Adland's New Era of Specialization
Earlier this year, Leslie Bradshaw, president-chief operating officer of Jess3, performed an experiment. For a few months, she pushed her Washington-based agency, which specializes in creating data visualizations, to branch out into such areas as training, business intelligence and production.
"We did it, we survived," Ms. Bradshaw said. "But my team looked at me with an angry, exhausted look that said, 'Don't ever do that again.' "
She agreed, for the most part. Though she won't totally rule out the possibility of expanding its services someday, Jess3 has refocused around the capability that has fueled its growth to $5 million in annual revenue, about 30 employees and a client list of prestige brands that includes Nike , Google and American Express.
"Our success has come from being best-in-class at one thing as opposed to being good at a lot of things," said Ms. Bradshaw. "We don't want to lose that as we go forward. It's tempting as clients ask us to do things two or three degrees to the right or left."
That's no longer as simple as being digital, because specializations are becoming much narrower. The last year alone saw the launch of Made, focused on brands with manufacturing operations in the U.S., and of Senior Creative People, whose concentration is older consumers. The development happened on the heel of an explosion of agencies dedicated to social media in general and Facebook in particular, as well as all forms of mobile marketing. And that 's just the startups.Meanwhile, agencies that have been around the block are realizing the importance of specialization, or at least setting up specialty practices that can be as defined as marketing to Muslims. But having a slender niche doesn't mean the specialist agency's work is cut out for it. In an business abounding with paradoxes, specialization has its share of catch-22 's. To get a foot in the door, an agency needs a particular expertise, but to grow it must add services and skills that it may not have the capital for. Marketers want best-in-class agency partners on any given task, but they also want to reduce complexity and costs by having fewer agency relationships. Big marketers, including Pepsi and Unilever, have been cutting rosters recently. Tim Williams, managing director of Ignition Consulting Group and a strong proponent of specialization, acknowledges that the agency-client model has been in flux. But he remains confident that the way into big brands' affections is an intense focus, whether in a particular marketing competency, or particular industry or kind of consumer. "Clients are finding out that the integrator's job is hard to do well, so some are having buyer's remorse," said Mr. Williams. Though many marketers moved to a full-service approach, full-service is going out of style, he said. "That's not what the big national brands are buying right now. They want best-in-class specialists. It's counterintuitive, but client size and agency focus are interrelated. The only clients that want a broad focus are the small clients." Mr. Williams warned agencies about overusing the term "full-service" in their positioning, but even "digital" has become meaningless as a way of explaining what an agency does. To see how one firm handled that , go to the website of Dallas-based Sq1, which proclaims itself "the conversion optimization agency." That's a trademarked mouthful, but the positioning has worked where the generalist stance didn't. "We couldn't compete," said Ernie Capobianco, describing a Sq1 that was down to 14 staffers when he, then chief financial officer, bought it in early 2010. Mr. Capobianco moved to the CEO role and shifted Sq1 from being a full-service shop. In its current approach, the agency tests and improves marketing programs using predictive modeling that leads to quantifiably better return on investment.
Winning clients such as Jiffy Lube, Dr Pepper and TGI Friday, and rebounding to an 80-plus workforce wouldn't have been possible if Sq1 had just rebranded as a digital agency, even though that 's its channel, Mr. Capobianco said.
"The more specialized you are, the less competition you have -- by definition," he said. Like Jess3, Sq1 has grown without having to wade into the dreaded, costly RFP process that commodifies agencies.
But specialization poses its own set of challenges.
For one, operating in a niche makes it tougher to gain lead-agency relationships. But those are increasingly few and far between anyway, as many marketers are wary of giving a single shop so much power. Such relationships are sometimes less profitable, as well.
Talent sourcing and retention is another challenge, as Midwestern agency Osborn Barr has discovered. Over the past two years, the shop has refined its emphasis to an often-overlooked group of businesses and consumers: U.S. farmers. That strategy shift has led to strong business results and a culture change, according to CEO Michael Turley.
Developing smart strategies for clients takes precedence over "rock-star creative projects," Mr. Turley said.The agency is looking to diversify its service offerings, currently 90% of revenue, by establishing a pipeline of proprietary software and content, such as a documentary on farmers being developed with filmmaker Stephen Ives. Such initiatives, which Mr. Turley wants to represent 50% of revenue within five years, would be impossible without the focus Osborn Barr committed to two years ago, after much consideration and a few lost pitches, he said. One that stung especially was for a Boston-based health-care client that awarded its account to a health-care specialist. "We do fewer things, but better," Mr. Turley said. The Hispanic ad world might offer lessons for many specialists, especially those in fast-growing fields. The market was once dominated by specialty shops that found it easy to sell their products to clients just looking to check a box, according to Alejandro Ruelas, CMO of LatinWorks. Not anymore. Agencies have had to smarten their offering to compete with general-market agencies, working with them and against them simultaneously, as competitors and collaborators. "It's not about fending off the general-market challenge," Mr. Ruelas said. "It's about using the general-market evolution toward our space to become better at what we do. If we do, it'll be a healthy space for us to inhabit without worrying too much about whether or not we can survive."