Commoditization: The biggest threat facing ad agencies today

Many industries, including advertising, are becoming saturated with competitors of all sizes, to the point where the products and services we produce and provide, are becoming commoditized. Differentiation is difficult because truthfully, everyone is offering pretty much the same thing.

Commoditization should be putting fear into us. It’s important that you understand how big a subject this is. In the advertising and marketing industry, commoditization is spreading like wildfire, and creativity looks more and more like it could get commoditized.

Commoditization may be the biggest threat facing ad agencies today, and yet we hear precious little about it, and few are taking strategic action to combat it.

The Internet has accelerated our industry at dizzying speeds. Markets teem with ruthless competition. Commoditization has for one reason or other, slipped under the radar, despite it being arguably the biggest threat of all.

Our industry is treating ideas, creativity, and media, simply as tools that can always be made faster and more cheaply elsewhere. Now social media too has become commoditized, as brands broadcast messages all day long on Facebook and Twitter, and no one pays attention. PR has also shifted, since all the journalists can go straight to the source and no longer need the PR person.

It now takes a dashboard to be a marketing person at a major brand. That dashboard keeps track of brand assets, agencies, and hopefully, objectives. The agencies are relegated to an “arms and legs” role, not the conceptual role they were meant to offer. And that will get worse and worse.

An Inc. Magazine article cites a recent study of 1,500 CEOs: “Leaders rank creativity as the No.1 leadership attribute needed for prosperity. It's the one thing that can't be outsourced; the one thing that's the lifeblood of sustainable competitive advantage”.

Unfortunately, most ad agencies big and small fail to differentiate their services, and then wonder why they keep getting beaten to the punch. I’ve read many an ad agency’s business mission statement. They often include words about "innovation," yet risk-taking and creativity are often punished instead of rewarded—one more reason why commoditization is on the upswing. I conclude that the more things change, the more they stay the same—agencies are good at cementing the status quo.

Virtually every product and service, at some time in it’s life cycle moves to commoditization.  It’s the same with most ad agencies as they grow from small entrepreneurial “hot shops” to big, comfortable ones.  As differences between agency offerings become narrower,  there is a greater potential that their offerings become commoditized.  Given no other differentiation, the only way to win is based on price—often lower fees.

As more clients work on the assumption that costs can be standardized, some agency executives believe "We're getting to the point where our clients are going to be telling us what our creative director's salary should be." Others say “Agencies and media companies feel they're being treated like credit lines rather than valued partners”.

So what is one to do given this situation? It's a question most every organization is wrestling mightily with in today's rapidly changing paradigm. Some agencies stress their company's great service. Unfortunately, since that is exactly what everyone else says these days, it's pretty ineffective. Others tout their digital superiority. Some are price driven offering more for less, and faster too. Ultimately, this drives prices down so much that only the very low-cost providers survive.  The reality is – good work is not cheap. As the adage goes: Pick two of the following: Fast, Cheap, Good.

Don’t get me wrong, there are clients that will always hire an agency on price, regardless of whether their creative product and strategic abilities have significant differentiation, or whether it is a commodity.  Price is important to every decision, but it is incumbent on both the agency and the client’s success to focus on value creation in every situation. If we allow ourselves to be commoditized, if we allow ourselves to stop creating value, then we deserve the outcomes we create.

Everyone’s an Expert

The “expert” is also becoming commoditized. These days, it seems that everyone thinks they can do your job—only better, faster and cheaper than you can. With a computer and a few creative programs, everyone is a writer, an art director, a designer, a photographer, a video director, a marketer....

A common complaint in our industry is that it’s tough to differentiate ourselves. These days, whether dealing with consulting firms or ad agencies, it’s hard to avoid hearing the same advice from different talking heads. Most industry ‘experts’ are reading from the same playbook.  I believe that this is all because of commoditization.

When advertising agencies work at raising their differentiation profile, they often run into difficulty. Having a staff of highly-creative people with cool solutions to complex business challenges does not mean they are different, nor immune to creeping commoditization. At the end of the day, being better isn’t good enough.

Is it best to be better, or different?

From a personal survey I took of several major ad agency websites, I have concluded that most ad agencies prefer to succeed by being “better” instead of “different”.  They claim to be “better than our competitors”, “better than we were last year”, “best in class”, “best at the award shows”, “best at digital”,  “best full-service agency”, “best fully integrated agency”...

The ones that seem to rank highly in my opinion, and the ones that really succeed at what they do, invariably have something to do with difference. The most valuable accolades come from their clients: “they’re not like all the rest”.

Differentiation matters as much for advertising agencies as it does in any other business. Our clients give us products and business strategies from which we are asked to develop ideas that are differentiating experiences.

A friend of mine is a managing director and owner of a highly-creative ad agency in Singapore. This is what he told me recently while we lunched together at the Boat House restaurant at Fullerton:

“We think our work is the product, and that our job is to ‘sell’ it to our clients. But the work we do isn’t really what we’re selling. We’re selling ourselves. As a group of  problem-solving people we’re asking a client to trust and respect our business opinions, and to pay us some kind of premium for creative ideas that are different than those created for their competitors.  If we don’t, by default, we are commoditizing ourselves. It’s not about creating a better experience, it’s about creating a different experience. People who keep repeating “it’s all about the work” are naive.  It’s all about everything, never about one thing or one idea”.

Advertising agencies are suppose to be in the business of creating differentiation. Sadly, many of them pursue the standards of  “Better, Bigger, Faster”, which puts our industry at great disadvantage.

Perhaps it is time for those agencies that do not have a clear strategic difference, to rethink their business.  To go from undifferentiated to differentiated takes hard, strategic work. The kind of work that most agencies say they do for their own clients. It’s time they practice what they preach. Or commoditization will surely put a cap on their bottom line.

Agencies need to obsess with ‘difference’. They need to provide their clients with different experiences, unique people, new ways of thinking, working and collaborating.  Thinking ‘different’ is the best way to obliterate commoditization.

We all need to work to stop the commoditization of our business, to ensure an agency’s role isn’t diminished but valued more.

Do you think ad agencies are being commoditized?

An Ad Age poll thinks so:

What do you think?

Mike Fromowitz

OCTANE