Agency Debt and Death

Recession is a viable reason to re-examine how clients pay their agency partners, the solution is not to stop paying them!

Agency Debt & Death

Article, June 26th 2009, Agency Spy

http://www.mediabistro.com/agencyspy/opeds/dean_crutchfield_on_agency_debt_and_death_120092.asp#more

By Dean Crutchfield

I was brought up on the notion that there were two things we could guarantee in our lives: Debt and Death. Today we’ve got agencies in debt and death of advertising smears.

In the face of this adversity the often approached and avoided “value-based” compensation system is making a successful come back via marketing heavy weights, Coca Cola and P&G; with P&G going to the extreme edge of the curve with one agency made responsible for all the other partners, including payments, budgets and hires! It’s tragically ironic that whilst recession is a viable reason to re-examine how clients pay their agency partners, the solution is not to stop paying them!

My favorite face on a currency, Mr. Benjamin Franklin, advised that a penny saved is a penny earned. And that’s exactly the advice corporate clients have adapted to assuage their cash flow by holding onto what’s rightfully yours. That, in a nutshell, is it, cash flow; theirs first, yours whenever… Facts are stubborn things so what’s the ethical thing to do? That mostly depends on who is asking, in this case the agency, who is going to be affected, the agency, and the likely outcome, a defunct agency (maybe). Payment default will always raise the question about the success of the relationship:

Armed robbers burst into Cannes, line up agency execs and clients against the wall, and begin to take their wallets, watches and invoices. An agency executive and his client are among those waiting to be robbed. The client suddenly thrusts something into the hand of the ad executive who whispers, “what’s this?” The client whispers back, “it’s the money I owe you.”

Fear of separation is often what unites us so let’s face it, we’ve been drafted into a war we didn’t create and the costs of winning a new client are 5X more than retaining an existing one. Getting, asking, begging for your money is a scary, inherently unstable, essential activity we need to undertake to survive. But how heavy do you go and is there any upside?

For the CMO, what matters is optimizing marketing’s value by leading the charge for change with new approaches, cost cuts, structure changes and added value of their agency relationships. For the CFOs cogitation, marketing’s value is that he can cut it, or simply just stop paying it. Clearly they’re utilizing both effectively.

John Maynard Keynes said, “If I owe you a pound, I have a problem; but if I owe you a million, the problem is yours.”

Perhaps debt is good for retaining clients? Just because someone stole your shoes, it doesn’t mean you have to cut off your legs. The key is to keep that relationship because debt makes for a monster switch out cost for the client if they wish to leave. As Ivan Lendl said about playing the mighty McEnroe, “I keep my emotions in my wallet.”

Wal-Mart’s Private Label ambitions

A new growth trajectory for Wal-Mart

Wal-Mart’s ambition for its private label brands is expanding. Traditionally targeting low and fixed-income customers, Wal-Mart stores are also witnessing a growing number of mid-income Americans enjoying their unique offer of value. So although their core value proposition of value and convenience has not changed, they have recognized the need to strategically tear the private label offer apart from top to bottom, treating private label as a cornerstone of their value offer and a center stage for growth.

Therefore, they’re looking for much more than a simple packaging redesign and are implementing a bold private label strategy that drives traffic, increases loyalty and grows revenues across multiple categories and SKUs – providing Wal-Mart a sustainable and un-copyable competitive advantage.

A central part of this strategy seems be a new brand architecture that identifies the winners to back (like Great Value), and retires less effective brands, and that correctly matches brand to product offerings and customer segments. Once the architecture is being put in place, its component brands (like Great Value) will all need to deliver an evolved “brand language”: a new look and feel, information architecture, and brand experience for customers. This language will need to address different segments, different needs, different products and different prices. Simultaneously, enabling Wal-Mart to reduce the SKU count and review adjacency strategies and zone planning.

Clearly Wal-Mart has a strong value proposition from a business and brand standpoint: value and convenience. Now they’re translating this into a compelling new own brand portfolio – to help create a difference in-store, a deeper emotional connection with customers, greater differentiation from their competitors, and a new growth trajectory for Wal-Mart.

Gordon Gekko’s tears

Times have changed when you read that 400 MBA Graduates from Harvard Business School proselytize to serve the greater good.

Times have changed when you read that 400 MBA Graduates from Harvard Business School proselytize to serve the greater good.

Rise of the Machines

Rise of the Machines: NO. Rise of the attack ads: YES. As Economist reports, be careful, they can (literally) ignite in your face and burn your wallet. I think I’ll start penning my letter to Domino’s.

Why Sir Martin Sorrell’s New Deal Isn’t Such a Big One

Sorrell understands that the fickle consumer is in the driver’s seat and that requires new ways of marketing. He is smart, intrepid and unleaderable and he knows that shareholder value is a result not a strategy.

Why Sir Martin Sorrell’s New Deal Isn’t Such a Big One

Article, June 4th 2009, AgencySpy.com

http://www.mediabistro.com/agencyspy/opeds/dean_crutchfield_on_why_sir_martin_sorrells_new_deal_isnt_such_a_big_one_118218.asp

By Dean Crutchfield

Oscar Wilde once mused that “to know the price of everything was to know the value of nothing”. Our cogitation surrounding Sir Martin Sorrell’s $96M remuneration package is a fascinating debate about perceived value.

As an industry we bring tremendous value: brands are a businesses greatest asset promulgated by the rampant rise in the value of intangible assets. In 1982 the net tangible assets on the Balance Sheets of the companies comprising the S&P 500 accounted for nearly 90% of their value, by 2005 it was only just over 20%. So if today the value of the S&P is approximately $11.5 Trillion that means $9.2 Trillion is intangible and within that sum, WPP’s BrandZ study estimates the brand value is $2 Trillion! It is no coincidence that this all has happened whilst the marketing industry blossomed from the mid 80’s e.g. Omnicom and WPP both started 1986.

Sir Martin Sorrell had a vision to build a full-service, global-marketing company to serve worldwide clients and in 1986 he acquired an already publicly listed company called Wire & Plastic Products. Having been the CFO for Saatchi and Saatchi for a number of years, he understood that advertising was being usurped. Ad agencies needed to ameliorate the rebellion from clients who refused to keep paying ad agencies 15% commission so he moved to a fee-based model. It was also a category whose effectiveness was being diluted by technology that gave consumers more choices and tools that avoided ads. Sorrell knew the simplest answer was to act. With an appetite for acquisition he acquired fee-based service businesses such as branding, public relations, event marketing, digital, direct mail and research firms. He was also the first to really make in-roads East, adding companies and clients in Asia as well as Europe, the Middle East and South America.

I have a Financial Times article from 1997 with an interview with Sir Martin in which he talks about the challenge of getting 50,000 employees to face in the same direction. Today it would seem he has accomplished that goal with a $13.6B global powerhouse that has over 125,000 employees and 141 businesses in over 100 countries that derives more than half its income from marketing rather than advertising.

For most of us, we all want success, we all want it now and we all want it big and Sir Martin has matched all three splendidly. But is he worth it? I believe he is and I admire what he’s achieved and I have no problem with him being incentivized to keep growing WPP with $96M over 5 years if you compare that with mainstream corporate execs.

Just take a glance over the last several years and you can read stories of profligate excess, from Tyco’s Dennis Kozlowski, Computer Associates Charles Wang’s $1B share binge, New York Stock Exchange paying departing Dick Grasso $140M, Robert Nardelli getting $221M for failing at Home Depot and a tidy exit package for failure of $200M for Hank McKinnell of Pfizer.

Once again excessive executive compensation has taken center stage since the taxpayers bailout of banks that began in September 2008. We have all expressed genuine outrage as CEOs and other executives responsible for the financial crisis have pocketed millions of dollars.

Last year, the biggest CEO payouts for failure took place on Wall Street: Citigroup’s CEO Charles Prince got a bonus of $10 million, allowed him to keep $28 million worth of stock and options and granted him $1.5 million in annual perks. And at Merrill Lynch, CEO E. Stanley O’Neal walked away with a $161 million package!

He might be known as Machiavelli on Madison Avenue, but Sir Martin is not asking for a payout for failure. With him leading the way, a tsunami of consolidation has swept advertising, and now WPP and four other giants together represent 60% of all U.S. advertising dollars. Some complain that creativity in marketing and advertising has been hijacked by big business seeking world domination. I’m often concerned to hear this disappointing cynical view of ‘big business’. To be blunt, it is only businesses big and small that create the jobs and the incomes which give us all an opportunity to live better, feel better and get more out of life – and do some great work in the making.

Sorrell understands that the fickle consumer is in the driver’s seat and that requires new ways of marketing. He is smart, intrepid and unleaderable and he knows that shareholder value is a result not a strategy.

Why do I believe he should earn $96 Million over five years? First, because there’s a big question surrounding whether giant companies like WPP, Omnicom, Publicis, IPG, etc can inspire creative people and convince Wall Street that size and synergy can work. If it doesn’t we’re all in trouble. So we need a champion who is prepared to be a lightning rod figure that can charge into the fray.

Second, because the marketing industry needs big earners so that we are taken seriously as a “Business” – it provides a level of credibility. And Sir Martin accomplishes it with a determination, self-reliance and degree of success that is particularly notable.

Third, just to get some venting started and hurl some stones at the Marketing glasshouse so that the crash of glass might not be heard, but the desired effect is a series of deafening explosions amongst us.

A Blueprint for Great Brands

The definition of the word brand, from a 1998 copy of Webster’s dictionary, was “to mark with a red hot poker”.

By Dean Crutchfield

The definition of the word brand, from a 1998 copy of Webster’s dictionary, was “to mark with a red hot poker”. The definition is still spot on because brands need to be red hot in this destructive deleveraging recession.

Successful brands are stories told well and the language of the consumer has changed. Today’s consumer admires brands that enable them to become involved; it’s much more of a reciprocal relationship. The consumer also demands more flexibility and therefore, the relationship between producer and consumer has become blurred; we must promote brands with precision marketing that enables the right people to be involved.

Brand is not marketing, it is what you stand for and people love a brand that stands for something. We know that a strong brand is vital to an organization’s success, but what is not so widely understood is how strong brands happen, where they come from and how they endure.

All successful strategies are destined to fail. In a rapidly changing market, how do you separate value from commodity, especially when the nature of competition has changed dramatically; it’s no longer your obvious competitor. Today it’s about the power of your customers, suppliers, potential substitutes and the threat of new entrants. If you can’t build an advantage on what you sell, create a brand advantage on how you sell?

Most branding agencies don’t clarify the situation. They often discuss brand building in vague or made-up terms and offer intriguing, but unproven strategies.

My blueprint for best branding practices identifies four components for building and managing great brands. These four factors are definitive. Each supports and enhances the other. And they’re all achievable by any organization.

Ignite a great idea

At the core of all great brands is a great idea that people inside and outside of the business can buy into. Great brand ideas are unique, true and selfless. They’re based on universal ideas, such as convenience, magic or individuality. They’re simple enough for people everywhere to “get” and they reflect real, living attributes of the organization.

Dynamic leadership

Successful brands come from organizations that manage brands right from the top. Why? First, brands are valuable. Second, brands permeate all departments and must be managed where they all converge – at the CEO’s office. Third, great brands are actions, not just words. Marketers can talk about a brand, but unless it comes to life through actions, it’s simply not believable. Leadership psyche is the key to a successful strategy as it sets the example on the organizational style and the direction employees need to take for all brand actions and communications.

The right talent

In a rapidly changing world, organizations must adapt and change. Success is not about hiring the right skills it’s about hiring the right attitudes. People are a brand’s greatest asset, and the most important thing a CEO can do is have a continuous recruitment strategy in place—including success planning—that constantly searches for new talent both internally and with outside partners. A good brand will only become great when the members of the organization believe in it and live it out as they work.

Encouraging culture

How do you take people forward through change because if they don’t believe they won’t come? Building a brand that has clear meaning to your employees requires delivering short-term actions that can take the brand deeper into the employee relationship. Therefore, what are the rock hard beliefs your people can hold onto? Why? Because true values extend far beyond the bounds of what function companies actually perform. Instead they are anchored in human emotions, concerns, aspirations and ambitions.

Enterprise transformation relies on that one last crucible corporate culture and a common vocabulary is not a common culture. Society has re-wired the way consumer markets are shaped and if social dynamics and consumer markets are re-wired we need to focus internally on the human aspects of the business. There are many sources of internal motivation. Brand experiences are personal, so organizations can’t dictate them, but they can optimize their control and flexibility. This includes educating the organization about a brand’s value and matching the organization’s culture with its brand message.

Great brands are built by igniting big ideas, creating dynamic leadership, supporting the right talent and encouraging the culture. With great brands come great benefits—including higher customer loyalty, increased opportunities and elevated profits.

Here are seven critical questions a business needs to answer:

What is the business and brand strategy for the future?
What will be the shared values the business is based on?
How should the business be structured: structurally led or strategically led?
What staffing is required to make it happen?
What are the skills that need to be trained?
What systems are in place for success planning and recruitment?
What should be the style of the organization to succeed?

As Shakespeare said “nothing comes from nothing, dare mighty things.”

Now’s the Time for CMOs to Adopt the 7-S Framework

Misconduct by big brand names and shifting consumer behavior has changed the perceived value exchange between brands and consumers. This has created many opportunities for brands to hold entirely different conversations with the consumer.

Now’s the Time for CMOs to Adopt the 7-S Framework

Dean Crutchfield article, June 1st 2009, Advertising Age

http://adage.com/cmostrategy/article?article_id=136956

By Dean Crutchfield

The stretching of marketing boundaries is propelling brands to seek new and innovative approaches. We need what the Economist describes as “calibrated boldness”. Breakthrough marketing and innovation are borne when there’s a tension and pursuit of opportunity without regard to limited resources. When this happens, marketers are more open to rethinking the fundamental way we do marketing. It’s a gamble and in that poker game you need a stacked hand in your favor: a royal flush powered by McKinsey.

In the early 80’s the 7-S Framework was formed by authors Tom Peters, Robert Waterman, Richard Pascale and Anthony Athos and was later adopted by McKinsey as one of its core tools. The premise of the framework was aimed at corporations and can be adopted by marketing operations. The framework describes 7 factors that holistically determine how a corporation operates; if you change one, it affects the other six:

Shared values are what the organization stands for
Strategy is the allocation of resources across the enterprise
Structure is how the organization’s units relate to each other
Systems are procedures, processes and routines
Staff relates to the numbers and types of personnel
Style is about the culture of the organization
Skills are about personnel and the organization overall

This interdependent framework is a powerful tool for the CMO:

Shared values with the customer

What is the brand’s value transfer to the customer? Today’s consumer admires brands that enable them to become involved; it’s much more of a reciprocal relationship. The changing relationship between producer and consumer has become blurred and we must shape brands that engage and enable people to participate.

Brands need to embrace more freedom and relinquish some power and control to the consumer by adopting narrative based brand and marketing strategies that can impact multiple platforms to engage consumers: creating brands that are more magnanimous, malleable and functional.

Strategy for customer acquisition

What makes a brand great fades with age and the credit strapped, over extended, saving short US shopper has retrenched requiring an entirely different marketing approach.

The language of the new consumer is changing. It’s all about precision (of message), flexibility (of relationship) and reciprocity (of value). In this new paradigm, media is shifting online from the $23.4B spent in ’08 to what some industry pundits believe could be up to $43.4B by 2013. It’s not that people are watching less television; according to Nielson the last quarter of 2008 was an all time record high! It’s just a question of how and where we’re consuming content.

Structure of the agency relationships

The invidious combination of marketing challenges, plethora of marketing personnel and the multitude of channels often create an unwieldy concoction of brand managers and agencies. Consolidation is King as is evidenced by Dell’s worthy attempt to reduce 800 agencies into Enfactico and PepsiCo attempting to consolidate into TBWA/ChiatDay and Arnell Group. While it’s critical to consolidate cost you cannot consolidate creativity.

Who should be the CMO’s lead agency partner? All too often we assume it’s the advertising agency, but in a recent survey by Verse Group and Jupiter research over 60% of the CMO’s and marketing managers surveyed said that traditional advertising and brand positioning are not as effective as they used to be for attracting customers. The problem defines the solution and the CMO needs a media agnostic partner.

Systems for ROI

Without non-financial goals your ship is rudderless: never has it been more important to improve the dialogue with finance. We know brands are businesses greatest assets by the rampant rise in the value of intangible assets. In 1982 the net tangible assets on the Balance Sheets of the companies comprising the S&P 500 accounted for nearly 90% of their value; by 2005 it was just over 20%. Therefore, to enhance the CFO’s cogitation about marketing’s value, we need tools and measurements that are more robust. Current methods of ROI using marketing-mix models that rely on econometric analysis have their drawbacks: working closer with the CFO will yield a better result, including how to incentivize and reward agency partners.

Style of marketing communications

The full force of marketing: advertising, branding, digital, direct marketing, innovation, media, mobile, public relations and retail are awesomely powerful. Which ones should be used by your brand depends on the brand ambition and what approach will deliver it in a compelling and engaging way that provides consumers a reason to participate.

Misconduct by big brand names and shifting consumer behavior has changed the perceived value exchange between brands and consumers. This has created many opportunities for brands to hold entirely different conversations with the consumer with new methods of approach that enable customers to better connect with the brand. It used to be the 4P’s (price, product, place, promotion) now it’s the 4C’s: content, community, commerce and consumers.

Staffing the marketing operation

Today, your people are understandably scared. Building trust that has clear meaning to your teams and agency partners requires delivering short-term actions that can take the CMO’s attitude deeper into the relationships.

To reduce headcount and retain the best people, the CMO needs to focus internally on the human aspects of the business. There are many sources of internal motivation. Brand experiences are personal, so organizations can’t dictate them, but they can optimize their control and flexibility. The CMO is the key to a successful staffing strategy as they set the example on how they’re going to build the business going forward and concomitantly build the culture? Probably the best tool for retaining stars and reducing head count is “The Vitality Curve” as it prioritizes the top 20% for special treatment, 70% for training and the bottom 10% for firing.

Skills required for brand next

CMO’s are demanding the same marketing performance for 60% of the dollar investment and finding the resources for growth is extremely arduous. Recent studies suggest that as marketers seek to generate more “earned media” from marketing budgets, brand narratives, non-traditional media and innovation will play a central role, but there’s a skill gap between need and capability.

The majority of CMO’s have difficulty managing their brand across multiple platforms. Having the wrong skills in the team is like having a loose fitting part flailing around in a machine: not only will the engine not run well, it could eat itself up. Ultimately, new skills are required both within the marketing operation and with agency partners as ever more complex marketing programs are designed that integrate traditional and non-traditional media.

Hard facts are stubborn, but what ought to be can be with the means to make it so. The success of contrarian marketing strategies requires CMO’s to vitiate prevailing marketing theories and the experts we respect and embrace experimentation. Finding the winning hand in this 7-S Framework makes a royal flush. There are very few things in business that pay off by waiting and the CMO needs to separate appetites from real requirements. This begs the question: what’s your growth strategy? As Mr. AG Lafley, P&G’s CEO would tell you, “When times are tough, you build share.”