Last week was the annual Cannes Lions festival where advertisers from around the world gather discuss the latest trends in branding and marketing, receive awards for creative work, and meet with industry leaders. One of the main topics of discussion during this year’s event was the recent announcement by Procter & Gamble that they would revolutionize the way they work with their agencies – this year they will be testing out a model where they will no longer be working with various agencies each falling under a different holding company umbrella. Instead, they are creating a dedicated agency with the top talent from each of those holding companies, all working together as one group. The new agency will support the P&G Fabric North America division and will be comprised of talent from agencies within the Publicis and WPP networks.
This unprecedented agency structure could be viewed as the next evolution of the ever-changing model for how companies work with advertising agencies. The client-agency relationship has seen many variations over the years as both brands and advertisers adapt to changing customer demands, technologies, and more.
During the golden age of advertising (think Don Draper) the agency of record (AOR) model was most common amongst marketers, where one agency was responsible for all advertising across all tactics and channels. For brands, this meant there was only one or a few agencies to manage and there was consistency in branding and messaging as all creative work was coming from the same place.
With the dawn of the internet and technology age, independent agencies and boutique shops emerged on the scene to cater to these new advertising needs. This trend expanded beyond just digital advertising companies, with niche firms being created to support specific industries or subcategories of marketing (i.e. PR, event production, pharma marketing, etc.). These agencies had resources who were dedicated to staying on top of the latest trends in their respective areas of expertise. This meant that companies were no longer working with one or two agencies to fulfill their needs – they could be working with a different agency for each tactic, channel, or project based on the requirements. While this added a layer of complexity to managing these partners, it meant that they had access to top talent to execute their campaigns.
In order to stay competitive in the market, the large advertising holding companies began acquiring these specialized agencies to bolster their capabilities and capitalize on their client’s demands to work with firms that are experts in their field. For clients, this has presented a new challenge of trying to stay abreast of M&A activity in the advertising landscape. At Source One, part of our process in reviewing a clients’ marketing budget is mapping out, not only what agencies they are working with, but what umbrellas those agencies fall under to identify consolidation opportunities.
Following a similar line of thinking, many companies have started bypassing “child” agencies and approaching holding companies directly during the agency search/review process. Companies like Campbells Soup, Unilever, Ford, and McDonalds have adopted this model in recent years. Each company contracted with a specific holding company who in turn created a client-specific agency with top talent from all of the agencies within their network. This model provides clients with the ease of management, consistency of branding, and access to subject matter experts for executing their campaigns.
Procter & Gamble has taken this methodology to the next level by not only contracting with the holding company directly, but mixing talent from competing groups as one single AOR team. By doing this, P&G is hoping to further enhance the creative work developed by their agencies while reducing operating expenses through streamlined management and improved transparency. Some are arguing that it is because of their spend leverage that P&G was even able to attempt this operating model, but as a major player in the market, this could be viewed as yet another indicator that the agency landscape is evolving to adapt to the changing demands of their clients.
Of course, with such a innovative idea there are many questions about how this model will work. With each agency having their own P&L, how will they get paid? How can they assure that there are no conflicts of interest? How will intellectual property be shared? It is still too soon to know how this move by P&G will pan out, but rest assured the advertising world is paying close attention.