Even as consumers were vying for faster travel and companies demanded cheaper freight, the railroads had failed to adapt when new competition had emerged, in the form of cars, trucks, airplanes, and even telephones. Their mistake was failing to understand which business they are in. They assumed themselves to be in the railroad business rather than in the transportation business. They were product oriented instead of customer oriented.
Traditional advertising has stopped growing in the last decade and is in the shadow of historic decline. The reason growth is threatened is not because the ad market is saturated. It’s because the traditional agencies still use the TV commercial as default business solution. However, this is becoming an increasingly irrelevant approach as consumers moved to digital platforms.
Companies now focus on Digital Transformation (DT) and marketing departments started building their own technical expertise around cloud-based software. And because DT is so essential to company success and operations, the CEOs and the boards have become the real owners of the DT strategy. Most Popular In: CMO Network
DT is centered on recalibrating the organization’s operations through the customer experience. Research shows that for every dollar invested in improving the customer experience, businesses generated three dollars in return, and 11% increase in revenue. More and more companies compete primarily through customer experience.
The current crisis will be a major accelerant of the annual $1.5 trillion investment in DT because, in a write-off year, CEOs could invest heavily without fear of retribution for missing their numbers. DT is an expensive business – it is expected to be 53% of the IT budget in 3 years compared to the 36% that it is today. DT outlay is growing at almost 20% CAGR and CEOs would front-load investment in an unprecedented catastrophic year.
That is bad news for Madison Avenue, as agencies continue to rely on TV commercials for their income. However, digital advertising already accounts for the majority of media investment and is predicted to grow quickly to 65% in 3-to-4 years, reflecting the growing commitment of companies to DT.
Commercials are less important. The user experience is now fundamentally the brand. An easily navigable app for a bank would define the brand as “friendly” better than a TV commercial or a brick and mortar location. A hotel online booking experience that allows for “À La Cart” options can replicate a “home away from home” atmosphere.
But, traditional agencies still think of brand-building in old-fashion terms of advertising, marketing, or storytelling; meanwhile, their clients that are undergoing DT.
The traditional agency’s business model became irrelevant ever since a major shift in media consumption, as users are on multiple devices and operate in an omnichannel world. Agencies fail to adapt and evolve from a single constituency, their “client”, the marketing department. They failed to realign themselves with product development, innovation, or business strategy and were relegated to only being the “creative” partner.
These days, clients expect more. They want agencies to deliver solutions that improve the product, or the service, through technology. Agencies must evolve as technology partners of their clients, by recommending third-party tools and integrating their own tech stack with the client’s. Ultimately, agencies need to become the connecting tissue that holds multiple technology platforms together in order to serve both clients and consumers in tandem.
Clients demand an urgent and extensive rethink of the end-to-end agency model that focuses on DT, embraces efficient productivity, and agility. To address it, agencies need to help marketing teams develop deep, meaningful insights from data in order to deliver greater customer experiences.
Ideas must get in front of the client clients early and often. Agile agencies merge their ideation process with rapid prototyping and testing, fine-tuning the ideas in short cycles, until there is passion-centric fit with customers, not just a transactional attribute-based relationship.
The traditional agencies have missed the train because they have failed to move away from a model where the solution to every business challenge is, by default, a TV commercial. They exacerbated this, not only with an outdated approach to marketing along with the separation of creative and media, but also with the inability to modify media tactics based on real-time (or as close to real-time) data and sticking with year-long media buys with limited flexibility for adjustment.
Agencies should adopt a media-buying platform where a marketer can input goals –sales, new customers, loyalty program sign-ups – and, a transparent algorithm does the rest, executing buys and optimizing every millisecond. Or, develop an ad that dynamically changes the tone of the voiceover based on the preferences of the viewer. The convergence of AI with human creativity and insight will transform advertising, and we’re just beginning to see what’s possible.