they also leave you with actual things: actual, practical recommendations -- words, pictures, designs, programs -- that you can actually do something with. And he says, with some surprise, "I often wonder why you don't make more of that."

I wonder, too, and I find his insight an extremely helpful one when wondering what we should all do next.

THE BUYING PUBLIC

As the analysis is done, and consumer attitudes established, and then ideas tried out and modified and strengthened, so a great wealth of knowledge and understanding emerges -- about the whole of the client's business -- and it comes from the only source that ultimately matters, the sovereign with increasing power: the choosing, buying public.

That sort of process provides understanding of a business enterprise in a way that the top-down consultancies would find it difficult to equal.

But, still, at least in the agencies, we tend to give such invaluable insights away. They come free with the layouts and the storyboards. And we talk about something called "our creative product" as though only the words and the pictures are creative, and never the processes of thought and analysis and imagination that led up to them.

No wonder Aldo Papone is puzzled by our reticence. No wonder we find fee negotiations getting harder all the time.

In a business world that is going to put a higher and higher rating on integrated creativity, we are in danger of losing what should be our overwhelming advantage -- by allowing something called creativity to be confined to the creative compound . . .

FUTURE OF BRAND ADVERTISING

Brand advertising in the next 20 years is going to demand a great deal more than the ability to write, produce and place a 30-second spot on network TV. If our world doesn't increase the breadth of creativity it can provide for its clients, then our clients, out of cold necessity, will emigrate to those who can.

And if we are to repel the rapacious consultancies, anxious to usurp our strategic function (and a great deal better at getting paid for it), then we must also increase the breadth of our creativity.

I am absolutely certain the only way for agencies to get back upstream, to get back up the value chain, to regain their lost strategic ground, is not to forsake their creative heritage -- but to build on it. But that means a much wider understanding of the meaning and nature of creativity than we commonly hold today.

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