Can Your Ad Agency Survive The Two Revolutions?

Recently, I read THE INNOVATOR’S DILEMMA by Clayton Christensen of the Harvard Business School. Many analysts consider it THE book to read on disruptive change in the business world. One point that Christensen makes clearly and often is that well established firms generally fail when their industry is confronted with new markets and technologies. The logical extension of this is that this cannot bode well for the smaller and mid-sized players in the advertising industry if his thesis is correct.

Christensen is not brutal in his comments. He does not say that managers of struggling firms are lazy, corrupt or intellectually limited. The point he makes is “there is something about the way decisions get made in successful organizations that sows the seeds of eventual failure.” People are very wedded to the axiom that, “if the machine ain’t broke, don’t fit it.” Well, that is fine for normal times but, in a revolution, it no longer works.

My take is that in an era as we have now in communications a leadership team at an agency has to be able to spot paradigm shifts and adapt to them quickly. What concerns me is that all but a few agencies below the major advertising holding companies are equipped to do it or have the financial resources to buy companies and people who can.

What are the two shifts? To me, it is not simply the erosion of TV as an ad medium that many people point to as THE key issue. Rather it is the twin paradigm shifts taking place--the emergence of Big Data and the emerging (sic) middle class in emerging markets.

We discussed Big Data at some length in an earlier post “The New World of Ad Agency Mergers” (Media Realism, 10/28/13).  The major holding companies have set up exchanges that can purchase on line impressions at a depth and cost that cannot be replicated by smaller shops. The second shift is what is going on in emerging markets. Every marketer in recent years nods vigorously when the abbreviation BRIC is mentioned and can proudly list Brazil, Russia, India and China as the countries making up the term.  Yet, the BRIC companies are not where the real action is these days. Less obvious choices such as Indonesia, Malaysia, and Vietnam in Asia, much of Latin America outside of Brazil and selected countries in Eastern Europe are showing stellar growth. As their middle classes grow, the need for advertising is soaring. The giants are ready to take advantage of this trend but the mid-sized and smaller shops generally have to watch it from afar.

In the United States, package goods companies increasingly are putting more money in to promotion and many advertisers are beefing up Public Relations and Interactive and Internet Marketing. Again, this puts the non-giants in an awkward position. They may be able to do solid Public Relations for smaller clients but they will increasingly be outgunned when it comes to Internet Marketing.

So, clearly there is a revolution going on in advertising both with the advent of Big Data and the shift away from North America, Western Europe and Japan in terms of dynamic advertising billing and simply economic growth.

When I try to talk or e-mail people about this, they often claim that they have the right people and will be fine no matter what happens. While this is a bloodless revolution, who survives and prospers in revolutions? Almost always, if you look at history, it is people who are wired differently than most of us. And, they do not always take the traditional straight path that to success. Both Bill Gates and Steve Jobs were college dropouts--no MBA’s for them. Billionaire investor George Soros claims that his father’s wise decision to leave Nazi-occupied Budapest steeled him for his later life. They abandoned an upper middle class lifestyle for a new life on a new continent. People who succeed in upheaval just see things differently than most people in existing successful companies. They are smart and focused and think outside the box as they have little or no vested interest in the status quo. Look at all the 20 somethings in Silicon Valley. They may be irreverent but they embrace the change and often make it more rapid. Virtually all started as outsiders.

One fellow wrote to me recently and said that he has a young digital designer who could be a young Steve Jobs incarnate. My answer was that if that were true the young genius would be bored at his shop and quit. He laughed but told me that my point was very well made.

So, as you hire going forward, look for the unusual. Perhaps she is a stat freak who sees things that you do not in consumer data. Or, perhaps she can link data from different sources together into a coherent strategy in a way the rest of your team has never considered.  Maybe he is a better forecaster than your researchers as he has no baggage from the past to muddle his thinking.

If you have a team that has been together for a while it is probably a good idea to get some new injections in to your agency gene pool. The crazy or two that you bring on board may not be so crazy and could lengthen your corporate life.

If you would like to contact Don Cole directly, you may contact him at doncolemedia@gmail.com

Message to Marketers--Listen!

People often ask me to look back over my long career and tell them what the single most important quality is for one to become a good or even great marketer. I always smile and answer immediately. To me, it is so very simple--you need sharp listening skills.

Spending much of my career at ad agencies, it always stunned me how often my colleagues dismissed our clients as morons. One fellow told me that we knew what was best for them and we simply had to lead them. At times, I must admit, after an awful client session or new business pitch, I joined in the chorus of people laughing at clients or prospects. Day to day, however, it was a different story for me.

Some years back, a very large client was often the butt of cruel jokes by many of my associates. At one session on a Thursday afternoon, he asked for an analysis that had everyone rolling their eyes. I asked him an innocuous question or two and the agency’s management representative later thanked me for not laughing in his face. The next day, I told the young account executive on the business that he had not mentioned the client’s inquiry in his call report. The twenty something fellow replied, “Mr. X is an idiot. We do not have to respond to his stupid ideas.” I told him that there was a meeting with the same client on Monday and his boss would be there as well. His response was a shrug and he left my office.

That afternoon, I made a few calls to some media executives in New York. On Sunday, I camped out in my office and put together a simple power-point that shot down the client’s idea but eased the pain by stressing (truthfully) that his idea was a few years ahead of its time.

On Monday, the meeting progressed fairly well. Then, near the end, Mr. X’s boss said,“I gave Tom (not his real name) a media idea last week. Could I have a report on that now?”  The account team froze with the classic “deer in the headlights” look. I jumped up, said, “of course”, and fired up the power-point. I dissected the big man’s idea as tactfully as I could and he shook his head in agreement.

As we were leaving, Mr. X asked to see me in his office. I was prepared for the worst. Instead, he thanked me profusely. “I cannot tell you how much I appreciate what you did today. Your company does good work but you are the only one over there who listens to me.” His comment remains the most meaningful professional compliment that I have ever received. A few weeks later we were fired. Mr. X and I stayed in touch and I considered him a friend until his death.

I did not do anything special--what I did was my job in a service organization. My colleagues thought that they were smarter than Mr. X. Perhaps they were; perhaps not. To me, Mr. X was a decent guy who was helping in a big way to pay my childrens college tuitions.  He was important to me.

The first rule of listening is to be be present and ACTIVELY listening when you clients or customers want to talk. I was always stunned when Chief Marketing Officers would say  that they rarely visited their stores or talked to their customers. They occasionally watched a tape of a focus group or read an executive summary of a research report. The best marketers are involved. They talk to a fair sample of customers at every touch point in the relationship--when someone sees the advertising, buys their product, uses it, and perhaps most importantly, when something goes wrong.

Sam Walton to his dying day was out in his stores talking to his blue collar customers and listening to them. There he was, an early billionaire, but he knew who his customers were, respected them, and responded to their needs. Indra Nooyi, the CEO of Pepsi, often spends her weekends in supermarkets talking with shoppers and sales clerks. She tries very hard to stay in touch with her base of snack food junkies.

Sadly, given the lack of vocabulary in America today, there are over 20,000 sites with the suffix “sucks.com”. The clever marketers do not let the angry comments gather dust. They make a spirited attempt to link people to their proprietary customer service sites. This lets people vent but also they can gather some valuable information. If someone bothers to write to a site, they are angry and may have good reasons. If you can turn some of these people around, you can do your brand a big favor.

Sharp marketers make it easier to reach their company with good and bad feed-back and suggestions. Also, and very importantly, when they respond they make certain that there is a caring human being at the other end. By building a dialogue, they can understand their customers needs much better.

Today, everyone preaches that you do not talk to customers. You need to engage them and create a relationship. Well, too many marketers are committing the error that
 dooms many relationships and even marriages. They simply do not listen.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

Growing U.S. Poverty and Advertising

I do not watch a great deal of television. However, I do watch CNBC and Bloomberg Business every morning plus I read the business press quite aggressively. Invariably, one hears or reads comments these days from commentators or columnists saying “the United States is now sustaining moderate economic growth.” Is it true? Perhaps. The one word you almost never hear from anyone these days is poverty.

Last fall, I watched the televised debates for many Senatorial and House races, and, of course, the presidency. Only Congressman Paul Ryan brought up the issue of poverty in his debate with Vice President Joe Biden. No one else mentioned it anywhere and I am, by some measures, a political junkie. Had it happened, I would have seen and heard it.

You rarely see it in newspapers or TV reports either. I would forecast confidently that less than 1% of today’s news coverage is devoted to the subject of poverty.

Yet, it is an epidemic that shows little indication of receding even though we are allegedly several years out of The Great Recession of 2008-2009. I have put together a number of factoids from various sources that I would like to share with you:

--52 million Americans are on food stamps. Most of you who read this blog lead fairly comfortable lives with jobs in media, advertising, or communications. Do you even know someone personally who is on food stamps?

--Some 1.2 million public school students are homeless. This is a national disgrace.  Again, do you know anyone who is homeless?

--The U.S. Census Bureau states that one out of six Americans is living in poverty. This level is back where it was when Lyndon Johnson began his administration’s “War on Poverty” in the mid-60s. Define the poverty line? It is currently pegged at $23,492 for a family of four.

--Half of all American children before they reach 18 will live in a household where food stamps are used at some point.

--Some demographers say that 150 million Americans can now be described as “poor” or “low income.”

--The number of working poor is soaring. One out of four part time workers is living below the poverty line according to an Associated Press survey. And, 25% of American workers have jobs that pay less than $10 an hour.

--As I write, the Dow Jones Industrial Average keeps chugging along and flirting with record highs almost daily but median household income in the U.S. has declined for five consecutive years.

--Food pantries and soup kitchens now serve some 37 million people per year. Many use these charitable groups to supplement their food stamp allowance. Charities are bracing for an avalanche of demand if the federal government cuts the food stamp payments.

--The median salary in the U.S. for a full time worker is $34,000.

I tell you all this not to attack the major political parties or to offer some simplistic solution to this mess. Rather, I pose a question to all marketers that you need to consider--have you adjusted your product mix, pricing, and advertising messages to reflect the new reality of significant poverty in America?

Why are the Dollar stores doing so well in terms of growth relative to the giants such as Wal-Mart and Target? It seems clear to me that many people are failing out of the middle class despite the apparent economic recovery and go to the Dollar stores out of necessity.

Also, the government tells us that the unemployment rate is drifting down to a current 7.1%. Analysts admit that this is helped by many discouraged workers dropping out of the workforce and are thus removed from the unemployment calculation. Others talk of underemployment and say that authentic unemployment could be double the published figure.

There is another group that no one talks about. Some five to six years ago, hundreds of thousands of people lost jobs paying $100-130k. They were far too young to retire and eventually virtually all of them found new jobs. Talk to them and you find that many took jobs at $60-80k per year. They had no choice. A few have told me to my face that they will never again earn what they did in 2008. So, the government lists them as employed and demographers label them as middle class but they have underdone a huge adjustment in lifestyle and their hopes and dreams have been shattered.

If you look at the commercials and print ads today, they are still largely messages aimed at those of us living the good life. It is not for the top 1-2% that gets all the press but many of the messages do reflect the lifestyle of the top 10%. Perhaps the ad community needs to rethink things a bit. How does one craft a message for a mainstream product when the society appears to be downwardly mobile?

The business news smothers us with coverage of the Twitter Initial Public Offering and when Apple launches a new phone and we see crowds lined up to buy it, we are lulled in to not seeing what is really going on in our country. Things are going just fine for most of us in advertising and marketing.  Much of the rest of the country is struggling and we do not even see it.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

The New World of Ad Agency Mergers?

On July 28th, the advertising and media world was surprised with the announcement that two giant holding companies--Omnicom and Publicis were merging. The new entity would be the largest advertising company in the world. Some 250+ agencies were involved in the merger covering including creative, media, digital, design, production, branding and public relations (I am sure that I am missing something).

The pundits got busy and people started the “welcome to our conglomerate, you’re fired” talk. Many talked about the creative clashes that would be inevitable and how when people talked “synergies” they were really saying that fewer people would be doing more work than ever to keep profits high. There is some truth in all that but if you look at what the principals said both at the announcement and since then, the merger strikes me as having little to do with advertising as we know it.

We have entered a new era that some have dubbed “Big Data.”  There is a record amount of personal information on customers that is in the hands of many giants including Google, IBM, Adobe and Oracle among others. Down the line agencies will be in a tight spot as the firms holding the massive databases can approach large marketers directly and bypass even the most sophisticated agencies. The major agency holding companies are keenly aware of this and see how vulnerable they will be or already are.

An old friend told me that the behemoths now have automated exchanges set up for tracking and placing digital media that have the look, feel and excitement of the trading rooms at Goldman Sachs and J.P.Morgan. So, with this merger, the new Omnicom-Publicis can now approach the Googles of the world with enormous orders for their new historically large client base.

So, the giants are finding a way to survive and get bigger in a rapidly changing environment. Yet what of the medium sized and smaller shops that this blog tends focus its attention? Clearly, the small fry will never have a trading room. And, their young digital media team, no matter how eager and talented they are, can never compete with the breadth of services or the terrific digital pricing that the giants can provide their clients.

Yet, mergers and acquisitions will still go forward. The result will likely be quite similar to what we have seen the last 50 years in advertising. Many, if not most, will be failures. You have seen this movie before but people who build modest sized agencies up from nothing are proud of their achievements (and rightly so) but are not used to taking orders or compromising much. So attempts to combine two different cultures almost never work. When merged mid-sized shops talk of “synergies” they are talking cost cutting which invariably means layoffs. A skilled broadcast negotiator handling $40 million in spot billing can easily handle $60 million especially if much of the new billing is in the same markets that he or she was previously buying. Staff, then, can easily be cut. The same is true is accounting, not to mention the creative teams.

To a certain degree, mergers today are often just buying time. A fellow wrote to me recently about how his money losing shop will probably merge with a slightly larger shop that is also losing money. The theory is that they can cut enough staff from both teams to make a profitable go of it as a larger company. The odds are not good but even if they do turn a profit after a huge cutting of staff, the chances are that the profit will be short lived. They need an infusion of new business or some organic growth from current clients. Without some injection of new revenue, the one time saving from the merger will dissipate quickly.

And now the big question. As digital grows, will Google et al call on the mid-sized shops clients directly? How can the little guys compete? They will not be giving Google and fellow Big Data travelers billions in revenue. Surely, there will always be boutiques who can do a splendid job of knocking out good quality work in legacy media especially in markets below the top 25. The mid-sized players, with or without mergers, will be between a rock and a hard place as digital growth accelerates.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

Core Competency and Ad Agencies

As I often am these days, I was at a driving range yesterday. It was a bit chilly so I had an old windbreaker on with a logo from a media property.  The gentlemen next to me kept staring at me and finally said, “Are you in advertising?” I shook hands, introduced myself, and gave him the brief “elevator speech” about my background. He told me that he was in town for a wedding and was going to take three of the groomsman out for a round of golf to pass time before the rehearsal dinner that night. And, he told me that he ran a small ad agency a long way from Baltimore.

Between swings, he asked me my thoughts about the future of media and I was quite willing to oblige. I asked him a few innocuous questions about his shop and then asked, “What would you say that your core competency is?”

He smiled and said, “Why just one? We have so many I don’t know where to start?” I cracked up but realized immediately that he was not trying to be funny and was not happy with my good natured reaction.

Let’s back up for a minute. Today, many people use the term “core competency” or more frequently “core competencies.”  The term first surfaced in a “Harvard Business Review” article back in 1990. Gary Hamel and C.K. Prahalad said that core competencies were the true source of competitive advantage in the business world. The authors made a lively case for companies to stop thinking about their many standalone businesses but rather to position and think of themselves as having a portfolio of competencies.

Hamel and Prahalad said that a core competency is something that you do better than anyone else. They said that to be authentic, a core competency had to leap three hurdles:

1) It is very difficult for a competitor to imitate
2) It provides access to a wide variety of markets
3) It adds mightily to the perceived customer benefits of the final product

The two professors stated that even the best organizations had no more than five basic competencies. If someone rattles off 20, then they do not know the meaning of the core competency concept. Or, I might add they are not telling the truth. :)

Some famous examples in the corporate world included Honda. They made arguably the best engines and power trains in the 1980’s. As a result, they had a big advantage in manufacturing and then selling generators, motorcycles, tractors, and, of course, cars. 3M (MMM) was known being experts with adhesives. Any number of innovative products came out of the Minneapolis based firm as customers recognized their competency in that arena.

The authors stressed that a well diversified corporation is similar to a big tree with its trunks and limbs as its core products. The tree’s root system was vital as it nourished the core competence. So, if one looks at the leaves, you only see the finished product of the tree (corporation). You do not see the underlying strength which is its core competence.

So, my new found friend at the driving range with the horrible duck hook may not be being honest with himself. The advertising world is going through a quick transition. More and more people and companies are getting left behind as digital grows and legacy media is at best stalled and, in most cases, shrinking in influence. Mid sized and smaller agencies may have to find their core competency or perhaps competencies and do so quickly. The days of trying to pretend to be all things to all people, even those who spend less than a few million dollars, are rapidly ending. Why do the mega-shops keep buying up specialty firms in mobile and design? Because they realize that, in some areas, they are weak and need to build up their strength or “competence” in that arena. The small fry can still provide great service, imagination and quick turnaround. They do need to narrow their focus and get really good at a few things if they are going to survive the next several years.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

Disintegrating Demographics

These days in Washington, DC both major American political parties are at odds over short term spending and debt issues. I follow it but think that it really avoids the real issue that faces both the U.S. and most other western nations. That issue is one of disintegrating demographics.

Populations in the West are getting older as better nutrition and medical care have increased life spans. Back in 1980, the median American was approximately 30 years of age which rose to nearly 36.5 in 2009 and is projected to be 42 by 2050 (the most dramatic change is in China where there one child policy has vaulted average age from 22 in 1980 to a possible 45 by the year 2050).

Fertility rates have also declined. There is a direct link between prosperity and declining birth rates. Also, as women continue to go to college (and finish) in record numbers, later marriage tends to translate to fewer children. In Europe, the number of children per woman has declined from 2.58 some 50 years ago to 1.30 today. This is well below the 2.1 “replacement rate” or zero population growth (ZPG) that demographers are always calculating. In the U.S, we are better off with the birth rate dropping from 3.31 to 2.04. The U.S. figure benefits from a steady entry of immigrants to our shores.

So people are living longer and having few children. This demographic shift has to have strong and negative consequences for economic growth. Historically, growth came from an increase in the workforce and in improvement in worker output better known as productivity. If our workforce shrinks due to more elderly and fewer young people, then productivity has carry the ball for growth 100% of the time.

Another factor that few people talk about is that aging populations consume increasing amounts of nursing care. Good care generally translates to more time spent per patient. That can only hinder the needed productivity growth that we discussed above.

Who is going to support the elderly? Thanks to government promises on healthcare and social security (entitlements), like it or not retirees will become an ever increasing burden on the state. Back in 1970, there were 5.3 workers per retiree in the U.S. That has dropped to 4.6 in 2010 and will be down to 2.6 in 2050 according to current projections. Other nations have it far worse. In 2050, Italy will 1.5 workers per retiree, France 1.9, and amazingly, Japan will have but 1.2. When I mentioned these stats to someone recently, they responded “what are you worried about? We are in much better shaped than those other countries.” I countered that his logic was like a person 150 pounds overweight saying that he was in better shape than someone 250 pounds overweight. One may have the coronary sooner but both were walking or waddling time-bombs. Yes, we can watch western Europe and Japan and see when the cracks appear and when crisis sets in. By then, it may be too late to right our ship.

Changes in government retirement age may be slow in coming. Everyone in the U.S. government knows that the Social Security eligibility age must be raised (the current 66 to perhaps 70 years old?). It appears that they are afraid to touch it. In 2010, former French president Nicholas Sarkozy tried to raise the retirement age from 60 to 62 and protests erupted all over the country. Note that he is now the former president.

In the U.S., the Simpson-Bowles proposals were the most responsible initiatives regarding public spending that I have seen in my lifetime. They called for raising the age for entitlements, raising certain taxes on the very upscale, and means testing both Social Security and Medicare. While not firing silver bullets, the proposals went a long way toward the long term righting of the American ship. You do not hear much about them these days but they address the most serious economic issues of our time. Some analysts whom I respect say that the liability for both Social Security and Medicare combined tops $220 trillion which really dwarfs our current topic of debate which is a $17 trillion long term debt.

Is there a silver lining to these weakening demographics for marketers? I can think of one. Legacy media like broadcast TV and radio may have a longer life. Technological change will progress but an aging population may keep some properties afloat and more profitable than some futurists can envision. Yes, we all know an 85 year old who sends lively e-mails or is a Netflix addict. Yet, many older people will stick to what they know.

Creatively, most of the messaging remains aimed at the 18-49 year olds with a big emphasis on the 25-34 demographic. This will likely shift as we graying baby boomers (born 1946-1964) drop out of the workplace for good.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

The Importance of Discipline

Many young people ask me about what they should do for a career. Like many, I always used to say spend your 20’s testing a few things and when you find something that you love, stick with it. If you love what you are doing, it will not seem like work much of the time. Poet Robert Frost put is beautifully when he wrote, “my goal is to link my avocation with my vocation.”

As time as passed, I have realized that you need more than just love of your field. What you also need is discipline, sometimes great discipline. Many of the people who have impressed me the most over the years were not the flashy types. They were people who came in and quietly and doggedly pursued their jobs every day. Complaining was rare and they simply kept going and kept learning. Over time, they tended to get the recognition that they deserved.

This past year a student asked me at the end of a class for suggestions to get ready for a business career. I recommended that she read The Wall Street Journal every day. Some of it would be confusing at first but over time a lot would sink in. Soon you would be the best informed person in your office and become the “go to” person on many issues. She nodded and agreed to give it a try. As I looked around the room students were smiling at each other and some laughing. I asked “why pursue a business career and ignore the bible of American business.” No one replied and I received a few nervous stares. As the class broke up, I was gathering my lecture notes and erasing the blackboard (yes, I still write things on the board). I overheard two guys talking in a stage whisper. A direct quote is “Cole is an idiot. Why should anyone read The Wall Street Journal?”

Well. Perhaps I am an idiot. I am willing to bet serious money, however, that neither of two young vulgarians will ever reach the corner office. In a competitive marketplace and, an increasingly global one, the informed and well read executive is going to stand out from the crowd. So, if you have the discipline to keep working away at your knowledge of the marketplace in general and your field in particular you should do quite well especially when many of your co-workers will not.

Many young students today work out regularly. They look great. Some cut classes on occasion rather than miss their daily regimen at the gym. What they are forgetting is that their mind needs to be developed as well. Those who have the discipline to pursue their career day in and day out will be rewarded, big time.


If you would like to contact Don Cole directly, you may contact him at doncolemedia@gmail.com