As economy improves, agencies take on issues

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[Miami] With a more optimistic economic outlook after several tough years, advertising agencies are bracing to deal with longer-term challenges, including how to redefine their business models to remain relevant strategic partners for marketers.

The mood at the American Association of Advertising Agencies' annual management conference, held in South Beach, was largely upbeat. The conference drew 330 attendees, up from 257 last year, including the CEOs of many top shops.

"It's more positive this year than last year when we were beating up on ourselves," said Bob Scarpelli, chairman-chief creative officer of Omnicom Group's DDB, Chicago. "There are a lot of big-issue discussions. We have devalued what we do."

WPP Group Chief Executive Martin Sorrell delivered a bullish forecast for 2004 ad spending, although he said the outcome of the presidential election and economic policies employed to address the U.S. deficit could cause "some choking effect on the economy in 2005."

Mr. Sorrell outlined several key challenges and opportunities for the agency business. His clearest message was that the business needs to accept that media advertising is just one part of a broader marketing-services world in which disciplines such as market research, direct and interactive are growing at a faster rate. Globally, he said, marketing communications is a $1 trillion industry, with ad spending accounting for just half of that total.

beyond advertising

WPP currently derives just over half its revenue from outside the advertising business, a figure he expects to grow to two-thirds. "We're no longer an advertising agency conglomerate," he said.

Mr. Sorrell said pricing, distribution and competitive pressures facing marketers are opportunities for agencies to help clients differentiate brands, speak directly to consumers and justify premium prices.

He predicted a backlash against rising network TV prices and a shift to media alternatives. He also predicted continued consolidation in the agency business and noted that more marketers are looking to holding companies as modern-day versions of the old full-service agency. Holding companies, he said, can package the best resources for marketers from among their assets.

`all wrong'

That view was knocked by Kevin Roberts, CEO of Publicis Groupe's Saatchi & Saatchi Worldwide. "We have got it all wrong," he said, arguing that marketers should hire agencies rather than parent companies, which he said should focus not on client solutions but back-office operations.

Publicis USA CEO Susan Gianinno interpreted the willingness of participants to offer contradictory viewpoints as a sign of renewed industry confidence. "The industry debate is much more external. People aren't afraid to debate each other. There is much more jousting and open competitiveness, more divergence."

Ron Berger, CEO of Havas' Euro RSCG MVBMS Partners, New York, said that attracting new talent to the advertising industry is one of his top priorities as new chairman of the agency association.

taking aim

Mr. Berger took aim at a Yankelovich Partners study unveiled at the conference, which outlined consumer resistance to marketing and advertising. He said consumers dislike spam and telemarketing, but aren't as polarized by traditional advertising: "To suggest that that is largely representative of the people in this room is wrong."

August Busch IV, president of Anheuser-Busch Cos., was the only marketer to address the meeting. His presentation focused on TV ads for Budweiser and other brands rather than on industry issues or challenges. Mr. Busch said A-B is struggling to figure out what tone its ads should take in the wake of the Super Bowl half-time controversy and a renewed sensitivity to edgier content. (For more on Mr. Busch's remarks: QwikFIND aap54g)

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