Next Step: Category Agencies?

The same trend that has been such a boon to agencies could turn into a bust.

The long-running trend toward outsourcing among brand marketers has certainly been a bonanza for promotion agencies. As corporate marketing departments have downsized, agencies have been the major beneficiaries of a growing market for outside resources.

However, the same trend that has been such a boon to agencies could turn into a bust. It’s not hard to imagine a scenario in which promotion agencies find themselves squeezed out of the marketing supply chain as brand owners apply the power of the Internet to streamline their go-to-market processes.

We’ve all heard of the online “exchanges” created by various industries (automotive, for example) in which a consortium of companies within a given category combine their resources to realize greater supply chain efficiencies. The overall objective is to realize savings in procurement of products and services.

It’s all but inevitable that the same type of exchange will, at some point, materialize and re-configure the go-to-market supply chain. As with other such exchanges, gaining efficiencies and saving money will be a key objective.

This holds huge implications for the promotion and marketing services industry, because it likely will involve online “auctions” in which promotion and merchandising services would be sold to the lowest bidders.

It also raises the possibility that promotion agencies might lose their ability to turn a profit on subcontracted services like sampling, for example. After all, the whole point of an exchange is to cut out intermediaries.

The notion of an online marketing exchange doesn’t stop there, however, and that’s where the good news for promotion agencies kicks in. A marketing exchange would almost certainly focus on maximizing marketing effectiveness as well as cost efficiencies. Promotion agencies have a clear opportunity to take the lead in helping their clients — the marketers — use the Internet as a platform to improve the effectiveness of their go-to-market strategies.

Marketers need such assistance from their agencies in part because they have become so reliant on agency capacities to plan, develop, and execute promotions. Compounding their conundrum is the rising power of the retail trade and the resulting complexity of executing promotions through retail. As marketers have downsized their marketing departments, the retailers have upsized their demand for marketing support from the marketers.

Much of the retail demand stems from their ability to collect shopper data and the potential to use it to segment by stores and even down to the household level. So what used to be a single promotional theme carried by a single promotional medium like an FSI is turning into potentially 200 themes and media vehicles. If a brand is working with 200 chains that are segmented into 10 sectors, that adds up to 2,000 different message variations. Taken down to the household level, there could be 3,000 households within a single store that each received a customized promotion. That brings the potential variations of a promotion to 15 million.

Time to Shine

Promotion agencies clearly have a chance to be heroes in this new environment by taking the lead in helping clients manage all of this complexity. It’s going to take a different kind of promotion agency, however.

“You can’t just provide discounts. You have to offer your best customers relevance, personalization, and recognition in return for a continuous dialogue.”
— Mark Heckman, Valassis

Promotion agencies, as we’ve known them, typically work within a category; they can’t work across categories because that is currently considered a conflict of interest. A next-generation agency would be different in that it would work with a number of different brands within a category. It would provide a channel through which brands can communicate with retailers and piggyback with each other when it comes to in-store implementation.

There is a precedent for this approach. Third-party media companies such as News Corp. have already made such a model a reality by bringing multiple marketer/brand messages to the store via a single person or system. But it will require the full support of the marketing community, and, to a lesser degree, retailers. Agencies obviously are not about to try to work across categories if clients don’t endorse the idea in advance.

Promotion agencies will also have to become far more technology- and information-driven. They will need to invest in technologies that keep track and take advantage of the many intricate executional opportunities and considerations. On the whole, most promotion agencies have been slow to embrace technologies, so this particular imperative could represent a major hurdle.

There’s certainly not much comfort in promotion agencies denying the eventuality of a go-to-market exchange because it’s likely inevitable. It’s clearly far healthier and wiser to focus on where agencies might re-assert their points of relevance once a go-to-market exchange becomes a reality.

Tim Hawkes is ceo of TradeZone LLC, Westport, CT. He can be reached at [email protected].