One of the most common instances of this involves taking the existing market at face value. When we do strategy, we follow these initial steps:

1. Confirm our objectives

2. Gather relevant information

3. Organise the relevant information into one or more frameworks

4. Analyse the information to determine the best course of action

In colour-by-numbers marketing strategy, this plays out very simply (which is not to say that it doesn’t require significant effort).

1. Our objective is increased market share.

2. Relevant information is the three Cs – what does our Company have, what do the Competitors offer, what do the Customers want?

3. Organise the information into frameworks like competitive landscapes and value proposition canvases.

4. Triangulate the biggest Customer desires against the gaps left by the Competition in light of what the Company’s actual and potential strengths are.

One unquestioned assumption sitting amongst this perfectly sensible method is that the customers’ desires are an external environmental factor, to be understood but ultimately outside of the business’s control.

There are three relevant facts here:

• Customer desires change over time.

• Customers don’t necessarily know what they want or could want.

• Customer desires can be influenced by business activities.

Many darling case studies of business success revolve around these facts, which are oft-repeated by seldom applied.

Henry Ford famously said that if he had asked customers what they wanted, they would have said “faster horses”. Steve Jobs was another firm believer that customers had a poor idea of what they wanted – that his job was to envision what they could have and let them catch up once it was available to them.

Similarly, these points are the underlying premises of Blue Ocean strategy. The basic idea is that there are established competitive markets where many established businesses are fighting over the same customers – like sharks all eating the same food, leaving a bloody Red Ocean. So an option is available to find new virgin waters, Blue Oceans where there are no competitors.

A classic example is Cirque de Soleil – elevating the circus above being for kids and creating a whole new kind of premium adult entertainment.

So what could all of this mean for the strategy of an agency? Well, without trying to get too radical, one option on the table is to actively foster demand for a particular kind of marketing service which would be untenable if we took the market at face value as a fixed fact.

There are plenty of niche marketing approaches with relatively low interest from clients. For me, most of the ones that spring to mind were briefly popular fads in the past and have since declined, but perhaps that’s because I’m not putting much effort into thinking of possibilities.

• Guerrilla marketing

• Experiential marketing

• Gamification

• Direct mail

• Product placement

Those are just a few examples. And sure, it’s not like none of them are happening any more. Akcelo did that great experiential Spider-man promo in Sydney last year:

In addition to the installation, they had paid actors wandering around playing the parts of NYPD officers, in character and engaging with the public.

And direct mail is still used in various categories, including non-profit fundraising, to some good effect. Etc. These tactics aren’t non-existent.

But overall demand for these kinds of marketing is relatively low, and going just by the numbers, an agency would probably be put off pursuing any of them as a niche specialisation.

So how would an agency profitably adopt one of these apparently unappealing specialisations? They would have two marketing jobs:

1. Market the specialisation itself

2. Market itself as the specialist

From a business-objective perspective, the agency would probably want to benchmark client demand for the niche marketing approach – survey relevant decision-makers on their perception of the effectiveness of the niche and what percentage of their next annual marketing budget they expect to be allocated to it (which could well be zero).

That’s the starting point. From there, the agency would need to shift those dials. Produce white papers on the underlying psychology or effectiveness of the approaches. Create or engage thought leaders to deliver webinars and seminars extolling the virtues of the approaches. Invest in PR’ing successful case studies. And so on.

Perhaps partner with competing agencies who include the niche in their services. Partner with competitors? Yes, another traditionally unthinkable thought, but the objective here is to grow a pie that most players are ignoring – if some competitors get a few pieces of that pie too, who cares?

At the same time, you still have the classic strategy tasks to attend to. How can you build a defensible advantage in this market that you’re actively growing?

• Agency brand obviously plays a part here – if the agency is synonymous with the niche service, competitors will be playing catch-up later on if the niche demand grows enough to get their attention.

• Development of specialised intangible and tangible assets – ways of working, intellectual property, networks of relationships, bespoke software platforms, etc. What’s appropriate will depend on the specialisation.

Strategically, the goal is to grow demand beyond the current capacity of the market, while building a sustainable competitive advantage over future competitors who start trying to meet the demand once it’s substantial enough to be appealing. If the strategy really succeeds, competitors won’t even bother trying, because even though the appeal has grown, you’ve simultaneously increased the investment required to compete enough that it doesn’t make good business sense to take you on in the niche.

That’s the classic competitive strategy approach to the situation. Another one, hinted at above, and also requiring a step outside of traditional thinking, is to cooperate with a set of competitors to grow the size of the pie for all of you. A trade-off is involved – by sharing demand with competitors, your own share is reduced. But the objective of your business is sustainable return on equity, not outcompeting others for its own sake. 40% of $50 million is more than 90% of $10 million. If cooperation and coordination can achieve the former and short-sighted competitiveness leads to the latter, then working with rather than against competitors makes better business sense.

But remember, you’ll all want to be building those barriers to entry into your emerging strategic group.

I think I’ve said this before – I’m a little wary of Blue Ocean strategy. It’s one of those approaches which promises the world and appealingly sidesteps the difficult tasks of classic competitive strategy – actually doing the hard work of finding ways to offer better value to customers than competitors are.

It’s analogous to the appeal of things like paleo diets or 5-2 fasting diets. “Oh hey, there’s actually this shortcut to your weight-loss goals that don’t require moderating caloric intake and going out and doing some exercise.” A lot of marketing fads are like that. Similar also to what I used to call “Dollar Shave Club Syndrome”.

This one entertainingly surreal and very low-budget video launched Dollar Shave Club into an 8% share of the US razor market. And for a while, every second client out there seemed to be saying, “Why do you need a big production budget? These guys did it with like $5k.” (The business has subsequently foundered, as it turns out customers actually aren’t enthused enough about direct-order razors.)

There are always going to be these fads and outliers that briefly promise an escape from the hard and expensive work of doing business.

That said, both Blue Ocean strategies and strategies that involve directly influencing market demand can be valid. They’re not for every business, but they’re also not for no businesses.

For agencies battling for profitability against all of the Five Forces, there may be opportunities for successful niche strategies that both create and defensibly own demand for particular marketing services.

I want to cover two completely unrelated things today. Firstly, the effect of brand on agency strategy; and secondly, potential diseconomies of scale that agencies might face.

Let’s remind ourselves of what brand equity actually is. Brand equity is the differential effect of brand knowledge on customer responses to the marketing of the branded products or services. In other words, what is the difference between a completely unbranded product or service and the exact same product or service with the brand attached? How much more will they pay and/or how much more likely are they to buy it?

This boils down to metrics like sales per dollars spent on marketing – or, put another way, dollars spent per sale. But while that’s the end result, the effects of brand equity are mediated through a complex collection of contributing impacts:

• Brand recall – how easily does the brand come to mind when category needs arise?

• Brand recognition – how many people know the brand when they see it?

• Category associations – how many relevant category needs is the brand associated with?

• Brand perceptions – what positive associations does the brand have with attributes important to decisions in the category?

• Brand distinctiveness – how difficult is the brand to be confused with competitor brands?

• Trust – especially important for categories in which the product or service quality is obtuse; that is, you won’t really know how good it is until you’ve already bought it.

In some ways, brand is the last refuge of scoundrels in business. Every brand benefits from brand building, but in commoditised categories with no real differentiation in value from one product to the next, brand is the only real counterbalance to price. Unless you can increase margins from the other end – lowering costs per unit more than competitors – you get profit squeezed out of you along with everyone else.

If it’s a rule of thumb that brand becomes relatively (even) more important in commoditised categories and I’ve been saying that Agencyland is largely commoditised, then it stands to reason that brand should be a priority for agencies unable to differentiate in any other way.

Brand is an intangible asset owned by a company, so we can analyse it with the VRIO framework to determine whether or not it can become a source of sustainable competitive advantage. Does it create value for customers? Yes, in the form of confidence and reassurance of quality in advance of the actual work being done. Is it rare? Brand in general is not rare, but the more well known and associated with category quality attributes it is, the rarer it becomes. Is it difficult to imitate? Yes, because it takes years of investment to build up a brand. And are agencies organised around taking advantage of the asset? Yes, they typically are, one would hope.

So a brand that has been built up over time can be a source of advantage. But if we assume that building up an agency brand is best practice and there’s nothing stopping any agency from doing the same thing, then we can assume that all agencies will work to build their brand assets over time. So agency brand just becomes a proxy for agency age – and older agencies have the advantage.

Is there no scope for conscious choice here? There is, I think. Firstly, agencies can be better or worse at promoting their own brand. I won’t name the agency, but a few years back I heard one agency described as “not doing any better work than anyone else, but PR’ing their work better than anyone else”. Well, more power to them. In retrospect, those efforts have paid off. So you can’t just let agency brand happen – agencies need to market themselves.

Secondly, typically in a commoditised category where every player is resorting to competing purely on brand, brand distinctiveness becomes even more important than it usually is. All agencies are building brand over time to some extent, and the effect of that fame and familiarity is first of all: “Oh yes, of course I’ve heard of them.” That brings with it certain reassurances of quality and reliability – after all, a poor-quality and unreliable agency wouldn’t have lasted long enough for you to have heard of them.

But as multiple agencies have this level of fame and recognition, those brand effects become table stakes rather than a competitive advantage. The well-known agency becomes one of a number of well-known agencies and they don’t particularly stand out from one another. Collectively they have an advantage over unknown agencies, but within their own group they’re competing very similarly.

This is where standing out for the sake of standing out has some advantages. The goal is for prospective clients to not just think “oh yes, I’ve heard of them” but to further think “they’re the ones who ___________”. What words fill in that blank matters less than that words fill in that blank.

I mean, obviously you don’t want to be famous for something bad – “oh yes, I’ve heard of them, they’re the ones who treat their clients like shit”. But as long as it’s positive and unique, almost any positive thing will do. Keep in mind, we’re assuming that this agency doesn’t actually do things significantly differently from any other agency – they’re all just competing with best practice. If you were doing something differently in a way that creates value for clients, then obviously that’s what you want to be famous for. But in lieu of that, pick a positive attribute that isn’t owned by anyone else and consistently claim it for yourself.

What kind of positive attributes? You can choose from either category traits or non-category traits. Firstly, here are some example category traits:

• Reliability

• Innovation

• Latest technology

• Ease of doing business

• Cultural awareness

• Humour

Now, every agency is trying to be reliable, innovative, using the latest technology, easy to do business with, culturally aware and able to be humorous. And if an agency were to try to own the highest levels of association with one of those traits, they wouldn’t say they’re dropping the ball on the others. But becoming famously associated with just one of them gives the agency an excuse to stand out from the others, for something generally positive.

Maybe the trait itself will be compelling for some clients. But more likely the positive effect of the brand is to just stand for something recognisable, to make the brand more distinctive than the Generically Good competition. Similarly, maybe some people buy Volvos because they’re particularly concerned with safety, but probably the main effect of Volvo’s brand association with safety is to be recognisably something in the auto category.

What about non-category traits? My favourite example of a brand deriving distinctiveness from non-category elements is Compare the Market.

Insurance comparison websites are a very commoditised category. The competitors may vary slightly in quality of user experience, but mostly they were just competing on price and very competitive (expensive) search marketing. Compare the Market launched their brand platform “Compare the Meerkat”, with its bizarre Russian-accented meerkat spokesperson and came to completely dominate the fragmented category.

There are all kinds of rationales for why this worked – not least of which is the humorous way of driving the business’s URL into audience’s brains. (Consider the massive value of people just remembering “comparethemarket.co.uk” and going directly to the site without clicking on search ads for hugely expensive search terms like “car insurance”.) But I believe one of the biggest ones was simply standing out for the sake of standing out.

Ironically, if Compare the Market had tried to stand out by owning a category trait like “best prices” or “most trusted” or “widest range of insurers”, they wouldn’t have stood out as much.

Can agencies learn something from this? There’s probably something there. There is some danger in zaniness for zaniness’ sake because, for some buyers, zaniness may negatively correlate with reliability. But at the same time, what are clients looking for in agencies? They’re looking for creativity they can’t generate internally. An agency which stands out in some surprising way could enjoy some advantages.

• Does the agency have a key figure who could become well known for being controversial? Or stand out in some other surprising way?

• Could the agency host bizarre/surprising industry events?

• Could the agency publish some kind of surprising annual industry publication?

In the absence of any real differentiation, fame for its own sake, behaving in ways unexpected of an agency, could potentially yield benefits.

The other sort of half-post I wanted to talk about today was raised with me by an agency owner when talking about size. In contrast to many of my points about economies-of-scale challenges at the smaller end of the agency-size spectrum, he suggested that there could be diseconomies of scale as an agency’s projects get bigger.

Here was his reasoning:

• For smaller agencies with fewer resources, they’re forced to be lean in delivering on projects – there’s no other choice.

• As clients and their projects get bigger, that leanness disappears and is replaced by a kind of institutional redundancy in resources – more people in each meeting, more internal reviews on work, more people assigned to produce the same deliverables.

• And so the relative cost to serve increases with the size of the project – and margins decrease.

There are a few interesting things going on here. The first thing that occurs to me is that it’s not the size of the agency or the size of the clients that’s necessarily associated with the diseconomies, but the size of the projects. It is true that larger agencies tend to have larger clients who tend to have larger projects, so there’s some correlation there. But it’s the project size specifically which is supposedly creating diseconomies of scale.

Setting that aside for a moment, the other interesting thing is that could you could potentially have both economies and diseconomies of scale operating at the same time.

Here’s what economies of scale look like, in this case with fixed costs of $100,000 being spread over more and more hours with an $80/hour variable cost:

(The x-axis is counting 100s of hours.)

As I’ve said, at the smaller end of the spectrum, the economies of scale have a huge impact – typically the cost of management, office lease, etc. But at the larger end of the spectrum, the marginal benefits of scale get lower. We could get a bit more accurate and recognise that fixed costs themselves can increase in steps with size – for example, the cost of a second office in a new city or an additional layer of management to handle a significantly larger team. But for now, let’s keep it simple.

And here is what the aforementioned diseconomies of scale might look like:

And now here is what they look like combined:

With the vying tensions of economies of scale having a larger impact at the smaller end and diseconomies having a larger impact at the larger end, we end up with this implication that there’s an ideal agency size for profitability. A sweet spot which, in this arbitrary hypothetical, sits around the 1300-head-hours mark.1

It’s an interesting thought. However, the model above assumes ever-increasing diseconomies of scale, when it’s more likely that agencies reach a certain cap of bureaucratic inefficiencies and stay there no matter how big the agency, the client or the project gets. And it also assumes that these diseconomies are inevitable, which is probably debatable.

Firstly, was the smaller team really more efficient? It showed up on the books that way, but it’s possible that the smaller team was actually just overworked and the apparent loss of efficiency as the budgets increased reflects a correction back to the norm. That is, the same amount of work being done by five people who go home in the evenings versus three people who barely see their families.

And even if the unnecessary bloat is real, is it actually unavoidable? Usually when we talk about diseconomies of scale, we’re talking about unavoidable features of the nature of an industry. If the bloat is unnecessary, best-practice project-management and team-management techniques should be able to keep it in check – and as an agency grows, methods which worked in the past may no longer be fit for purpose.

But finally, if the inefficiencies really are unavoidable and are associated with project size (as opposed to client size or agency size), there could be a real benefit to agencies finding ways to keep projects to an optimal size. If that means not going after the really big clients with the really big projects, it could look like an agency that grows primarily through acquiring more mid-sized clients rather than the typical path of larger and larger clients.

Anyway, those are two thoughts that probably couldn’t fill a whole post in themselves, so I threw them together. I think they raise some interesting questions:

• How can an agency build a genuinely valuable brand – that is, one which enables it to win work more easily, attract talent more affordably, etc., despite there being no functional difference in value offered?

• Is there an optimal agency size, client size, or project size for profitability? What causes one client or project to cost more to serve than another? How must an agency’s project- and team-management processes evolve with growth to prevent increasing cost to serve?

There are basically three ways for a business to outcompete others:

1. Do the same things better (operational excellence/best practice)

2. Do better things within the same framing (colour-by-numbers strategy)

3. Reframe the situation entirely (creative strategy)

Most agencies have a very similar strategy to other members of their strategic group and are competing mainly on operational excellence. Arguably, this is no strategy at all, if we define strategy as how a business competes differently. For these agencies, profitability is driven by the circumstances of their strategic group and their application of best practice within it.

That doesn’t mean there aren’t any agencies with strategies – genuinely competing differently. A good example of an agency competing strategically is The General Store in Australia. They make their strategy very clear on their website:

Their strategy is to specialise in retail clients and offer all services to retail clients. (Except for media buying, I assume.)

Compared to many possible industry specialisations, there is relatively less direct conflict between retail brands. Every soft drink brand is in competition with every other soft drink brand, but sporting stores don’t compete with furniture stores, bookstores, computer stores, restaurants, etc.

On top of that, the G Store is able to build capabilities which create value (or lower cost to serve) for this niche and would not be worth developing for a less specialised agency. For example, they have entire offerings in architectural store design and in-store events. For an agency which broadly targets all consumer brands, it would make no sense to develop these as capabilities.

These two facts have allowed the G Store to build years of credibility, relationships and case studies in serving the particular needs of retail clients. If a retail brand goes up for pitch, more generalist agencies will probably throw their hats in the ring, but they’re disadvantaged against G Store.

What kind of strategy is this? Doing better things within the same framing? Or reframing the situation entirely?

This strategy could have come out of colour-by-numbers thinking within the established framework. Here are the hypothetical steps we could take:

1. Look at the whole market of clients and consider different ways they could be segmented.

2. Recognising that intra-industry conflict makes some specialisations not feasible, we seek out segments of clients with low conflict.

3. Take our tentative list of potential client segments and evaluate them according to various criteria:

   1. Do they have particular enough needs that they would be under-served by generalist agencies?

   2. Are they currently having their particular needs met by existing specialists?

   3. Could we conceivably build capabilities to meet their particular needs? (Or even better, do we already have some resources and capabilities suited to being developed further for their particular needs?)

4. Select the retail segment as being the most favourable among the options in the market.

The only potentially creative element in that process is the experimentation with different ways of segmenting the market. And really, segmenting in a way that identifies retail as an industry alongside, say, finance, FMCG, whiteware, auto, is not particularly radical. To be exploring framings outside of the obvious, we might be carving up market segments like “clients who particularly love schmoozing” or “clients notoriously difficult to work with” or “startups who could only possible pay fees in equity”.

For the G Store, after logically arriving at the retail segment, everything else is just the further application of logic (colour-by-numbers), and the result is a classic niche differentiation strategy. Through specialisation, the G Store can promise greater value to retail clients and that (presumably) results in above-average profitability through either charging clients a premium for that expertise or lowering costs to win and serve clients at a similar price to competitors.

It’s a very good strategy in an industry dominated by agencies with no strategy at all, so it stands out. And in most situations, good solid logical application of thought to a situation is not just good, it’s great – because it’s very rare.

But if that’s not what I’d call a creative reframing of the situation, what on earth is?

The biggest obstacle to stepping outside of our obvious frames of reference is that they are invisible to us. The heuristics and mental models we’ve developed in order to navigate the world are very useful and so they become self-reinforcing. Because they’re also the same heuristics and mental models shared by most others, we also get positive feedback socially from their use. So, both individually and collectively, they come to play the role of “reality” for us.

They’re not things we can see, because they are the way we see things.

So then, how can we move these mental models from behind our eyes to in front of them, to be examined and rearranged or replaced?

One sort of pseudo-method of doing this is actually to double down even harder on logic, ruthlessly applying logic to our analysis of a situation. When we’re identifying the relevant factors, we can really challenge ourselves and ask, “Is this list actually exhaustive? What else could possibly have an effect here?” I mentioned an example of this in an earlier article when I identified usage data as an untapped value-creating resource for a business that simply could not succeed by competing the same way as its dominant competitor.

I call this a “pseudo-method” because it’s not really changing the way the situation is framed – rather it’s more completely filling out that framing. In that example, I had discovered an untapped resource, but was still operating within a basic framework of “what resources do we have which can offer value to customers?” Similarly, the kind of customer need it could satisfy was previously not considered, but I was still operating within a basic framework of “what needs do these customers have?”

We can’t really logic our way out of a mental model, because logic is applied to what we see and, as I said, what we see is conditioned by our mental model.

So what tools do we have for addressing this challenge when one of our strongest and most familiar tools as strategists (logical reasoning) is specifically not fit for purpose?

Okay, sure, LSD is one option, but not very predictable and it’s not going to help your business strategy if you sit down to consider new frames of reference and wait, what did you just sit on, that’s interesting, the cushion is on the seat of the seat, but it can be moved to the base of the chair back, and it’s soft, right? It’s soft, but if you press hard enough it becomes hard, all those tiny spaces inside it becoming even tinier, until you can’t press it any more, but even what you’re pressing is mostly empty space between atomic nuclei and electrons – it’s all just empty space masquerading as solid matter…

And you sleep particularly well that night but haven’t achieved anything.

So we need something more reliable than psychedelics and also more reliable than waiting for divine inspiration. This is our challenge.

We can turn to Edward de Bono for some hints. He coined the term “lateral thinking” and that is basically what we are talking about here. One of his big things was the idea that children are massively more creative problem-solvers than adults because they simply haven’t learned the rules yet. That alone isn’t a particularly useful observation, because what are we supposed to do with it? We’re already adults, we’ve already learned the rules, that’s the problem.

As I said above, one of the reasons our mental models and heuristics become confirmed to the point of being indistinguishable from reality is because they work, over and over and over. One thing that can yank a mental model out from its hidey-hole behind our eyes is for it to jarringly not work. After some initial confusion, we’re forced to reevaluate our assumptions. That happens when the world changes in ways that leave a mental model behind. But typically when that happens to one person, it’s happening to everyone. As Spider Robinson observed, “The world turns upside-down in ten years, but you turn upside-down with it.”

However, we can sort of artificially create that situation of the familiar invisible mental models just not working. De Bono refers to these techniques as “provocations”. There are different kinds of provocations, but I’ll describe the ones I’m thinking of here.

Basically, we assert very strongly something that seems obviously impossible. And then we challenge ourselves to make sense of the impossible assertion we have made.

If something seems impossible, it’s either because it actually is impossible in reality or because it’s only impossible within the mental model we’ve mistaken for reality. By jumping to an impossible conclusion, our logical mind naturally scrambles to fill in the gaps between the conclusion and the contradiction.

The ideas we come up with to make sense of the nonsensical statement can be as wild or playful or elaborate as we like, as long as they make some kind of sense. That is, we can’t just say “by magic”. We have to come up with answers that have some kind of internal logical coherence.

But if we can come up with explanations, however wild or playful or elaborate, then we must somehow have called into question some hidden assumption or unnecessary mental model that made the conclusion seem impossible. If our explanation has internal logical coherence, we’ve adopted some alternative mental model in which it is no longer impossible.

I’ll try this here with agencyland as an experiment, without promising anything. I’ll just kind of show my thinking, stream of consciousness.

First, something that seems clearly impossible according to the picture of things I’ve been painting over the last few weeks. I’ve said that large clients are only really available to large agencies. So let’s see what happens when I assert the opposite of that, or something that would be impossible if that were true.

A small agency can win and serve large clients.

My mind immediately goes to the reasons why this is wrong. So I have to set those instincts aside and again tell myself: this is true, there’s just something I’m missing or don’t understand. So I try to solve the riddle.

How does the small agency handle the mismatch between capacity and demand? The work still needs to be done. Or am I making an assumption about that? Does the small agency win and serve the large client by making a case for radically cutting its marketing budget? Seems unlikely, but I’m trying not to dismiss anything here. I’ll put a pin in that thought.

Let’s say the work still needs to be done. So the small agency could basically manage an array of freelancers doing the work. Again, that seems unlikely because of all the disadvantages of freelancers – much higher costs than salaries, less benefit from growing familiarity with the client, etc. And there’s still the question of what value is being added by the agency itself – maybe just core account service and strategy. But freelancers seem unlikely.

So how can it be mostly a consistent salaried team, but not working for the agency (because if they were, the agency wouldn’t be small)? Okay, what if the large client pays the salaries for their team directly. Yes, there’s already a word for that – in-housing. So what does value does the agency add? Well, that raises two immediate questions for me:

1. What are the weaknesses of in-housing that direct clients towards external agency partners in the first place? (What needs could the agency meet?)

2. What are the possible value-creators or cost-cutters generated by having multiple in-house teams connected to a single agency? (What capabilities could this resource create?)

I don’t know enough about in-housing to answer the first question, so I’d want to do some research, go out and talk to some people about their challenges and successes, etc. And we would also want to be clear on the difference between what this hypothetical agency is offering and what is offered by an industry organisation like the In House Agency Council.

But for the second question, we would likely be looking for…

• Are there economies of scale that could be enjoyed by multiple in-house teams all being connected to this single agency? They could share research tools, training resources, etc. (Many typical overheads like payroll and HR would be handled by the client.)

• Are there any efficiencies possible from sharing resources between the connected in-house agencies? Variability of demand is a problem for in-house agencies, probably more so than for external agencies with multiple clients’ demand to average things out. If one in-house agency suddenly has too much design work for its design resource, they could tap into other agencies’ designers – with lower costs and greater reliability/confidence than a freelancer.

• Could there be a value add for talent? Redundancy at one in-house agency could be absorbed by demand at another, if the timing was right, and the talent is already a known proven resource.

I’ll stop the thought experiment there. It’s an interesting thought. The agency itself is small, has no operational resource itself, but it coordinates and organises and amplifies the quality of the growing number of in-house agencies that perform the agency operations. And as the number of clients and in-house agencies grow, the efficiencies and potential network effects from size grow too – each new client makes all the other in-house agencies slightly cheaper and slightly better.

I started by making an impossible statement and then challenged myself to make sense of it. What hidden assumptions did my answer reveal? Perhaps the assumption that the only two options for an agency’s operations are either paying salaries or paying freelancers. The idea of outsourcing operations to clients hadn’t occurred to me because I saw that as in-housing – a competitor to agencies, rather than a potential complementer or strategy for an agency.

Hopefully that was at least a little interesting and entertaining.

This kind of provocation is just one technique for fucking with the invisible obvious. As you can see, it requires a kind of playful application of logical thinking. But if the goal is to find ways to compete that are completely different from how everyone is already competing, that’s the kind of creativity that needs to be applied at the strategic level.

The major dimensions along which agencies vary are size and scope (specialisation vs integration).

The three biggest impacts of size are:

• Economies of scale for small agencies. Small agencies tend to have relatively larger fixed costs in management and office expenses, which makes profitability challenging until a certain minimum scale is reached. Once it’s reached, though, margins stay relatively stable – labour remains as the largest cost to serve (except for media).

• Demand variability. With fewer clients, small-agency demand is more likely to come in peaks and troughs. And with fewer team members across whom to spread the load, peaks can mean losing work or losing margin to freelancers, while troughs mean paying people to sit on their hands.

• Available market. Industry spend from larger clients tends to be available only to larger agencies with the credibility and capacity to handle the work, limiting the revenue available to smaller agencies and further increasing competition for it.

The biggest impacts of scope are:

• Demand variability. Specific departments face the same dynamics described for smaller agencies above. A large integrated agency might still have a small web development team, in which case the agency’s size doesn’t translate into load sharing to manage peaks and troughs.

• Unrealised efficiencies. Integrated agencies can add value or cut costs through offering multiple services to the same client, but new clients are often looking for just one service at a time.

• Inter-agency conflict. Both of the previous impacts put pressure on integrated agencies to cross-sell services – to provide work for under-utilised departments and/or to gain efficiencies of scope. But if a client needs those other services, it probably already engages a competitor with whom the agency must cooperate for the client’s benefit.

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And we can expect these factors to incentivise these behaviours:

• Aspiring agencies sacrificing price for scale or scope. Smaller agencies struggling with relatively high overheads or integrated agencies struggling with single-service clients are incentivised to offer very attractive rates and conditions to clients for new or cross-sold business. This puts downward pressure on overall profitability.

• Large agencies attempting to compete on quality but being forced to give up premiums. With no clear points of difference to compete on, large agencies will end up competing on points of parity – all attempting to offer the best creative quality, most awards, best talent, best client service, most reliable project management. Because they all compete similarly and will go after the same large accounts, they will end up competing with each other on price. (Though the strategic group in general may outperform the industry.)

• Hands-on management in smaller agencies. To reduce relative overheads in small agencies, managers are incentivised to have a dual role both running the agency and doing billable work for clients. The urgency of working for the business will conflict with the (seemingly) postponable work on the business, resulting in either over-work of the individuals or under-management of the agency.

• Consolidation, mergers & acquisitions to achieve scale. Another thing we would expect in this industry is agencies being combined, probably through acquisition, to achieve those minimal economies of scale. In other words, an agency that is unprofitable primarily because of relative overheads and demand variability – rather than the quality of its work or the number of its clients – can become profitable by being bought or merged into a larger entity with shared overheads and more capacity and clients to share load across.

There are plenty of other observations and predictions we could make from the various industry factors discussed so far, but these are a few of the big ones, I think.

There’s one more concept I want to introduce before talking about reframing agencyland for more creative strategies – resources and capabilities.

All viable businesses do something, some kind of activity, which creates some goods and/or services which are valuable enough to someone that they will pay for them. To do those things, they use resources in ways that create capabilities. Resources can be tangible (like plant equipment) or intangible (like intellectual property, expertise, company culture). Capabilities are what you can do with them to create value.

Resources and capabilities can be sources of competitive advantage, and there’s a handy acronym for thinking about whether they might be. VRIO stands for four conditions which are each necessary and are collectively sufficient for competitive advantage:

Valuable – does the resource or capability create some kind of value, either by creating value for customers or by reducing the costs of serving them?

Rare – is the resource or capability something that only some businesses (or ideally only one) possess?

Imitability – can the resource or capability be easily copied? (Remembering that “will not” is as good as “cannot”.)

Organised – is the business organised in a way to take advantage of the resource or capability?

Identifying resources and capabilities in a business can be fiddly, because folks get a bit excited about listing all kinds of things. Carpet on the floors? Resource. Annette does stand-up comedy on the weekends? Capability. Because VRIO resources and capabilities are the goal, I find it helpful to look at potential resources and capabilities through that lens:

• What do we have or do that creates value for customers or controls costs?

• What do we have or do that competitors don’t?

• What do we have or do that competitors can’t or won’t?

This model goes back to the point I made in the first article in this series, about how some strategists prefer to work from the outside-in (look at the environment, market, industry, and determine the best way in) and some prefer to work from the inside-out (look at the company, its resources and capabilities, and determine the best way to use them). As I said, strategists typically iterate back and forth between the two.

Agencies all have valuable resources and capabilities. (They must, or they’d go out of business.) They have collective knowledge, ways of working, relationships., etc., which allow them to charge clients for their services.

How often do agencies have rare resources and capabilities? Ones that can’t easily be copied? Which they’re organised around to create sustainable competitive advantage?

Well, a few come to mind.

• WPP’s many agencies have exclusive access to the Brand Asset Valuator™ system for evaluating brand equity, originally developed within Y&R. Because it’s trademarked and owned, it can’t be copied. Because it’s based on decades of survey data, it cannot be easily imitated. (That is, it could, but it would be so expensive and time-consuming that it wouldn’t.)

• TBWA globally has a central database of resources, including its Disruption playbook of analysis techniques and workshop tools. These are available to all TBWA agencies, and are presumably updated over time with feedback from around the world.

• Research agencies often have carefully built and curated panels of survey participants which they use for their clients’ research. These are not unique, but still rare and difficult to imitate, protecting incumbents from new entry.

• Speaking of research agencies, Tracksuit has its digital platform for self-service pared-down brand tracking. Rare and valuable, yes, but not so difficult to imitate – if the self-service brand-tracking approach turns out to be very lucrative, it will likely attract imitation. Tracksuit’s strategic challenge will be to defend and extend its lead as a first mover, for example by turning the initial years of data into a value-creating resource in some way (can’t be imitated overnight).

• Personal brands of key team members can be valuable, rare and difficult to imitate resources for agencies. James Hurman of Previously Unavailable has effectively branded himself as a thought leader in creative effectiveness, which should improve hit rates on new business development for the agency. But note that he’s a founding partner. Agencies who pay big bucks to employ recognisable names may only enjoy the benefits until someone else pays bigger bucks – they are rented, not owned.

Most resources and capabilities developed by agencies are neither rare nor inimitable. There’s nothing wrong with that per se – most industries have activities which must be performed simply to be a functioning member of that industry. But if these resources and capabilities basically do the same things from one agency to the next, we’re back to my earlier point about operational excellence – it’s just agencies trying to out-good each other. Some will do better, some worse, but that difference is not due to strategy.

How should businesses think about developing resources and capabilities? In some ways, those choices should be informed by a strategy; and in other ways, strategy may be informed by the resources and capabilities at hand.

But here are a few questions to ask:

What rare and inimitable resources/capabilities do we have which could create value for clients? I once had a client who sold items on a website, but the site was a distant second place in popularity to a competitor. Rather than try to beat the category leader at their own game, I suggested a way to use previously ignored sales data from the less popular site to help vendors save money on the popular site, simultaneously reducing the competitor’s revenue. This was a case where the data turned out to be an overlooked resource – overlooked because the business was too focused on playing the same game as its competitor.

What valuable resources/capabilities do we have which could be developed into being rare or inimitable? The trick here is that they also need to increase in the value they create or change to creating a different kind of value.

What potential connections or synergies between our resources and capabilities are we overlooking? Developing two or three resources/capabilities at a time, working together in a way that creates value, can be a very powerful approach. It can make imitation more difficult because the imitation requires multiple changes at the same time. Consider the way Ikea’s resources/capabilities work together. A competitor couldn’t simply copy the flat-pack packaging without developing relevant design capabilities, warehousing systems, showroom assets and perhaps even brand associations. Individually, any could be copied easily enough, but the imitation wouldn’t pay off unless it could all be somehow imitated at once. Again: wouldn’t = couldn’t.

What unmet needs or wants do our customers have, for which we could develop new resources and capabilities? If rarity and inimitability are consciously designed into the creation of new offerings, you may create yourself a sustainable advantage.

Okay, now we have a complete enough picture of the obvious to start thinking about the non-obvious.

In some ways, niche strategies result in higher profits through less competition. Industries often support multiple niche players who don’t compete with each other at all, effectively reducing the “internal rivalry” force that pushes down profits.

What about broadly targeted strategies? By definition, they’re not avoiding competition the way that niche strategies can. How can agencies return outsized profits when they’re trying to serve most clients in the market, and probably with integrated services?

Making the Most of Integration

The question for an integrated agency to ask themselves is “how can the fact that we offer multiple services create value for clients or cut costs in serving them?” Put another way, we might ask, “Why wouldn’t we spin our business off into multiple service specialists?”

The most immediate answer is more about costs and scale than about adding value. The different functions of the business are able to share fixed costs to some degree. Collectively, separate agencies for each service would cost more in management, account management, rent, marketing, etc. Often the difference in size between the integrated agency and its various departments is across that tipping point where economies of scale have a big impact at the small end of the size spectrum.

There is also a time and effort value to clients in the consolidation of account service, too. One agency leader I spoke to recently noted that clients often find it a big hassle to be dealing with multiple agencies for multiple services. Rather than being swayed by tales of integrated efficiencies or better work outputs, she reckoned that the decision was often clinched simply because it was just easier.

How else can integration improve value rather than just cut costs?

• Consolidating client-relevant knowledge in team members involved in multiple services. Most obviously, this is value offered by account service. Having one or two suits who are consistently across all services engaged by the client maximises their chances to spot opportunities to both add value and cut costs or save time. Strategy is another function that can be valuably across multiple services. This comes at a cost – hiring suits and strategists who understand multiple service types. They (we!) charge a premium for that versatility.

• Sharing resources between services. As noted previously, there’s value in the same designers who created a brand identity also doing the design of a website or app, or of public-facing creative comms. It takes less time to get to the same quality, and likely the quality will be improved. The cost? Only more experienced designers and copyrighters typically have that versatility, and in some cases they may find they’re doing work that could otherwise be done by a less expensive resource.

• Engaging multiple perspectives on client challenges. A while ago, it was in vogue to talk about “kitchen table” meetings, where leaders from multiple disciplines would convene to consider a client challenge that appears to involve just one service. The idea is, for example, that a digital director might identify opportunities a strategy director or creative director might not, due to the diversity of their experiences and perspectives.

• Ensuring there is no inter-departmental conflict replacing inter-agency conflict. I’ve touched on this before, but an agency offering multiple services can more credibly claim that their recommendation is what’s best for the client without being swayed by favouring one service over another. But if the departments are incentivised to muscle with each other over billable work, this advantage can be negated.

I noted in the last article that one challenge to a niche strategy is the temptation to take work outside of the niche. For integrated agencies, the temptation is the opposite – to take on clients for just one service of the many offered. Except perhaps “engaging multiple perspectives”, none of the above cost-cuts or value-adds really apply to an integrated agency doing just one kind of work.

The problem is that often clients are looking for just one service at a time. For an agency which offers digital, creative and PR services, most opportunities will be from clients going out to pitch for just one of those offerings. If you’ve worked in an integrated agency, you’ll know what is likely to happen: pitching for the work in the hopes of A) winning it, and B) getting a foot in the door to expand to other services in the future.

That approach can certainly work, but until that broadening of the relationship occurs, the integrated nature of the agency provides little advantage for winning or profitably serving the client – and it can make for some uncomfortable agency-village relationships with other agencies who are very aware that you’re a competitor with hungry eyes.

All of this creates two potential challenges or opportunities from a strategic perspective:

1. What are all the unexpected ways we could make our integration add value to non-integrated engagements? (And can we make them un-copyable?)

2. How could we find clients who are most likely to be looking for multiple services at the same time?

Making the Most of Broad Targeting

There is some crossover between integration and broad targeting, but not as much as there might initially appear. Technically, by offering multiple services, the number of prospective clients looking for something you offer is greater at any given time than they would be for a service-specialist agency. But remember the point above – for both costs and value, integration’s advantage is when multiple services are engaged by the same client. (Unless you can solve challenge number 1 above.)

Given the common industry exclusivity for client-agency relationships, the quest for broad targeting means having multiple clients across multiple industries – one client per industry.

And given the value to a client of expertise in their industry, this can pose an obvious challenge. For an agency like Orchard, mentioned in the last article, by specialising in pharma and health, they’re able to demonstrate their industry expertise to prospective pharma/health clients just by pointing at the other current clients they have – and past clients. But for most clients in most industries, “of course we know about banks, one of your main competitors is a big client of ours” isn’t going to be much help.

This is another experience-curve advantage in agencyland – that is, an advantage that accrues only over time (and is thus impossible to copy overnight). The longer a broadly targeted agency has been around, the more industries it has worked in, and so the more industries it has case studies for – reassuring prospects of industry expertise.

More easily acquired is experience in audiences, as most audiences are served by many different industries. And so a gaming company targeting 18- to 30-year-old gamers may find it compelling if your agency has experience in marketing clothing, soft drinks and tertiary education to the same audience.

But besides making sure to capture relevant research and lessons and case studies along the way, this isn’t so much a strategic choice – these are just best practices and an advantage that comes inevitably with age.

The question for a broadly targeted agency is: how do we make the diversity of our work into a strength for any specific kind of work? I think there are two broad categories of answer. One focuses on what’s common across them and the other on what’s different across them.

Expertise in the form of challenge, regardless of the content of the challenge.

While the particulars change, many client marketing challenges are very similar in relevant ways. Companies, customers and competitors may vary, but the basic formula of analysing how companies create value for customers in a way that differs from competitors applies broadly across all of them. Campaign briefs may vary, but the basic challenge of coming up with a creative idea which compellingly changes the market’s knowledge or feelings about a brand or product is the same.

Broadly targeted agencies need to develop processes for doing this same kind of work over and over as efficiently and effectively as possible. This likely means developing some templating of the most common aspects of client challenges, which are versatile enough to be repurposed multiple times.

At the extreme cost-leadership end of the spectrum, this would mean seeking out clients whose needs closely match those processes and templates – and avoiding taking on clients whose needs are more bespoke and outlier. These agencies typically have very flat hierarchies, requiring fewer costly experts and employing a higher proportion of lower-cost doers following the scripts. (AI will have a big impact here too.)

An example might be a digital agency which uses a handful of Wordpress templates, some relatively low-cost designers and copywriters (and probably some AI), and radically undercuts the prices of digital agencies who treat every website as a unique challenge. As with many cost-leadership strategies, the opportunity here is that for many clients’ needs, differentiated bespoke UX-expert web-design agencies are over-serving the market. Clients who appreciate a good-enough website on a budget are also less likely to value industry exclusivity, increasing the available pool of work for the agency.

Brand-tracking startup platform Tracksuit is essentially taking this approach in competing with research agencies who have historically over-served the market. Costly client service, tailored surveys and client ownership of data have little value to clients who just want to track some common essential metrics over time. The higher fixed costs of self-service platform development are scaled across many clients enjoying good-enough value at radically lower prices than they would previously have needed to pay. (It also opens the doors to clients previously priced out of brand tracking entirely.)

At the other end of the spectrum, you have broadly targeted creative agencies who tout their broadly applicable expertise in creativity. That is – they claim to have better ideas, regardless of the industry they’re having ideas for. To actually deliver on this, they need to hire more costly creative directors and creative teams, allow those teams more costly time to have more and better ideas, as well as developing those broadly useful creative processes for making the most of that time. And as evidence, they have a growing collection of creative awards.

In theory: they can charge a premium to clients who want the very best ideas, because the best creative ideas have a greater return than the relative increase in expense of the premium creative agency. Or at the very least, they can win more clients for a similar price and make some of the difference back with small scale economies.

In theory.

Expertise in bespoke solutions.

Another way a broadly targeted agency can position against specialists and perhaps against some other broadly targeted competitors is to become (and claim to be) experts in developing unique solutions to unique challenges.

The fact that this agency has little or no experience in a client’s industry is presented as either not a problem (because every challenge is equally unique) or even as an advantage. “We pride ourselves on seeing your business, industry and customers with fresh eyes.”

The cost implications of such an agency don’t differ wildly from the ones described above for an agency claiming to have better creative ideas. That is, you still need some established processes for how to come up with bespoke solutions, and you still need to invest in costly experts who can do the work to a high standard of tailoring.

Because of the premiums associated with tailored solutions, this strategy is an option for smaller agencies who can’t rely on economies of scale to control costs. In this strategic group, you’ll find brand and strategy consultancies, and perhaps research firms emphasising qualitative research.

But, on the other hand, many clients may not see their situations as being unique enough to justify the difference in price.

What strikes me about the above is that these strategies describe strategic groups rather than the specific strategy of an individual agency outcompeting the agencyland industry. Those choices to maximise the value of integration or broad targeting have some effectiveness in outcompeting service-specialists and niche agencies. But among integrated and broadly targeted agencies, they tend to compete very similarly to each other.

For example, wouldn’t most broadly targeted ad agencies say that they strive to have better ideas than the others?

So what makes one business within a strategic group more profitable than the others?

• At the smaller end of the spectrum, economies of scale make a big difference, as smaller agencies struggle with relatively expensive management and inefficiencies in variable demand (losing profit to freelancers).

• General operational excellence – good business development, good client management, good project management, good strategic/creative processes, etc.

• Quality of employees – favouring agencies with the budget, culture and brand to attract and keep better talent.

• The experience curve – older agencies enjoying a wider range of awards/case studies to win work and repurposable thinking to reduce costs.

• Strategy execution – actually identifying, making choices and consistently applying them to squeeze the most value out of the dynamics of the strategic group.

None of these are strategies, but they describe the implications of the strategic environment in which these agencies compete.

Now that we have a picture of the way things seem to be, we can start fucking with it.

Porter’s framework for business strategies maps those strategies as varying along two key dimensions – differentiation versus cost leadership (source of advantage) and broad versus narrow targeting (scope). There are four possible combinations of these two dimensions, so we get his four strategies:

• Broad differentiation

• Niche (or focus) differentiation

• Broad cost leadership

• Niche (or focus) cost leadership

Differentiation is doing things differently from competitors in a way that adds value for customers relative to competitors. If successful, customers will either pay more for that added value (a price premium) or will be more likely to choose the offering over competitors’ for the same price (growing volume). Because adding that value usually comes at a cost to the business, charging a premium is more common, unless economies of scale1 are in play.

Cost leadership is doing things differently from competitors in a way that consistently reduces costs relative to competitors. If successful, the business can either charge less for the same value being offered by competitors (attracting more sales) or enjoy better margins by charging similarly to competitors. Because economies of scale are often involved in cost leadership, charging less for the same value is more common – as the per-unit profitability improves as the volume of sales increases.

Broad targeting means intending to offer value to most or all of the members of a market, meeting the most common needs and desires of that market. Niche targeting means identifying a segment of that market whose needs/desires are different enough from the majority that broad offerings either under-serve, over-serve or over-spend to serve them.

Successful execution of any of these strategies requires trade-offs – that is, decisions which enable one approach while reducing or eliminating the ability to perform others. Because of this, Porter judged many businesses as failing strategically by flailing about in the middle.

That said, these days a fifth generic strategy is typically recognised, and that is the best-cost strategy. This is an approach where some cost is incurred by offering higher value (differentiation) and some cost efficiencies are implemented, enabling the business to competitively serve customers who want value for money. That is, the offering may not be the best or the cheapest, but by being relatively good value and a relatively low price, customers find it more compelling than alternatives.

While it’s a valid strategy, I’m instinctively wary of it because it is precisely what many businesses claim they’re trying to do when they’re actually stuck in the middle.

So, what do these strategies look like as options for agencies?

Firstly, let’s talk about niche targeting. We’ve already talked about one kind of narrowing of focus – specialising versus integrating in services offered. I’ve touched on the trade-offs involved, including a smaller versus larger pool of industry spend to tap into. Much of what follows also applies to that kind of specialisation, except to say that in any given market, there are often a number of specialist agencies in particular services (e.g., social agencies, digital agencies, brand design agencies, strategy consultancies).

How might we define a relevantly different subset of clients? If we look at prospective clients, one big way they differ one from another is in their own industries. In some ways, these differences are relevant and significant, and in others they’re not.

Let’s consider automobiles, banks and alcoholic drinks. For each of these categories, there are very different purchase behaviours, regulatory considerations, roles of brand, relevant technical knowledge, etc. The question for a niche targeting strategy would be – could an agency specialise in one of these kinds of clients?

Yes and no. For most agencies, clients expect exclusivity within their own industry – that is, no conflicts with direct competitors. This is understandable, firstly as clients inevitably share sensitive information with their agencies, and secondly as clients could suspect their agencies of divided loyalties – commercial success for one competitor often comes at the expense of commercial success of the others.

But there is a middle ground here, where some industries benefit from category-specific expertise while there is not a lot of direct competition within it. In health and pharmaceuticals, there is a vast range of product types which don’t directly compete with each other, but all share a complex regulatory environment and best-practice marketing principles which benefit from specialisation. In Australia, agency Orchard has carved out specialisation in this sector. Sydney-based PR/earned agency 6AM has similarly specialised in nutraceuticals and complementary medicine, developing expertise in regulations and relationships for engaging key players in that value system – nutritionists, pharmacists and wellbeing influencers.

There are other options for specialisation too. An agency could specialise in particular market segments of end consumers – for example, in marketing to Gen Z or to retirees; to sports and fitness enthusiasts; to the extremely wealthy. For these to be valid strategic choices, certain things need to be true:

• The narrowed focus is relevantly different from broad targeting in ways that mean it can be served more effectively (differentiation) or more efficiently (cost leadership).

• Decisions can be made in the agency business which trade off advantages in broad targeting in order to improve advantages in niche targeting.

Note that this is different from simply having experience in a particular category or audience segment. The kinds of choices which make this a strategy are ones that can’t be copied by broad competitors. Usually that’s because they make the agency worse at doing other kinds of work. Again, a competitor could copy your choices, but wouldn’t – which is just as good.

A large enough broadly targeted agency hiring an expert in retiree buying behaviour is just supplementing its broad capabilities. A broadly targeted agency which has case studies of previous work successfully marketing to retirees is utilising its broad capabilities. Neither makes it significantly less capable or credible in marketing to other audiences.

For the niche strategy to work, the specialised agency needs to be able to deliver either more value than broadly targeted competitors or the same value at a significantly lower cost. If the kind of niche doesn’t lend itself to that kind of advantage over a non-specialist, it’s not a viable strategy.

But that is how a successful niche strategy translates into outsized profits (relative to the industry average). The niche agency benefits in multiple ways:

• If specialisation reduces cost to serve relative to generalists, the niche agency can improve the hit rate of competitive pitching through undercutting generalists on price (reducing business-development costs).

• If specialisation increases the value delivered relative to generalists, the niche agency can improve the hit rate of competitive pitching through promising more than generalists for the same price (reducing business-development costs).

• If the specialisation results in a greater market share and higher volume of work, the niche agency benefits from experience (doing familiar kinds of work better and faster) and from credibility (more relevant case studies to reassure prospective clients).

• If specialisation increases the value delivered relative to generalists, the niche agency can charge more relative to generalists (improving margins).

• If specialisation means that a higher proportion of client work can be done by a larger number of people in the team, the niche agency enjoys efficiencies in managing capacity (less profit lost to freelancers or turning down work).

• If the agency becomes well known for its specialisation, prospective clients may seek them out without any competitive pitching (further reducing business-development costs).

Well, that all sounds pretty great. What are the downsides of specialisation? Why don’t more agencies do it? In addition to some of the obstacles listed in the last article…

• Some specialisations might incur some risk. For example, tourism is a valid contender for specialisation – lots of clients who aren’t in direct competition (and in fact benefit from cooperation), relevantly different marketing needs and specific audiences. But if, say, a global pandemic were to arise, that specialist agency would take a much bigger hit than a generalist.

• If there aren’t significant barriers around the strategic position, the attractiveness of the specialisation will attract multiple agencies. That’s not the end of the world, as it basically creates a strategic group of agencies outcompeting broad agencies. But it adds a new strategic challenge – how now do you compete with other agencies doing the same thing as you? The group as a whole may still enjoy competitive advantages, but within the group you’re a commodity being squeezed on price by intra-group competition. Social agencies quickly discovered this phenomenon in the early 2010s.

• Perhaps most significantly, some specialisations may reduce the prospective market to a point where attaining the size necessary for economies of scale is impossible. I know I’ve said that there aren’t so many economies of scale in agencyland, but there are still some and they have an exaggerated effect at the smaller end of things. An agency of ten people is still likely paying a lot in fixed costs for its management, and wouldn’t pay much more for that management if the agency tripled in size.

On a psychological level, a niche strategy can be difficult to follow through on. When business is quiet, it’s tempting to start accepting or pitching on work that isn’t quite in line with the strategy. The margins might not be there, but cashflow is king and bills need paying and mouths need feeding.

So, what kind of choices can a niche agency make to improve profitability?

• Doing the same kind of work over and over may allow the agency to develop templating. Strategy frameworks, audience profiles, project plans, all kinds of things require a lot of effort to create the first time, but can then be repurposed with some tweaking over and over. That cuts down the cost to serve. Why can’t broad agencies do it? Well, they can, but because their relative volume of that kind of work is much smaller, there are fewer opportunities to benefit from it.

• A particular focus may allow the agency to pay for expensive specialists who improve the value to clients and increase the credibility of the agency to prospective clients. Why can’t broad agencies do it? The volume of that kind of work isn’t there to fully utilise/justify such an expense.

• The niche agency could produce thought leadership like white papers, research projects and training seminars. This grows the agency’s credibility with prospective clients. Why can’t broad agencies do it? They don’t gain much from the expense, and the appearance of specialised expertise could detract from their perceived value in other areas.

• Similar to templating, niche agencies may develop specialised processes or ways of working which are particular to their focus. These can lower costs and/or improve the value of the output of the work. Why can’t broad agencies do it? Well, they won’t when those processes come at the expense of other kinds of work. And with the lower relative volume of that kind of work, they might not have an opportunity to develop them in the first place.

• The niche agency may also develop relationships with a network of related agents. Journalists, academics, researchers, industry bodies, influencers, venues, key opinion leaders, non-profits and businesses can all be part of an ecosystem which creates value related to your niche. This can help you add unique value to your offering. Why can’t broad agencies do it? It’s not worth their time and they don’t have the volume of interactions to build up strong relationships.

These are the kinds of choices an agency must make to benefit from niche targeting. What’s key here is that you can’t simply declare yourself a niche specialist and then merely apply overall industry best practices to that kind of work. If you do that, you’re just a generalist who has randomly limited your pool of prospective work. You have no cost or value advantage over broadly-targeted agencies who are competing with you for the same kind of work.

Your goal is for those broad generalist agencies to hear that you’re competing on a pitch and they bow out because they know they can’t match your offering, your price, or both. If nothing about your business activities gives you either of those advantages, they will have the advantage. Why? Because they’re probably bigger than you, able to throw more resources at the pitch, claim value-adds that come from a broad strategy (next article) and are enjoying some of the economies that come with that size (e.g., their $400k of management costs are spread over 50 people’s worth of work instead of 10).

I’ll say it one more time for those in the back. Niche strategies do not work like this:

No business strategies work like this, however much we might want them to. You can’t simply declare yourself a specialist. You need to make hard decisions which involve trade-offs to either add value or reduce costs in ways that broadly targeted agencies cannot or will not do, which will likely make you less competitive for work outside of your niche targeting.

A useful approach in strategy is framing information in different ways to see what we can learn from it. It’s important to remember that every framing excludes some information. In The Origins of Obviousness, I talked about horizons of disclosure. The key point is that for data to be useful, we have to organise it1, but our choices in how to organise data necessarily exclude other ways of organising it. And so they exclude the things we could learn from organising it those different ways. (Every revealing is also a concealing, says Heidegger.)

In the last article, examining the marketing agency industry, I’ve already made some choices which have excluded other possibilities. I listed three key dimensions on which agencies differ from each other – how narrow or broad their service offering is (specialising versus integrating), how large they are (mainly in headcount) and whether they’re a local independent or part of a global network.

In focusing on those things, I’ve excluded all kinds of other potentially relevant dimensions along which agencies may differ from one another. Any one of them could provide insights into how an agency could develop a strategy for deriving more profit from the difficult industry landscape. And I will look at them – later.

So why haven’t I jumped straight to trying to find radical new ways of framing things?

Well, there are a few reasons, and they’re general reasons that apply to most strategic processes.

Firstly, in most kinds of strategy, the majority of strategic issues can be resolved largely through clarity. That is, putting some clear thinking and structure around the obvious (most accessible) worldview or framing of the situation. Sure, the big sexy case studies of radically rethinking situations get talked about the most. Walmart reframed what constitutes a city. Ikea turned the outsourcing of assembly to their own customers into a point of difference. Very clever, very exciting.

In line with my articles about creativity and effectiveness, it is true that great strategies come from non-obvious frames of reference. And there is a lot of literature and thought leadership around ways of doing this – Blue Ocean strategy, market shaping, open innovation, etc. But I think that popular emphasis on these most interesting strategies and ideas distracts many managers and strategists from simply doing a very good job of applying structured thinking and time-tested models for organisational success.

Secondly, I think that establishing a clear picture of the obvious frames of reference is a very useful precursor to radically rethinking those frames of reference. Get a clear picture of the way things seem to be, and then start playing with it – question assumptions, carve the challenge up in different ways, etc. And that is what I will do with this series of articles, as I start with the obvious ways agencies can improve profits and then move into increasingly non-obvious ways.

And finally, when doing strategy, at some point you’re going to have to explain it to someone. And your audience for that explanation will probably be very immersed in the obvious frames of reference – as experienced experts typically are. To explain your strategy to them, you’ll need to take them on a simplified version of the same journey you take to arrive at it. So start where they are: with clarifying the obvious.

Mapping out two dimensions is easy. A simple chart has two axes, and we’ve got two dimensions (variables) which vary between two extremes each.

If our variables had discrete categories rather than changing along a continuum, we would use a matrix rather than a chart. If there were only two categories for each of the two variables, it would be a simple 2x2 matrix – four boxes of the four possible combinations.

Let’s map an imaginary (but based in reality) market of agencies along these dimensions.

Each dot represents an agency. (Ignore the little differences in dot sizes – I used an inky kind of app to draw this.)

Size clearly varies along a continuum – an agency employing 20 people should be slightly higher on the map than an agency with 19 people. But integration doesn’t vary quite so continuously. Some agencies are more integrated than others, but there are lots of specialists at the extreme left-hand side of the “integration” dimension. All of them are equally “specialist”, but to keep them from unhelpfully overlapping, I put some to the left and right of others. That could be confusing, so let’s make the x-axis show categories rather than a continuous variable.

For our purposes, this is accurate enough to make some observations. The left-hand column are specialist agencies of varying sizes. In the middle, agencies which offer more than one type of service – for example, a creative agency with its own video production team. And the right-hand column includes agencies with the broadest range of services.

Note that I have avoided describing this column as “100% integrated”, mainly because that’s extremely rare and for the purposes of competitive mapping, the drivers and challenges for profitability wouldn’t be any different from “broadly integrated”. If it’s not useful, don’t do it.

What observations can we make from this scatter plot?

The first obvious thing is that there is some correlation between size and integration. Or more specifically, there are no small partially or broadly integrated agencies. That makes obvious sense – to offer more services, you need more team members, so all integrated agencies are larger than small.

But it doesn’t seem to be a strong direct correlation. Some large agencies are specialist. And this gives me an opportunity firstly to note a common mistake made with two-dimensional scatter plots like this, and then to use the outlier group to illustrate Porter’s Five Forces a bit more.

Unless some surprising correlation is the point you’re trying to make, you typically don’t want strong correlation in a competitor map like this. If there are only two dimensions AND they have a strong correlation AND that correlation is unsurprising, the scatter plot will tell you very little. Here’s a classic example to illustrate my point:

A correlation of quality with price is standard and unsurprising. Because of the strong correlation, knowing one variable about a competitor (they’re expensive) already tells you the other (they’re good quality) without requiring any chart. The only time a two-dimensional scatter plot with high correlation is useful is if the correlation is unexpected or if there are one or more outliers which buck the trend. The common theme there is: the results demand an explanation.

What we have here is a weak correlation (there is a general diagonal trend), with an outlier group in the top left. I think both demand an explanation, but I’ll focus on the outliers.

Being integrated demands some increase in size, but being larger does not necessarily demand integration – though it apparently tends that way. And because we noted in the previous article the different strengths and weaknesses of both size and specialisation, the different combinations of forces direct how different agencies are most likely to compete.

Before we read any more into this scatter plot, let’s remember that who constitutes competition depends on which agency’s point of view we’re taking. If we took the view of a single specialist, we could eliminate all of the agencies who do not offer that service, removing most of the other specialists, some of the partially integrated agencies and maybe a few of the broadly integrated ones, depending on the specialisation being considered. (In real life, those agencies end up cooperating with each other rather than competing. To some degree.)

On the other hand, if we took the view of a broad generalist, we might find that most of the agencies remain on the chart – most of the specialists, all of the partials and broads.

(For reasons I’ll explain in a later article, I would go a step further and keep in agencies who are not currently direct competitors, but whose services are directly adjacent to ours in whole marketing value chain. And mark them as such.)

The third dimension we talked about was a discrete binary distinction – local/independent versus multinational/networked. Rather than trying to add some third axis to the chart, we can do this with simple colour-coding:

Clumsy, but you get the point. Perhaps unsurprisingly, most of the independents are specialist or partially integrated, and most of the broadly integrated are networked. And all of the outlier large specialists are networked.

We can see that there’s some clustering:

• Lots of small to medium specialists, mostly independent

• A few large networked specialists (the outliers)

• Some medium partially integrated

• And some medium-large broadly integrated.

Let’s start by taking a closer look at our outliers. In most markets, you’ll find that these are media (planning and buying) agencies. To explain this, we can go back to the Five Forces of Agencyland as well as the last article’s observations about the advantages of size.

Compared to most agency types, the forces affecting media agencies are different. Firstly, unlike other agencies, media agencies’ largest supplier is not labour – it’s media owners, like TV channels, Google, Facebook, billboard owners, magazines, newspapers, etc.

Secondly, because of this, unlike the core activities of other agencies, media buying has inherent economies of scale. Part of the business model of media agencies is the aggregation of media buying. Any given large media agency buys more media than any single client ever would. In doing so, they form relationships and negotiate bulk discounts, some of which they can pass on to their customers.

Thirdly, because of this, and unlike other agencies, there are barriers to entry into the industry of media agencies or the strategic group of media agencies, depending on how we’re defining our industry. The Five Forces framework can be applied to an industry, but it can also be applied to a strategic group within that industry – that is, a cluster of businesses competing in a similar way – if the facts of those businesses mean that the forces have a significantly different effect.

Remember that the “supplier power” force is often shaped by the relative concentration of buyers in the industry compared to suppliers to the industry. For agencies whose main input is labour, there are lots of agencies for workers to choose from, and that becomes more pronounced as you shift into more and more expert labour (e.g., highly experienced creative directors). But for media agencies, who are the overwhelmingly dominant purchasers of media, there are only a few of them relative to a broad range of media owners selling placements.

Immediately we can assume there’s upward pressure on the profitability of media agencies because of this. The media agencies don’t get together and agree to only pay lower prices for media (that would be collusion and illegal), but implicitly there are only a few other games in town for a media owner to sell space – and the media owner is in competition with a dizzying array of other options. Bargaining power for those few media agencies is high – and bargaining power for media owners is low.

Some hints here as well as to why the workers of some industries unionise.

So media agencies enjoy an advantage in profitability from the Supplier Power force. Why doesn’t the market just correct itself and other businesses or new businesses join the fun?

In this case, because of the volume of buying necessary to achieve economies of scale for media agencies, they are protected from those two kinds of competitors: new entrants and non-media agencies diversifying their offering to include media. In either case, the would-be competitor would either need to attain scale very quickly or have deep enough pockets to ride out the years it would take to grow to the necessary size.

Plenty of investors or businesses could do that. But the investment required is not justified by the size and horizon of returns. So they wouldn’t do that. And that’s an important thing to remember for competitive business strategy: when it comes to competitor behaviour, wouldn’t is as good as couldn’t.

And so the Five Forces – supplier power and threat of new entrants in particular – give media agencies an advantage which is not found in agency types whose main input is labour and who don’t enjoy the same economies of scale. It is left to the other forces to keep prices and profitability down. There is still some internal competition between them. There is still some threat of substitution with their customers doing their own buying. And there is still some buyer power among larger clients who can threaten to switch media agencies with relatively low switching costs.

So, given these differences, should we just remove media from our scatter plot and be left with a general trend of small/local/specialist to large/global/generalist? The curveball there is that there are some smaller and generalist agencies which compete with the large specialist media agencies for offering media services. While the economies of scale might not be there for them, they’ve made a strategic choice to add media to their mix for the synergies mentioned in the last article about integration.

That is, while they might not be able to bargain for the same sized discounts from media owners (cost leadership), they can make the case to prospective clients that including both creative and media planning services in a single team allows them to improve the overall value to clients (differentiation). If the size of that added value outweighs the relative challenge to profitability of media services alone, they can demand a premium or at least win more business for the same price.

And that is as good a segue as any to talk next about the four (five?) generic strategies for profitability.

That is, do we do strategy inside-out or outside-in?

I’m not alone in finding it a bit of a false dichotomy – that strategy ends up being an iterative interplay between the two facets. The success of any strategy depends both on environmental factors and facts about the starting point of the business. A business with strengths that are irrelevant to profitably serving a market is doomed. A business which identifies a best way in to the market but which requires an utter rebuild of the business from the ground up will similarly struggle.

That said, we have to start somewhere, and while my usual instincts are to start with the market, this time I want to start with some aspects of the businesses in the industry.

How do agencies differ from one another in ways that are relevant to creating value for the market – and therefore ways that are relevant to strategy?

Agency Size

The first dimension on which agencies vary greatly is size. And by “size”, I mainly mean headcount. Some agencies are just a handful of people and some employ hundreds of full-time employees. Thousands or tens of thousands if we expand our definition of a business to include global agency networks.

Size also typically correlates with revenue or the volume of billings. That is, an agency employing 100 staff will be turning over tens of millions of dollars in revenue. They must – assuming an average salary of $70k, the payroll alone is $7 million. Without a staggering competitive advantage, an agency of 10 people could never deliver $7 million worth of value.

But there’s an important point here. When we talk about industry profitability and the ability of some agencies to deliver outsized returns, we’re talking about margins/percentages and not volumes. That is, an agency which bills $10 million and spends $9.5 million to do it has a 5% profit margin. An agency which bills $2 million and spends $1.6 million to do it has a 20% margin. The profit for the larger business is higher ($500,000 compared to $400,000), but the return on the smaller agency’s efforts is greater.

In other words, for the purposes of business strategy, bigger is not necessarily better. (I am oversimplifying things a little.1) That said, there are advantages to size which have a direct impact on profitability.

One advantage is hinted at above. There are simply more clients available to a larger agency, because the larger clients have a volume of demand which can only be met by larger agencies. In essence, smaller agencies can only serve a smaller-than-total segment of the market, while the largest agencies can serve all of it.

On the other hand, a small agency may have an advantage in selling to a smaller client if the small client doesn’t believe it will receive enough attention from a large agency with its range of large clients. I’ve lost pitches by over-emphasising the size of a global network and left the prospect feeling like they’re too small for the agency.

Another advantage to size is in capacity management. Agency work typically comes and goes as projects, which require chunks of capacity at a time. The ups and downs of this variable demand have a bigger impact on smaller teams. When too much work comes in at once, an agency is forced to either bring in expensive freelance labour or turn down the work. In either case, profit is lost.

The larger agency wins twice in this regard. Firstly, with a larger pool of workers, excess demand can more likely be spread across team members who might not be working at capacity. Secondly, with a larger roster of clients, the peaks and troughs of client demand even each other out. For the extreme one-person agency with one client, billable work is always feast or famine. For the extreme 1000-person agency with 100 clients, overall demand averages out to a manageable consistency.

One aspect of size that doesn’t typically come into play in agencyland is economy of scale. Generally, economies of scale are achieved when fixed costs can be spread over a larger number of sales, reducing the per-unit cost of goods or service. As mentioned in the post about Five Forces, agencies’ dominant cost is labour, which is basically a variable cost. If demand increases, agencies hire to meet it; if demand drops, agencies make roles redundant. But labour billed out as head hours doesn’t typically scale.

These days, there isn’t even much gained in the spreading of administrative costs like accounting, HR, etc., as smaller agencies can affordably outsource many of these functions without the fixed cost of a salaried role. And tools like Xero, Bamboo, Checkmate, Google Suite, Office 365, etc., reduce the need for staff performing many administrative functions. Still, large global agency networks theoretically enjoy some economies from centralising certain functions (covered below).

Agency Scope

Another big dimension along which agencies differ is the scope of services offered. While the last article about operational excellence focused on idea-having services, agencies in general include a range of service types, like:

• Creative ideation

• Media planning and buying

• Brand design

• PR and earned media

• Social media content/management

• Brand and marketing strategy

• Website and app design and builds

• Video production

We can talk about the poles of this dimension as being specialist on one end and generalist or integrated on the other.

Agencies benefit from specialisation in a few ways.

The first is in value perception and creation. If an agency does just one thing, clients will reasonably assume that the specialist agency is better at that one thing than a more generalist agency is.

Related to this, if an agency does just one thing, it actually will find it easier to be better at doing that one thing. Investment decisions are much easier – all training, equipment and software purchases are directed towards doing that one thing. All experience built up in the people and processes of the agency will be directed towards improving doing that one thing.

The second benefit is in capacity management again. If all of the work that comes into the agency is just one kind of work, and the agency employs only workers who do that kind of work, spreading demand among salaried roles is easier.

Consider a sudden high volume of social-media work coming in to an agency. If it is a 30-person generalist agency, it may employ only one or two people who can do that kind of work, and if they don’t have capacity, the generalist agency is forced to pay freelancers or turn down the work. If it is a 30-person specialist social agency, maybe any of 15 people could soak up the excess work.

Similarly, if two people’s worth of social work dried up, the social agency has every other client’s work to share among underutilised staff. For the generalist agency, it’s paying two people to sit on their hands until more social work comes in.

The third benefit is a bit of a mix. And that is that specialisation negates one of the size disadvantages mentioned above. While only the largest full-service agencies can meet the full-service needs of the largest clients, a relatively smaller specialist agency can meet the specialised demands of any sized client. And so, with specialisation, the market is less limited by size. The “mix” part is that the overall size of the pie is smaller, as they can only capture a share of the market’s total spend in their domain.2

There are benefits to generalisation too. For one, there can be a cost efficiencies. For example, the same number of client-service team members3 can service a single client which uses the agency for multiple services. If the client were to have different agencies for five different services, they end up paying for at least five different suits.

There’s a value-perception advantage too. When all you sell are hammers, you’re incentivised to see every problem as a nail, and clients know it. The more generalist an agency, the more credibly they can claim that they will recommend the right solutions for a client, rather than finding excuses to sell their particular services even when it might not be the best use of the client’s budget.

In an “agency village” scenario with multiple specialists serving a single client, there can be a lot of competitive muscling for budget between the agencies, which can incur costs in time – and even quality if communication between agencies suffers as a result.

There’s another value-perception advantage, which can potentially be an actual value advantage, in synergies between the different departments of a generalist agency. For example, the same experts who designed the client’s brand identity might be involved in the design of the client’s website. That’s more efficient than a separate web-design agency being briefed on the brand identity by a separate brand-design agency.

Generally speaking, the advantages at one end of the spectrum translate to disadvantages at the other. Generalists face greater challenges in capacity management and perceptions of specific expertise. Specialists face greater challenges in perceptions of bias, inefficiencies of inter-agency relationships, and a smaller total revenue pool to win.

Global Networks versus Local Independents

Another dimension to touch on briefly is whether an agency is a standalone entity or the local presence of a global network.

Networked agencies enjoy scalable efficiencies in brand equity. For example, even if a local office hasn’t won any big global awards recently, it can make some claim to their promise of quality by association. There is also a basic sense of credibility and reliability that comes from big brand name recognition. No one was ever fired for buying IBM.

Networked agencies also enjoy scalable efficiencies in expertise. For example, a single agency might not be able to justify the expense of employing one world-class expert in a particular field, let alone many. But by spreading the cost of a six-figure salary among 30 offices, all 30 can claim access to that expertise – or at the very least, association with a well-known name.

And networked agencies can often benefit from some degree of arbitrage – that is, taking advantage of price differences from one market to another. An office in New York can sell in a website build priced with a rate card that’s very competitive in the US, while much of the work is done by workers in an office located in a lower-wage economy.

On the other hand, networks can be very slow ships to turn. Levels of administrative and technical bureaucracy build up – intended to bring scale efficiencies but imposing global uniformity which can hinder individual offices’ agility. Obligations to the global network can incur costs which eat into profitability – fees paid to the global entity, costs required to keep up appearances to a global standard, etc.

Independent agencies typically enjoy greater agility, lower overheads, and the flip side of the networked agencies’ brand perceptions – that is, they’re more credibly local, more credibly experts in local audiences, and aren’t distracted by issues overseas.

It seems to me that those are the three big dimensions along which agencies differ, as businesses. There is some correlation between them – the more generalist an agency, the larger it tends to need to be in size, and networked agencies are naturally bigger on average than independents. But there are still different combinations out there in the market – larger and smaller independents, large specialist networked agencies, independent generalists.

There are plenty of other ways agencies can differ from each other within these dimensions, but these ones set us up to talk in broad strokes for the next topics – the five generic business strategies as they are applied in agencyland, and mapping out the strategic groups.

Operational excellence is about how well a business performs particular activities. What does “how well” mean? It means doing things faster, cheaper, more reliably, at better quality, etc.

In many industries, it’s safe enough to think of it as “doing the same things your competitors are doing, as well as possible”. That’s not always true, as for strategic reasons, there can be some businesses doing things which competitors are not doing, but even for those things, a business can be doing them better or worse. It’s the “as well as possible” part that we mean by operational excellence. But for agencies, operational excellence is typically doing the same things everyone is doing, as well as possible.

Also known as: best practice.

The distinction also lines up fairly well with a common description of the difference between “strategy” and “tactics”.

For reasons I won’t go into here, I actually find those definitions unhelpful in some ways, but for our purposes here, it does the job. Strategy is about what things you do. Operational excellence is about how well you do them.

Both are crucial to attaining outsized profits from an industry. We talked last time about how the Five Forces affect the profitability of an industry as a whole, but these factors don’t set in stone the fate of every industry participant. In an industry as brutal as agencyland, agencies can and do post above-average profits – which means, of course, that the others suffer below-average returns. Both strategy and operational excellence are essential to being on the right side of that balance.

The difference made by operational excellence is this: within the bounds of profitability set by your strategy, operational excellence maximises that profit. Let’s look at some of the kinds of operational excellence which are key to agencies and then I’ll come back to this point and talk a bit more about strategy.

Strategy and Creative Ideation Processes

I’ll start with this one, because it’s my historical area of expertise.

Also, if it’s not clear already, when I talk about agencies I’m primarily thinking of creative/brand/advertising agencies – that is, agencies whose bread and butter is coming up with and executing creative ideas. There are other kinds of marketing agencies – media agencies which plan and buy media, digital specialist agencies which design and build websites, etc. Creativity is involved in all of their processes too, but a specifically creative agency is kind of the exemplar of those processes.

Having ideas is central to the value-creating activities of agencies. Arguably, that activity is the defining feature of such agencies. Upstream marketing/brand strategy and downstream production can (and often are) performed by other players – a client doing their own marketing strategy, a production company making the assets for a campaign. But whether or not an agency offers marketing strategy or production services, it typically has the ideas.

The ideas are produced through a combination of skilled labour and business processes. A typical example in a small agency might look like this:

1. Account service takes the brief from the client with the creative director present.

2. Suit1 and CD confirm the client brief after clarifying or pushing back on some points.

3. CD thinks about the brief and then takes a creative duo (art director and copywriter) through the client brief with some thoughts of her own.

4. Creatives work together to generate ideas to answer the brief.

5. They check in with the CD twice during that work.

6. CD, creatives and suit meet internally to select three ideas to present back to the client.

7. Short list is presented to the client, who either gives feedback (sending us back to step 4) or selects an idea to commit to.

8. Suit scopes the work and puts together a final proposal.

9. Client signs off and the creative process hands off to production processes.

I say that’s an example in a small agency, because there are only four personnel involved – one suit, one CD, two creatives. In larger agencies, you can expect more division of labour and more roles involved. Commonly, a strategy role will be involved in taking the client brief and translating it into a creative brief. A producer will be involved in scoping the work, rather than account service. Perhaps both a senior and junior suit are involved.

And in even smaller agencies, perhaps just a single creative role is there taking the brief from the client and then doing the creative work of coming up with ideas.

The point is that, however many roles or steps, however adhered to, and however documented or not, the business has a process for generating ideas. And these processes and their execution can be better or worse.

What does “better or worse” mean here? It means things like…

• Producing ideas that will be more or less effective in achieving the client’s objectives.

• Producing ideas in less time.

• Related to both – producing ideas which require fewer or no rounds of client feedback.

These elements can’t be reduced to simply how talented, experienced or hardworking the creative team are. Poor processes or poor execution at any of the stage will affect these outcomes.

A client brief that is not sufficiently interrogated by account service or strategy can lead to confused, confusing or even missing success criteria later on when the ideas are being presented to the client. The absence of a producer in internal reviews can lead to ideas being sold to the client which later turn out to be unfeasible within the available budget. And a poor creative brief makes ideation difficult, undirected or misdirected.

From a business perspective, the consequences show up as higher costs, lower client satisfaction, or both. Most agencies are familiar with the issue of “burning time” on ideation work as creatives struggle to generate ideas to a high enough standard, or as multiple client feedback loops keep sending the creatives back to the drawing board.

Over time, agencies have evolved best practices for generating better ideas faster, and a lot of those evolved elements are present in the examples above. If you read the book A Technique for Producing Ideas, published in 1965, it’s clear that 60 years ago there was almost no division of labour at all in ad agencies – the same guy (it’s 1965) manages the client relationship, takes the client brief, comes up with the ideas, presents them back. Even reading the more recent (and brilliant) Hey Whipple, Squeeze This, many of the creative tasks the author explains would be performed by planners or strategists in most modern agencies.

What makes these processes “best practice” – or operational excellence – is the fact that every agency can use them. Best practice both evolves and spreads over time. At some point in history, one agency started separating out “client briefs” from “creative briefs” and began generating better ideas faster as a result. For some brief (pun intended) period of time, that agency had a competitive advantage in agencyland, but it was not a sustainable competitive advantage because some employee moved on to another role and brought with them the magical secrets of creative briefs. Eventually, most agencies treated client briefs and creative briefs separately and while the industry as a whole was more efficient, no individual agency received an advantage from doing so.

It’s a story for another day, but there’s a useful thing to note here – before that innovation, not separating client briefs from creative briefs was “best practice”. Only by questioning today’s best practice is tomorrow’s best practice discovered.

Regardless, the point is that there are better and worse ways for an agency to come up with ideas, and agencies do vary in their competence at this. An experience curve is at play, to some degree, where older more established agencies benefit from the lessons of historical mistakes, refining the efficiency of their processes over time, while many newer agencies are unable to generate the same quality of ideas or take longer (cost more) to do so.

And this is true of all agencies. Unless an agency can come up with a new faster way of generating better ideas which cannot be imitated by competitors, strategic/creative processes cannot be a source of sustainable competitive advantage. And so typically the strategic/creative processes of an agency are a question of operational excellence, not strategy.

But that doesn’t mean that there aren’t vast differences between how well some agencies perform those activities – and the impact on profitability that comes with them.

Um… Other Ones Too

Okay, that took longer than I expected to talk about. Briefly, the three other main elements of operational excellence in agencyland are business development (sales), resource management and project management.

New-business processes result in higher or lower returns in billable client work per dollar spent on the sales function.

Resource management is about cost-effectiveness in matching capacity with demand – particularly managing the balance of salaried staff with freelancers in relation to variability in different kinds of demand. That is, how does the agency trade off between the cost of salaried staff sitting on their hands when there’s not enough work and the cost of paying higher rates to freelancers when there’s too much.

And project management is about ensuring the execution of ideas are done on time, to spec, and within budget.

As I said at the top, the easiest way to understand these processes as being about operational excellence rather than strategy is that every agency does these things, can do them better or worse, and the best ways to do them are imitable by everyone.

That doesn’t mean that they actually are imitated by everyone, and some agencies are much better at them than others – and often those are older more established agencies (who admittedly often have other challenges not faced by newer smaller agencies).

Operational excellence is clearly important, and important enough that it usually doesn’t matter how good an agency’s strategy might be if it’s dropping the ball on best practices. As Michael Porter says, operational excellence is a necessary but not sufficient condition of returning outsized profits. Without operational excellence, a strategy will fail to deliver on its potential. Without strategy, the gains offered by operational excellence are capped.

There’s an analogy here to my article in March about the effects of strategy on creative ideation. I gave this example of the varying quality of ideas being generated by different strategic focuses:

In terms of the analogy, operational excellence is about returning profitability towards the right end of a given bell curve. Strategy, on the other hand, pushes the whole bell curve to the right. What makes it strategy rather than simply pushing out the frontier of the whole industry’s effectiveness is that your strategy can’t be copied by everyone. Ideally it can’t be copied by anyone. Competitors either can’t or won’t follow suit. (If you’re a fan of card games, “can’t or won’t follow suit” is actually a very good analogy.)

So, with that all said, I’ll start looking at strategies for agencies in the next few articles.

Note: if you think your agency’s processes could do with an audit, do feel free to get in touch at ryan@triplegreatstrategy.com or just message me on LinkedIn.

These forces vary widely from industry to industry. Porter suggested that all business strategy can be described as choices in how to deal with the particular five forces of a given industry. As an illustration, I thought I might look at an industry which more often does the analysing rather than being analysed – marketing agencies.

Supplier Power

For agencies, by far the biggest input is labour. There are other costs to doing business, to be sure – office space, technology, subscriptions, etc. But agencies essentially buy time from skilled workers, combine their efforts in a particular way, and charge their customers a mark-up on that time. (Either explicitly in a rate card or implicitly in project fees.)

Typically in examining supplier power, one of the first things we consider is how concentrated the industry is compared to the suppliers. That is, if there are only a handful of businesses in the industry, suppliers don’t have a lot of choices in whom to sell to, and those businesses can demand preferential prices.

Another first thing we consider is how large a portion of business costs the supply represents. You might think suppliers are advantaged when their product is a relatively large cost for the industry, but the size of the cost incentivises the industry to negotiate harder, research more, etc., to keep that large cost under control.

And then there’s the question of the substitutability of any given supplier’s offering – in other words, are industry needs differentiated or commoditised? A cutting-edge PC manufacturer might need only the very best graphics chips, giving a lot of power to the few suppliers of the very best chips. But a shoe company is probably not over a barrel when it comes to buying shoelaces.

Finally, there are switching costs – how costly is it to switch from one supplier to another?

All of these boil down to two things – how price-sensitive are industry participants and how much leverage do the parties have in bargaining?

How does agency labour hold up as suppliers to the industry?

• Supplier power varies with different kinds of roles and seniority.

• There are many agencies, but there are also many aspiring agency employees.

• Senior high-skill workers are scarce relative to the number of agencies, differentiated in value, though broadly substitutable amongst themselves.

• For more junior lower-skill workers, there is typically a large number relative even to the large number of agencies, and they’re more or less substitutable among them.

• There is no unionisation in agencyland.

• Switching costs are relatively low, though labour regulations and on-boarding costs aren’t negligible. Once someone has a job, you can’t just swap them out for some marginal improvement, and even if you could, at the very least it would be terrible for morale.

The result is a mix for the industry. Juniors have to settle for relatively low pay as they compete with each other for roles and are broadly as valuable as each other. But the scarcer seniors can demand high pay as they bring with them valuable portfolios of past work, awards won, networks of sales leads, the promise of otherwise difficult-to-achieve quality of work, and often even personal brand (as press releases about big hires are sure to emphasise).

Supplier power in agencyland: medium (a mix of high and low).

And it’s all downhill from there.

Buyer Power

If you thought negotiating pay for senior suppliers was bad, wait ‘til you get a load of buyers. Buyer power is a mirror image of supplier power, so the same kinds of considerations apply: relative concentration, relative proportion of cost (price sensitivity), differentiated needs, switching costs.

You might think that relative concentration isn’t so bad. There are many more businesses which need marketing services than there are marketing agencies. But think of it instead in terms of the concentration of demand and supply. The relative size of most businesses’ marketing budgets, combined with the effects of three other forces on margins (new entrants, substitutes, internal rivalry), ensure the dynamics work against agencies’ favour. That is, for all intents and purposes, there is not enough client spend to go around, agencies need clients more than the other way around, and clients are therefore able to play agencies off against each other. The bargaining power sits with the clients.

In terms of price sensitivity, while marketing is not typically as large a cost to clients as labour is to agencies, the budgets are definitely big enough that clients are eager to keep those costs down. (How much more so when belts are tightened and there’s pressure on marketing teams to reduce costs.)

Switching costs aren’t insignificant. It can be a pretty big deal for a client to switch from one agency to another – they lose relationships; built-up internal expertise on the brand, company and client industry; efficient ways of working that took time to iron out the kinks, etc. In fact, the spectre of switching costs can indeed keep clients in relationships with agencies they might otherwise think about ditching, though this tends to take its toll on agencies in less direct ways. And many agencies are familiar with the sting of an established client going out to pitch, making the agency battle again with competitors to hold on to the work.

And finally, differentiation. This may be controversial, but I’m going to say that marketing agencies are highly commoditised in comparison with many other categories. I’ll add one qualifier, though: they’re commoditised within strategic groups. I’ll talk more about that in later posts, but for now, I’m suggesting that in many cases, for the purposes of clients, it’s often true that one agency is roughly as good as another.

What does all of this add up to? In general, buyers of the agency industry are both price-sensitive and have a lot of bargaining power, mitigated to some degree by switching costs.

Few things exemplify this more than the phenomenon of competitive pitching. Clients can literally ask five agencies to do tens of thousands of dollars of free work in the hopes of winning billable business. I’ve been in one pitch with an estimated $100,000 of labour was invested. Did we win? Uh… That’s irrelevant.

Buyer power in agencyland: high.

Threat of New Entrants

This force is about how easily new businesses can enter the industry and suck up demand when the market grows. It’s affected by structural barriers to entry. The more difficult it is to feasibly enter the industry, the more existing members of the industry can hold on to profits. For a simple example, consider how difficult it is to start a pharmaceutical company – both regulatory barriers and the capital required to do potentially years of R&D before a saleable product is created. (Some of these barriers are now being lowered by industry innovation, but you see my point.)

Agencyland has practically no barriers to entry. Register a company, buy a domain name, throw together a website, email a few freelancers, start trading.

Threat of new entrants to agencyland: high.

Threat of Substitutes

What counts as a substitute rather than a competitor is a question of industry definition, which is a hotly debated topic but often ends up not particularly mattering. However you draw the lines around the industry you’re analysing, players end up in the category of either internal rivalry or substitution. For our purposes here, I’d consider in-housing the main substitute for agencies.

In-house agencies are on the rise, and even for businesses who wouldn’t describe themselves as having an in-house agency, the option is there for many of them to do their own marketing – their own strategy, creative, design, etc., even if they’re bringing in individual contractors for particular tasks.

Admittedly, for those clients who have not built the full capabilities of an agency internally, the quality of the work may be lower than what could be offered by the typical agency. But given the aforementioned price sensitivity, “good enough” advertising work from a team being paid salaries may appear preferable to award-winning work by an agency which charges several times the labour cost of the inputs, let alone the additional cost of account management, etc.

Substitutes are often of a lower quality than the industry overall, but they put caps on the prices the industry can charge for its products and services. If the whole industry is generally too expensive, the substitute becomes preferable despite the compromise on quality.

And plenty of in-house agencies don’t compromise on quality at all. They benefit further from tight relationships and smooth communication within the business, among other advantages.

Why haven’t I included AI as a substitute? The impact of AI will be mediated through multiple forces – reducing supplier power, lowering barriers to entry, increasing the appeal of substitution.

Threat of substitutes to agencyland: high.

Internal Rivalry

And finally, internal rivalry. Typically internal rivalry lowers the profitability of an industry by forcing participants to spend money on marketing and compete on price.

In my last post, I talked about excess share of voice as a theoretical causal factor in growing market share. That is, if every participant in a market doubles their advertising budget while spending proportionately to their market share, no one’s market share grows. In essence, the industry as a whole wastes those resources and, unless the cost is passed on to customers, everyone’s profit declines. But if some competitors start increasing their spend, everyone has to follow suit to hold on to their share.

That doesn’t come into play much in agencyland. Agencies don’t typically market themselves with anything like the aggression we see in many categories. But that doesn’t mean there aren’t significant costs in agencies competing with each other. As mentioned above, competitive pitching is a huge cost to the industry. In a pitch with five participants and each investing an average of $50,000 of billable head hours, the only thing we can know for certain is that about $200,000 of industry effort disappears into the ether. Multiply that by many times, and many millions of dollars are shaved off the profitability of the industry as a whole.

Another aspect of the cost of agency competition is the role of awards. Awards are valuable to agencies, but are often costly to win for several reasons. To win awards, agencies will often compromise on price – for example, doing work for a non-profit which is billed at, or even below, cost. Or if a potentially award-winning opportunity for a client is identified, the agency will over-invest in that work, erasing already small margins to ensure the finished product has the best chances of winning. And after the work is done, while entry fees are relatively negligible, there is a labour cost attached to the time it takes to craft a good award-winning entry.

The other side of internal rivalry is competing on price. As I’ve suggested above, within strategic groups, agencies are often more or less interchangeable. They don’t want to believe it, but the fact is that an agency whose fees are significantly higher than competitors will struggle to justify that premium in comparison with the other options. Agencies get squeezed on agreed rate cards, promised deliverables in retainers, etc., all in the name of winning (or keeping) business.

Finally, I mentioned entry barriers above. Related to internal rivalry, however, are exit barriers. If it is costly to shut up shop, businesses in an industry may stick around through unprofitable times simply because it’s less expensive to keep going than it is to die. As an example, consider an industry with expensive and highly specialised equipment which would be worthless to most buyers. Why does this matter? Because they keep operating and competing with other industry participants, further diluting the profit.

Agencies don’t typically have a lot of material assets – compared to many industries, it’s as easy for an agency to shut up shop as it is to start. However, there is another kind of exit barrier which is more common in agencyland: emotional attachment. That is, many agency founders are more interested in keeping their agency going than in making the most profitable choices with their lives or capital. Irrational but understandable, this may keep the profit pool more dilute than low profits would in some other industries.

Internal rivalry in agencyland: medium-high.

So those are the five forces affecting industry profitability for marketing agencies, and they paint a grim picture. From every angle, agency profitability is squeezed. There may be a bunch of factors that haven’t occurred to me, but in broad strokes, I think the biggest drivers are there.

But industry profitability does not automatically equate to business profitability. As Porter says, business strategy is about making choices to create a sustainable competitive advantage in light of those five forces. Some agencies can and do consistently return outsized profits within this environment – by behaving differently from the others.

So if you’ve read any of the above and been itching to say, “Hey, that one doesn’t apply to us!”, great news – you’re probably doing something that I’ll cover in the next few articles as I look at strategies for agency profitability in the airless hellscape that is the agencyland industry.

Some back-of-the-napkin calculations showed that, with the exponential rate of infections and the delay between infection and symptoms, you could assume that there were something like 13 times as many infections in a country as there were reported cases. In New Zealand, we were in the low dozens of known cases, so we already had several hundred waiting to become symptomatic.

We locked down, stopped the spread, and cases kept climbing – of course they did. Every day, we watched the numbers go up, up, up, and then after about two weeks they peaked, plateaued, and then started to decline, eventually to zero. We knew the maths, we knew the visible impact of lockdowns would be delayed, but it was still tense to feel like we were taking this extreme and costly action and seeing no immediate results.

The feedback period was only a few weeks, but it was an object lesson in making decisions with no immediate effects to reap the benefits in the future.

In 1990, professor John Philip Jones published an article in the HBR describing a correlation between share of voice (SOV) and share of market (SOM). Share of voice was expressed in terms of dollars spent on media – a point I’ll come back to. The relationship to share of market maps a lot to long-term brand equity. The thinking about the correlation led to a general rule of thumb for the impacts of advertising spend on market share, and thus (relative) profits.

“Relative” is a key word here. This image from the School of Marketing illustrates the theory involved.

The idea is that, all other things being equal, if all brands spend proportionately to their share of market, those shares will all stay the same. For example, if a Brand X has 30% of the market and the total category spend on advertising is $10 million, then if Brand X makes up $3 million of that category spend, its share of market will keep steady.

What happens if Brand X spends $5 million while everyone else keeps their budgets the same? Well, now the category spend is $12 million and Brand X’s share of it is about 41%. That’s 11 points higher than its share of market, and that difference is called its excess share of voice (eSOV).

What’s the impact of this eSOV? According to the theory, the rule of thumb is that for every 10 points of eSOV, you can expect market share to increase by 0.5% in a year.

That sounds frustratingly small, but when you’re dealing with very high volumes of revenue, 0.5% of the total category (customer) spend is nothing to be sneezed at. And of course, as is common with these kinds of theories, it provided a very reassuring framework for budgeting and had the added advantage of being quantitatively measurable. That is, compared to many other factors understood to contribute to marketing success, it felt much less subjective to talk about budget allocations than, say, how inspiring a brand purpose was.

Now, there are plenty of criticisms of this theory of eSOV.

For one, those five words above – “all other things being equal” – are doing a lot of work. Because there are many many other things to be unequal. To list a few…

• The eight factors of product quality – features, performance, reliability, durability, conformance, serviceability, aesthetics and perceived quality.

• The effects of channels and channel partners – selling online, using CRMs, placements in retail stores – and the effects of sales teams and word of mouth.

• Strategic marketing and brand choices – segmentation/targeting, positioning, points of difference, points of parity, user/usage imagery, etc.

• Executional factors like creative quality, brand consistency, etc.

• Non-budget-related media factors like channels, formats, timing, targeting.

Creative and brand agencies in particular balk at the notion that the impact of advertising can be boiled down to outspending the other guys. And justifiably so. Their work is an amplifier (or attenuator) of the impact of that budget. (Media agencies, on the other hand, big fans.)

But, of course, all of the competitors also have creative and brand agencies also doing their best to amplify (and not attenuate) the impact of those competitors’ budgets.

Secondly, SOV was a lot easier to talk about in 1990. The number of advertising channels available were very limited, so share of voice in those channels was very measurable and also zero-sum – if one brand got more space, another brand got less. Today’s media environment is exponentially more fragmented, much more difficult to compare spends, and much more difficult to translate relative spend into actual relative share of voice.

That is, can we really compare $50k spent on sponsoring a popular two-million-fan Twitch streamer with $100k spent on evening-drive radio spots? Does one really have twice the voice of the other? In theory (saying that a lot in this post), there is an efficient-market element at work here. That is, over time, the relative return of $50k on one media type should become about half the value of $100k on another media type. Because underpriced media will get gobbled up by the planning experts and those media will lift their prices to a market equilibrium. And overpriced media will lose sales to more efficient channels until they drop their prices. Yay, theory.

With all of the above said, let’s imagine there is still something to the idea of eSOV. It’s intuitively true that if you’re the only brand spending on advertising while your competitors spend none, you’ll gain market share. And it’s intuitively true that if all of your competitors advertise and you spend nothing, you’ll lose market share to them. In the long run. And where we sit is somewhere between those extremes of 0% and 100% of share of voice.

If you hadn’t noticed, the economy isn’t doing so well. And when belts get tightened, marketing budgets are often first on the chopping block, to mix some metaphors.

And that’s completely understandable. Unlike almost any other expenditure in a business, marketing dollars disappear out the window without immediate effect. More to the point, cutting that budget lacks the immediate negative effects of cutting staff, halting the purchase of inputs, failing to pay suppliers or rent on office space, etc. If sales are down, revenue is down, and balancing the books means dropping the other side of the cashflow statement.

Of the remaining marketing dollars, what kind of spend gets prioritised? Well, the faster the return on the spend, the more appealing it is financially. Spending on sales promotions can see a return within the same financial reporting cycle, while the effects of brand building are long-term and less dramatic. Again, more to the point, cutting spend on brand building has probably zero effect within that reporting cycle.

Like muscle strength, flexibility, or cardio fitness, brand equity builds up with effort over time. And also like those things, brand equity fades very gradually over time. If Rob McElhenney stops working out for a few weeks, he still looks like this:

His interviews about how long and hard it was for him to get looking like this are hilarious. But his investment will keep him looking like that for quite a while after he stops actively maintaining it. It’ll even make it easier for him to stay there than it was for him to get there – all them pecs and lats and whatnot are burning calories just by existing. Insane transformation. How good was the ballet episode? Brilliant show.

So a business can coast for some time on the effects of past brand building. I think it was Mark Ritson who likened it to an airplane cutting its engines. The momentum keeps it airborne for a while before it starts to plummet. His point was also that, once the plane starts plummeting, it takes more fuel to get it back to where it was than it would have taken to maintaining cruise altitude.

I’m full of metaphors today, aren’t I.

So let’s put these things together.

• The theory of excess share of voice is that relative spend, not absolute spend, determines the market-share effect of advertising.

• In a recession, businesses cut spending and brand building is the logical expenditure to cut with no consequences within the critical short-term horizon.

• The effects of brand building are long-term, gradual and persistent.

According to the eSOV theory, if every competitor in a category halves their advertising spend, none of them will suffer for it. (Arguably the category as a whole will suffer, but in the recession, categories suffer as a whole anyway.) So of whatever remaining total customer spend there is in the category, if the relative shares of voice are stable, the relative shares of (the temporarily smaller) market will be stable.

One more analogy.

When Covid hit, the share market dropped. There are all kinds of reasons for that, but they all manifest as: share owners were selling, and accepting lower and lower prices for their shares. This price drop was reflected in the falling reported value of long-horizon retirement funds, like Kiwisaver growth funds. I’m aware of people who saw this happening and freaked out, switching their Kiwisaver savings from growth funds to conservative funds. There’s no need here to go into the foolishness of that.

At the same time as people were selling shares for lower and lower prices, some people were buying those shares for lower and lower prices. With the same logic, while Kiwisaver growth funds were dropping, some people pumped extra money into those Kiwisaver funds.

Why? Because in a long enough timeline1, the future value of those shares wasn’t changing as much as the prices were. In essence, they were going on sale. You could buy more for the same amount of money.

I was tempted to say “clever people” rather than “some people”, but there was another requirement besides cleverness for making that move: having cash to spare.

The analogy should be clear, but I’ll spell it out anyway.

If…

1. eSOV is the path to long-term brand equity.

2. Competitors are reducing their advertising spends.

3. So you can achieve more eSOV per dollar spent.

4. And the value of future brand equity is unchanged by today’s economy.

5. And so future brand equity is basically on sale.

In terms of future brand equity and its impact on share of market, the same advertising spend yields greater returns if your competitors reduce their spend. Even more so if you increase your spend. More bang for your buck.

Even better, if the economy overall is cutting on ad spending, media channels are likely to drop their prices because of the lower demand. Not only does the same spend go further in relative share of voice, it goes further in absolute reach and frequency.

Sounds great, but – like with buying the dip in share investing – you’ve got to have the bucks to do it. And many businesses are unlikely to have that cash for the same reasons that many investors are unlikely to.

Firstly, why would they be sitting on cash when they could have invested it earlier?2 (Or paid out to owners.) (Or spent on a holiday.)

Secondly, the exact time that future brand equity goes on sale is the time when revenue/income becomes less certain. If you have cash reserves, they’re sensibly earmarked for the possibility of revenue shortfalls or (in the case of individual investors) job loss.

Ignore this bit if finance doesn’t interest you.

Taking advantage of that sale can be treated as an investment decision. That is, estimate the return in future cashflows of the greater market share (perhaps with the 0.5/10 rule of thumb above). Project the risks and sizes of costs that could be incurred by not having that cash on hand (or having to borrow). Discount both the cashflows, weighted by risk, back to the net present value of that option. Do the same projections and calculations for cutting your ad spend like everyone else is (including the risks that one or more competitors might not cut their spend). If the NPV of the ad-investment option is larger, it’s the smart move – assuming your assessment of the risks and returns are accurate.

And in more favourable economic times, you might consider what could be done to be prepared for next time – and do similar calculations on that “investment” of having cash available, with its return being weighted against the probability of the next recession. You’d want to update those estimates each year as the probability of recessions and expected distance in the future changes. As probabilities increase and timeframes get shorter, the NPV will increase and a cash reserve that made no sense the previous year might suddenly become a good idea.

You can uncover your ears now.

These aren’t new thoughts. I just went looking for a particular Ritson quote and found this very good article from two years ago, which covers some of the above points and adds a few other great tips for marketing in a recession.

Psychologically, when things are uncertain, it’s not easy to put the foot down on the gas pedal and nothing happens immediately. Like with the Covid lockdowns, the feedback is delayed and there’s some nail-biting as we watch things get worse before they get better.

And every business budgeting decision is a trade-off. Just because future brand equity is on sale, doesn’t mean it’s automatically the best thing to do with company resources. For example, if cash reserves can be used to save jobs instead, there’s a very good chance that is the better move – avoiding costs of hiring and training once business picks up, the morale impact on the team, and living up to the non-financial values of the company.

But at the very least, think twice before simply cutting brand-building ad budgets when your industry overall is suffering. Business is a long game and it’s a competitive game. Business strategy is how you do things differently from competitors in the long run.

One final thought – what if everyone has the same idea? If all competitors maintain or increase their spend during a downturn, the sale on future brand equity ends and everyone is paying full price, so to speak. And suddenly the balance shifts and it might have been smarter to pull back on spending. But what if everyone has that same thought and everyone pulls back on spending? Suddenly it’s smarter to increase spending… Welcome to Game Theory, very much a story for another day.

What’s the problem I was addressing in the first place?

I think there is a lot of confusion among marketers and junior strategists about “brand purpose” for a few reasons.

1. Brand strategy is often being done by filling in the sections of templates, often inherited, with no real underlying understanding of how brands work.

2. There is a popular notion that customers primarily “buy your why”, and so “brand purpose” is perceived as dominantly important to brand marketing.

3. There is another popular notion that customers (these days) prefer brands which are perceived as nobly making the world a better place, and so “brand purpose” also gets more narrowly defined as “social or environmental cause”.

4. Many marketing professionals feel slightly icky about their job and leap at the chance to believe that their job can be mostly about saving the world.

So “brand purpose” is both perceived as very important and also experienced as being confusing and uncertain. The result is often anxiety for marketers blagging their way through brand strategies or – for true believers – highly confident marketers selling the dream. The first question was: are there agreed definitions for these terms?

Varying definitions – descriptive and prescriptive.

Definitions of “purpose” vary and it’s useful to recognise two different things that the same term is being used for.

Firstly, the non-financial reason a company exists. That is, what is the company for, besides generating a profit for its owners? This would be a fact about the company, something to be discovered, and probably driven by the intent of the company’s founders.

This is the definition of Jim Collins and Simon Sinek. While Collins focused on the usefulness of identifying a company’s purpose for unifying and inspiring the internal team, Sinek went further and talked about its purported usefulness in marketing to customers. Jim Collins asserted that such a purpose should remain the same for at least 100 years.

It’s worth noting that it’s debatable whether or not such a thing even exists – that all businesses are there to make money, they make that money in a particular way, and if a better way to make money was worth the cost of switching to, they’d do that. (After all, the largest advertising company in the world is called Wire & Plastic Products.)

Secondly, the prescribed brand marketing tool. That is, what the purpose should be to make a brand effective in the market. This is a strategic choice based on facts about customers (what do they care about?), competitors (how can we stand out from them?) and the company (what can we deliver on?) And it is typically articulated poetically and emotively.

In other words, it’s extremely similar to a combination of positioning (based on the three C’s) and the benefit ladder (elevating from functional to emotional promises). So similar, in fact, that I would argue that they’re indistinguishable – doing one should do the other. In this case, purpose is the result of strategic thinking, rather than an input.

This is the definition of Special Group and any others who prescribe brand purposes. Special asks, “What is the role we want to play in people’s lives?” Different way of asking the same thing. In contrast to company purpose above, this definition of brand purpose would evolve over time as customers, competitors and company capabilities shift.

But does purpose work?

It turns out that this isn’t a simple question, because we have multiple definitions of purpose and multiple explanations for how it might impact commercial success.

Does descriptive “company purpose” work?

The question is meaningless. The effectiveness of any decision or objective is evaluated in reference to its parent objective. The highest-order objective has no further parent objective. If the highest purpose of a business is to make money, we can’t ask “is making money effective or ineffective?” The same goes for, say, Disney’s “to create happiness for people of all ages”. Is it good or bad? The question is meaningless – good or bad at what?

Okay, does articulating the descriptive “company purpose” work?

Wow, great question. Very clever. Yeah, I think it does. Clarifying the company purpose, putting it in words that are simple, memorable and inspiring, making some kind of sense of every job in the company is good for the team. The old story applies here, about JFK asking a janitor at NASA what he was doing and the janitor saying, “I’m helping to put a man on the moon.” So the articulation of the company purpose is useful, even if the company purpose can’t be described as useful or not.

And in fairness to Simon Sinek, a lot of what he talks about is around inspiring and leading a team.

So how about for brand marketing. Does our brand purpose make people buy our products over competitors because they like us or believe in our purpose?

I think overwhelmingly this is not the effect that “brand purpose” has.

Simon Sinek says, “The goal is not to do business with everybody who needs what you have. The goal is to do business with people who believe what you believe.” This is nonsense, and I’ve seen primary research refute it repeatedly. I should explain.

If it were true that customers chose brands based on aligned values and aligned purposes, you would expect psychographics in market research to vary among the purchasers of different brands. That is, you’d expect certain kinds of people to prefer one brand over another, where those psychographics relate to the brand purpose/values rather than the differentiated needs/offerings of the different segments/brands. And so you’d expect those trends to be most visible on the psychographics of highly commoditised categories, where really the only difference between one product/service and another is brand (or price).

I look forward to seeing research that shows differently, but I’ve seen market research including psychographics for multiple consumer goods and utility categories (about as commoditised as you can get) and every time the average psychographic profile of each brand’s buyers roughly matched the average psychographic profile of the market as a whole. The profiles skewed a bit for very small brands (few buyers), but among any brands with at least 10% market share, it didn’t matter if they were the zany wildcard brand, the category leader brand, the eco sustainable brand or the customer-centric challenger brand, the kinds of buyers of the brand were the kinds of buyers of the category.

To put this another way, if you’re the eco-sustainable brand1 in your category and you have 20% of the market, all the research I’ve been involved in suggests that your 20% of customers won’t be much more eco-conscious than the other 80% of customers who buy from your competitors, if at all.

What the fuck – is there no point in brand purpose at all?

Well, here’s the thing. As I’ve said, it’s more important that a brand is than what a brand is. (Not that the “what” is unimportant.) And essential to establishing a brand in your audience’s mind is consistency. And consistency is actually pretty tricky to do when so many hands are touching the brand and your audience really only occasionally notices a fraction of your branding activity for a few seconds at a time.

Because of all that, a clear coherent consistent idea of the brand in the minds of everyone who is working on building that brand is useful for maintaining consistency, and so it is useful for establishing the brand in the audience’s minds, and so it is useful for setting the stage for attaching useful associations to that brand idea. It’s also been suggested to me that a sense of the brand as an agent with clear intentions helps trigger natural social needs for establishing trust. And an articulated brand purpose is useful for all of this.

That clear coherent consistent idea of the brand is necessary but not sufficient for effective brand marketing. On top, or alongside, of “that” the brand is – we have all of the jobs of driving the right associations with category entry points, user and usage imagery, points of difference, points of parity, etc. Brand purpose alone can’t tick all of those boxes, though of course it would likely be foolish to choose a brand purpose that makes those desired associations more difficult to build. (e.g., a pet-ownership-related purpose for a pet-food brand would be a better choice than a pet-food brand dedicated to the demilitarisation of space).

In my hypothetical above, where you’re the only eco-sustainability brand in the category, just because your buyers are no more eco-conscious than your competitors’ buyers, doesn’t mean your efforts establishing that brand idea were wasted. Those efforts were just as effective in driving purchase among non-eco-conscious customers as they were among eco-conscious customers. With less consistency, you would have attracted fewer buyers of both sorts.

So what is your actual advice on using brand purpose?

1. Separately, consider identifying a company purpose for internal cohesion and motivation. Articulate it clearly. Consider it for dual use as external brand purpose, but don’t feel constrained to use it if it’s not right depending on the following points. They’re two different jobs.

2. The content of a prescriptive brand purpose should be basically a combination of a benefit ladder (emotive over functional, or at least outcome over features) and your competitive positioning (based on company, customer and competitors).

3. Besides this alignment with positioning and not making it difficult in future to build desired associations, it doesn’t really matter what the content of the brand purpose is.

4. But it matters very much what the form of the brand purpose is. That is, it must be simple and clear. Just because it should be emotive, doesn’t mean it should be vague and lofty. Its role is to aid coherence and consistency. Consider that your goal is for customers to be able to fill in the blank: “Oh, that brand is the one that __________________.” So your marketers, agency creatives, PR team, etc., all need to share that understanding first. Also, it doesn’t need to be emotive, but it should on some level be a promise.

5. If something else in your brand strategy is already doing this job (for example, some tailoring of a “brand archetype”), then consider forgoing a “brand purpose” entirely to avoid the risk of confusing both team and customers. Less is more. And, for the record, the above criticisms of how “brand purpose” affects customers is just as applicable to “brand archetypes”.

Okay. That’s enough on brand purpose now. Got some great suggestions from readers on LinkedIn of some other topics to cover next.

Company values are internal and describe the culture and decision-making guidelines of the company. They’re how we behave, how we do things around here, etc. They might help a prospective employee decide if they’re a good fit for the team. They might help an office manager or HR lead make decisions on social events. They might even help an R&D team pick directions for innovation.

Where do they come from? Well, I used the word “describe” above, and company values are descriptive to some degree. That is, if a company does not have a list of documented values, the first place to look for them is in the culture that the company has evolved.

How do our people behave and interact with each other? How do they view customers and view their work? We might find that there’s a “work hard, play hard” or a “work-life balance comes first” mentality. We might find that there’s a very flat hierarchy or that the team prides itself on positive customer feedback. These kinds of things can differ from company to company, making them different kinds of places to work.

The way things are is not necessarily the way things should be, though. Alongside descriptive approaches to finding values, there are also aspirational and prescriptive values to consider.

For example, we may take a good look at our team and realise that there’s not a lot of diversity in it. Setting aside the creative advantages of diversity I’ve covered earlier, the members of the team or leadership team may hold values for diversity and inclusivity which conflict with the facts of current team homogeneity. Seeing a gap between where they are and where they want to be, they might include diversity as a company value to express and remind about their aspiration.

(Note that there’s still an element of description there – describing the values held by founders or leadership or the team in general, even though they aren’t yet being lived out enough to describe in reality.)

Prescriptive values are more about what kind of culture suits the business strategy. For example, a business pursuing a cost-leadership strategy might want to include values like “attention to detail” or “everyone owns efficiency”. A business depending on constant innovation might want to codify in its values that “ideas can come from anywhere”, or that “every team member is also a product tester”.

The thing to remember about aspirational and prescriptive values is that you’re starting where you are. If you have organically evolved a culture of frequent extravagant office parties and you’re wanting a culture of relentless cost-cutting, it will take more than slapping a poster on a wall. How much more so if you have problems of ingrained bigotry, sexism or elitism that you want to shift away from.

Now, while prescriptive values are chosen because they will particularly support your particular business strategy, descriptive and aspirational values are far more likely to be held in common with other companies. Diversity is a common one, these days, and no one would say, “Well, our competitors down the road are valuing diversity and inclusivity, so let’s compete by doubling down on homogeneity and bigotry.”

Of course, just because the word “diversity” or some other value doesn’t show up on a list of company values, doesn’t necessarily mean the company doesn’t value those things. At some point, there’s a line between corporate best practice that every firm should adopt (perhaps by law) and something that’s celebrated or important enough in a company to be included on a list of company values. It would be weird (but hilarious?) for a company to say something like “our team prides itself on resolving conflict without murder”.

Whoa, no murdering. That’s not how we do things around here, newbie.

Let’s listen to Stewart Lee.

As hilarious as he (always) is, I actually think it’s perfectly fine for the Car Phone Warehouse to have company values. Because it’s not just a brand, it’s also a company where people work – and those people, in addition to selling car phones, probably aren’t huge fans of racism and don’t want to be associated with it. (Setting aside the PR crisis-management angle which obviously prompted the press statement and Lee’s ridicule.)

So much for company values. What, then, are brand values? Well, while the company values are how the company and its team behave, brand values are how the brand behaves. That is, how the brand acts and speaks publicly in the course of interacting with the market. As we’ll see, that makes for some natural overlap with company values.

Because brand is a marketing tool, these values will need to be prescriptive. That is, they will be chosen depending on facts about the customers, the competition, and the business – its operations, its strategy and its history. How do we do that?

Typically, you want a mix of three sources for your brand values:

1. What’s most important to customers in this category?

2. What’s most aligned with your marketing strategy?

3. What’s authentic and ideally unique from your heritage?

What’s important to customers? This comes from research. I mentioned in the previous post that customers are terrible judges of their own motivations. Rather than asking them what’s important, do research on which traits positively correlate with their purchases.

I also mentioned that people tend to rate brands more highly on all metrics if they’re more familiar with those brands. That’s not a problem for us here. In fact, it works in our favour. Why? Because people tend to rate familiar brands more highly on what they expect a good brand to do in that category. And guess what we’re interested in at this point? Exactly that. So if the big brands in a competitive set get rated more highly for safety than for eco-friendliness, that tells you something about what customers expect from the category.

Note that, by definition, this is unlikely to turn up brand values that are differentiated from competitors. That’s fine – consider these brand values the table-stakes ones. They’re the price of admission in the category. They’re points of parity, but they’re important points of parity.

Next, what’s most aligned with your marketing strategy? If your strategy is to differentiate, then this is where your particular kind of differentiation comes into your brand. If your strategy is Everyday Low Prices, here’s where it shows up. If you’re in a highly commoditised category and are doubling down on distinctiveness, here’s where you capture your particular flavour of crazy.

Finally, what’s authentic (and ideally unique) from your heritage? If you’re an old brand, look at your history and ask what (if anything) makes that brand recognisably that brand through its behaviour in history. Whether you’re an old or new brand, you can look at the attitudes and intentions of founders for hints at what these could be.

For older brands in particular, these attributes can be very powerful competitive assets for a business. “60 years of poking fun” or “70 years of celebrating special moments” and so on simply cannot be copied. You can’t copy history. There is no marketing budget in the world that can reproduce Nivea’s generational memories of parents putting products on children (cream in Europe, sunscreen in AuNZ). There is no clever campaign idea in the world that can reproduce Qantas’s record for zero lives lost in plane crashes.

So, perhaps brand values are actually a mix of prescriptive and descriptive attributes, but even the descriptive ones (authentic heritage) are also useful just by virtue of being different, difficult to copy, or at the very least easy to live up to.

A certain amount of overlap between company values and brand values is almost inevitable. After all, we find our company values in part by…

• Looking at how we have evolved to behave, which may overlap with authentic heritage.

• Aligning prescriptions with business strategy, which may overlap with brand values suggested by the marketing strategy, which is informed by the business strategy.

For example, a business strategically differentiating on customer service is likely to have both a company value and a brand value referencing customer service. Such an element is both important to the internal culture and to the external positioning.

But still, the two are distinct even if elements are likely to overlap. One is internal, for the team, and the other is external, for the market. This echoes the distinction between company purpose and brand purpose (if we are adopting a prescriptive definition of brand purpose). The company purpose inspires and unifies the team. The brand purpose helps present a consistent and cohesive brand idea to the market.

And this, by the way, is one aspect in which I have nothing bad to say about Simon Sinek. I think he’s mostly wrong when talking about purpose and marketing. But I think he’s mostly right about the instrumentality of a company purpose for inspiring and unifying the internal team. As Jim Collins said, the engineer at Boeing is not inspired by adding 34c to earnings per share, but rather the efficiency with which her designs kill children smooth and safe flying experience her designs are enabling for happy vacationing families and weary business travellers.

But if you don’t understand that company values and brand values are distinct (even if they overlap), you end up with confusion.

Your team values diversity and inclusivity, so they appear in your company values. Then you faithfully copy those company values into your brand-strategy framework. Suddenly you’re trying to work out how to make our foot-fungus treatment brand famously diverse and inclusive.

Or… Your team values constant innovation in its quest for fun board-game activities for the whole family, so it appears in your company values. Then you faithfully copy those company values into your brand-strategy framework. Suddenly you’re trying to present the brand as innovative when parents don’t actually care about board games “being innovative” – they want quality time with the family and gentle learning curves.

Company history and business strategy alignment explain the parallels between company values and brand values, but don’t confuse them. Your company values are how you want to behave primarily as a team and a culture, while your brand values are how you want to present yourself as to customers. Despite inevitable overlap, what’s right for one may not be right for the other, and vice versa.

• “Today’s consumers expect brands to be good corporate citizens.”

• “Today’s consumers are more driven by their values in choosing brands.”

• “93% of Gen Z/Millennials agree or strongly agree that environmental and social issues are important in their brand choices.”

Marketers combine these beliefs with a few others, like…

• Customers buy the brands they like the most.

• What a relief it would be if my job were fighting racism instead of promoting toothpaste.

And they come to the welcome conclusion that their job as marketers in this brave new world is to do Good things, and therefore convince consumers that their brand is the Goodest, and therefore the most aligned with consumers’ values, and therefore the most likeable, and therefore the most popular.

I made up the specific 93% number above, but I see similarly high statistics bandied about. Obviously, what survey questions specifically test is how populations answer survey questions – beyond that, we’re inferring. Here is the line of reasoning common to marketers today:

1. Some high percentage of our target market says that environmental and social issues are important in their brand choices.

2. Therefore, environmental and social issues are important in their brand choices.

3. Therefore, if we are the most environmentally/socially good brand to choose from, they will choose us.

I think there are two potentially unwarranted logical leaps in that thinking.

The first I’ve already hinted at. What people say is important to their purchase choices isn’t necessarily what is actually determining their purchase choices. For one, people likely want to believe that they’re more moral than they really are. And not only that, people are not the best judges of their own behaviour in general.

Rather than asking people how they make brand choices, it’s often better to ask what they think or feel about various brands, and then ask which brands they buy, and analyse the results to look for positive correlations between perceived traits and purchase. (Even then, there are confounding factors, such as our natural tendency to rate more famous brands higher on all metrics.)

But even if it’s true that environmental and social issues are important to consumers’ choices, it doesn’t necessarily follow that they choose the most environmentally or socially “good” brand.

Ethical considerations in brand purchase are often less about trying to feel good and more about avoiding feeling bad. For example, someone concerned with the suffering of egg-laying hens would feel guilty about buying battery-farmed eggs. They don’t want to contribute to that suffering. Fair enough. But for almost all of the people who care about this, it’s enough for them to short-list their egg choices down to free-range options.

From that point on, they’re not trying to determine which egg brand gives its hens the very best treatment, nice hen scalp massages and suchlike. From that point on, they’re using other factors to decide between options – price, perceived credibility, perceived quality, etc. (And excepting price, a lot of those perceptions will be driven simply by how familiar the brand is.)

This is the difference between maximising and satisficing decision criteria. For maximising criteria, imagine a gamer wanting the best-specced graphics card for her (YES THAT’S RIGHT HER) gaming machine. Or imagine a parent wanting the safest possible car for their teenage child. These are situations where the criterion in question is compared across options and the best chosen (with some consideration to price).

“Satisficing” is obviously a portmanteau of “satisfying” and “sufficing”. It means ensuring that a criterion meets some minimum required level to be satisfactory. A huge number of our decisions are based on satisficing, largely because it requires far less energy than maximisation. If we are looking for something that is good enough, we can choose the first option that meets our minimum standards without spending any more time and effort on investigating other options.

Life would be unwieldy and impossible if we tried to make every decision through maximisation rather than satisficing. For brand marketing, it’s a hugely important concept, because a large part of the value delivered by brands is in reducing the effort required to make a purchase decision.

I’ve mentioned a few times above the inherent value of familiarity in brand decisions. Simply by having heard about a brand a lot, over a long period of time, we can infer all kinds of satisficing judgements about a product. Some of it is social proof – how bad can Nurofen be if so many people choose it? Some of it is quickfire logic – if Durex condoms were unreliable, they would have gone out of business years ago. The more low-involvement the decision, the larger the effect.

So coming back to the logic of trying to appeal to value-conscious consumers, sure, ethical considerations may be hugely important to them – for example, in that they would simply never buy a skincare product which is tested on animals. But while perceived bad behaviour may be disqualifying, that doesn’t mean that perceived best behaviour is compelling.

Add in the fact that, in some categories, all the brands are apparently trying to out-good each other. Skincare, nutraceuticals and complementary health come to mind, but there’s also electricity companies in NZ, a lot of food brands, and so on. This makes standing out very difficult.

Am I saying that it never works to be the “good brand”? No, I think it definitely does work sometimes, but in keeping with my point in an earlier article, I think that the reason it works when it works is incidental – and it’s in competitive environments or making choices which make standing out easier.

For example, in a category where no brands are particularly trying to prove their goodness credentials, a single brand can stand out and become famous as The Good One. But I think it’s the standing out and the being famous that does most of the heavy lifting when it comes to commercial impact. Ben & Jerry’s is an example of a brand that is kind of generally and famously Good (though that brand makes a lot of other very right moves that have nothing to do with Being Good).

I think there are also brands which have succeeded in associating with a particular kind of good, rather than Goodness in general. In most of the best examples, though, it’s difficult to distinguish the cause from the more general consistent brand image. For example, McDonalds has obviously narrowed its charitable focus down to sick kids, but this also supports and reinforces its general brand attributes of being for families, a fun place for kids, etc. Dove has done a very good job focusing particularly on issues of self-esteem and self-image.

Again, these are situations where a brand has consistently stood out and become famous for recognisable causes which can’t be confused with those of competitors. I find it more likely that the commercial impact of those choices is due to the consistency, the standing out, the becoming famous, and not being confused with competitors, rather than the goodness or likability of the cause.

So these are questions worth asking when you’re thinking about your brand doing good, aligning with consumer values, being likeable.

• Are we trying to be best (goodest) or to reassure that we’re good enough? Why?

• Are we trying to be Good in general or associate with a particular good?

• What is the competition doing? Does any of this help us stand out? Does it help consumers remember and recognise us?

So much of the challenge in branding is making it easy for customers to notice and remember you for the right reasons. Yet so much effort in branding is spent instead on trying to be likeable when this more important job is not done. Purpose marketing and having a public-facing brand purpose can help make it easier for customers to notice and remember you, ideally for the right reasons.

But if they don’t, particularly if you haven’t done the work of establishing the brand and the right associations, then no matter how likeable you might be, I wouldn’t expect commercial results.

• The difference between purpose as discoverable fact and purpose as useful tool.

• The difference between an unchanging company purpose and the apparent changeability of a brand purpose.

• The idea of being strategish, which involves both sounding clever AND saying nothing of substance.

• The idea that branding tools can be accidentally effective.

• And finally, the related do-gooding trend of purpose marketing.

My brain has started to melt a bit with the research I’ve been doing for these articles. And by “research”, I mean googling “brand purpose” and related terms over and over, looking through varying frameworks and definitions.

The most common definition of “brand purpose” is identical with “company purpose” – that is, the non-financial reason for the company existing, the highest-tier objective which makes sense of all other objectives. I’ve already noted several times an apparent inconsistency there: if the brand purpose is a descriptive fact about the company, it’s pointless to prescribing what it should be, and yet agencies and marketers are always coming up with new ones.

But there are some other definitions of “brand purpose” out there. Some are explicit, like Special Group’s:

Others are more implicit – when you read through their explanations and frameworks, it becomes clear that, for them, brand purpose is an intersection of company and customer.

That one is from Beloved Brands, and oh my God they’re yet another place offering a “Mini MBA”. Ritson should have trademarked the term.

“Builds a beloved branded business” is a bit fucking circular as a criterion in the Venn diagram, but you get the idea – customers need it, you love doing it, there’s your “brand purpose” intersection.

Whether it’s implied as in the Beloved Brands model or explicit as in Special Group’s strategy playbook, this kind of “brand purpose” definition is clearly prescriptive and clearly distinct from “company purpose” as defined above. For example, if customer needs change, then what your brand purpose should be will also change.

And also, of course, in line with common trends in brand-strategy documents, the articulation of this intersection will need to be poetic, inspirational and lofty.

I’ve noted previously the similarities between classical positioning strategy and trying to find the “right” cause for do-gooding purpose marketing. With this “what is our role in people’s lives?” definition of brand strategy, we get even closer to classical positioning and also to a related tool, the Benefit Ladder.

Benefit ladders are super simple and super useful for thinking about possible value propositions for a product, service or even brand. Basically, you start with the facts of the product/service (features), and ask yourself – what useful outcomes do these features enable? But you don’t stop there. You then take those useful outcomes and try elevating further – what desirable emotional outcomes do these useful outcomes enable?

There are three dimensions in a benefit ladder – what the company offers, what the customers want/need, and then the varying depths of those wants/needs. The idea is that if you can understand what emotional motivations underlie the appeal of the functional benefits, you can make that promise more explicit in your messaging and that will appeal more than just promising the functional outcomes and letting the customer determine why they’d want that.

Getting to and focusing on an emotional benefit is not universally useful. There are plenty of categories in which functional benefits are basically where customer motivations sit. In those cases, it’s weird and unnecessary to try to elevate a very simple need into some lofty emotional outcome.

And that’s another situation where someone mechanically following a framework like a benefit ladder can get tripped up. “It says emotional benefits, so I have to come up with emotional benefits or I’m not doing this windscreen-repair brand properly.” The result is writing vague or unsupported emotional benefits into a framework in the hopes that it’s good. At best, it’s pointless. At worst, it diverts attention from the actual effective marketing challenges at the level of functional benefits.

But Ritson gives good advice: go as far up the benefit ladder as you can. Just no further.

Related to benefit ladders are positioning statements, which are typically tools for competitive strategy. Like benefit ladders and value propositions, they intersect the dimensions of customer need/want and company offering. But they go a step further and consider the competitive environment too.

They are tight and prosaic answers to the question: “How does what we do create value for customers in a way that’s better than competitors for some reason?”

And in line with the elevation on a benefit ladder, these positioning statements are often more powerful if they focus on promising a differentiated emotional outcome than merely a functional one.

I bring these tools up because several of these alternative definitions of “brand purpose” seem to be basically repackaging benefit ladders and positioning statements. Perhaps with slightly loftier language.

Let’s take Special Group’s “what is the role we want to play in people’s lives?” It’s a great question for any business, not just from a branding perspective. One some level, “the role we play” is another way of saying “how we create value”, and understanding how you create value for customers is at the heart of successful business.

Presumably Special wouldn’t be satisfied with a prosaic answer to that question. That is, if we ask what the role of the Masterfoods herbs & spices brand plays in people’s lives, Special aren’t looking for: “Supplying all the herbs and spices you need for home cooking.” Even though that’s technically accurate.

What’s missing from that explanation of Masterfoods’ role? Well, obviously, there’s no emotion in that statement, and there’s plenty of emotion in home cooking. Home cooking often means cooking for others – you want it to taste good for them, you want it to be healthy for them. Then there’s self-image, how you want to see yourself as a home cook (home chef!)

Another thing that’s missing from that explanation of Masterfoods’ role is a competitive element. Who are Masterfoods’ competition? In New Zealand, there are supermarket store brands like Pam’s and Select. There’s Mrs Rogers, with its compostable packaging. There are some specialist meat-spice brands. And so on.

Let’s say that some research shows:

• Mrs Rogers is the largest competitor.

• Customers find the compostable Mrs Rogers boxes appealing for environmental reasons.

• Customers find the compostable Mrs Rogers boxes a bit of a messy hassle in practice.

• Many customers strongly wish their kitchens and pantries were more organised.

The core products of Masterfoods and Mrs Rogers are indistinguishable commodities – outside of minimal health standards, ground cumin is ground cumin. The differences in the products are in the packaging. Mrs Rogers with compostable eco-packs and Masterfoods in uniformly sized plastic containers with bright colours:

Now, if I’m Masterfoods taking on Mrs Rogers, I’d do a few things:

1. Build some minor messaging and visibility of the recyclable plastic packaging to partially neutralise Mrs Rogers’ advantage for eco-conscious customers.

2. Keep maintaining the quality and perception of quality of the products – this is table stakes for the category. Pun intended?

3. Lean into what the beautiful uniform packaging enables, which Mrs Rogers cannot.

Our research found that a large number of customers wish their kitchens and pantries were more organised. A bit more digging and conversations with customers reveals that this is related to a few different things – aspiring to a self-image of a super-organised home cook, wanting to live in a nicer space, being conscious of how these spaces appear to visitors, etc.

So what’s the emotional benefit which Masterfoods can offer and its main competition would struggle with? It’s the feeling of being an organised home cook (chef!), or the feeling of beautiful cooking spaces, etc. “Beautiful food comes from beautiful spaces” or some shit like that.

Now go back to Special Group’s definition of “brand purpose”. What should be the purpose of Masterfoods in customers’ lives? Perhaps it’s “the secret to our customers’ success in the kitchen” or “turning home cooks into home chefs” or “bringing beauty to everyday cooking”. Any one of those (perhaps especially the last one) depositions the competition, leverages the strengths of the products/packaging, and speaks to aspirational emotional desires of customers – all in a commoditised category the core products are identical to each other.

So in this case, in contrast to those definitions of “purpose” which are “the reason the company exists”, we have a strategic choice, a prescription for commercial success, which is dependent on facts about the company, the customers and the competition.

With a well-developed positioning statement and benefit ladder, is there any real need for this definition of “brand purpose” to be included and filled out?

Well, maybe. Positioning statements are useful, but long. Punchy versions of them which distill the various elements of positioning into a single thought are powerful and useful. A little bit of poetry is fine for making it punchy and inspirational, but the usefulness comes from the simplicity, not the loftiness – mistaking one for the other leads to lofty and vague statements when simple and prosaic would do the job much better.

As always, clarity of thought and understanding behind the purpose of these different fancy-labelled framework elements is more important than following some formula.

(We can all at least agree that non-profits have a non-commercial purpose, by definition.)

Another confusing factor is the related but different idea of “purpose-led marketing”, which seems to include both a particular definition of “brand purpose” and a particular theory about effective marketing.

For what’s called purpose-led marketing, the “brand purpose” can’t just be “our non-financial reason for existing” or “the role we want to play in our customers’ lives” or whichever other definition of brand purpose you use. According to this approach, brand purpose has to be about doing good in the world.

And further, the idea is that if you’re doing a kind of good that aligns with your audience’s values, they’ll favour your products and services.

Here’s an example of this kind of thinking from an article two years ago entitled Why Purpose-led Marketing is the Future of Brand Growth.

Traditionally speaking, the main goal of a retailer is to sell quality products that serve a specific need for their target market. But over the years this goal has changed, and in the current competitive climate, consumers are spoilt for choice when it comes to brands. As such, they’re no longer attracted to traditional differentiators such as price points or product quality. This is not to say competitiveness on price or quality is redundant, they just no longer provide a significant advantage in our current retail landscape – more so since the pandemic. Instead, consumers are more likely to engage, trust and purchase from purpose driven brands that uphold strong values. 

…

The whole point of being a purpose led brand is to actually make an impact. Above driving sales, gaining market share or increasing brand awareness it’s the positive impact that your purpose can have on society and your potential to make a change. This not only benefits your business but also speaks to your consumers who are directly affected by that issue. 

That pretty succinctly sums up the view we’re talking about.

So, a few thoughts here.

Firstly, as I said above, depending on your definition, this is clearly a narrower subset of brand purposes. If you’ve spent a lot of time around purpose-led marketing, you could be forgiven for thinking that a brand purpose must always be some kind of noble social or environmental cause. But take this stated brand purpose for example:

That is (or perhaps was) British American Tobacco’s brand purpose, and I don’t think anyone could mistake that for doing good in the world.

Proponents of the more narrowly defined purpose-led marketing would probably say that BAT’s statement is not really a brand purpose, or they might say that purpose-led marketing requires some additional kind of good cause added to the mix. The point here is that purpose-led marketing assumes a social or environmental good as the cause or purpose.

Secondly, let’s take a step back to my earlier distinction between a purpose that’s a discoverable fact about a company (description) and one that’s a strategic choice of how to achieve success (prescription). Which kind is this “making the world a better place” sort of purpose?

In theory, it could be either. If such a thing as non-financial company purpose exists (I have to say that so often that I should make an abbreviation for it)… then a company could be founded to promote some kind of environmental or social good in the world. That is its purpose, the intention of its founders.

An example of this could be a business founded to address some unfairness in the existing market. Some people note that plus-sized women are under-served by the current industry and start a business to address that. On one hand, that’s smart business – meeting the needs/wants of an under-served market segment is classic business strategy. On the other hand, it’s a social cause – inspired by a belief that women shouldn’t have to compromise on fashion depending on their size.

That is a case where the company’s purpose can play the role of the “good cause” brand purpose. And one might say, it’s all very well to shine a light on the noble intentions of businesses founded to address some social or environmental ill, but…

While every successful business is founded to address some under-met need or want, most consumer or business needs/wants don’t fit the usual definitions of good causes. If purpose-led marketing involves some social or environmental cause and your business was founded to provide more effective removal of stubborn stains, what are you supposed to do?

Well, that brings us to the matter of prescriptive purposes for purpose-led marketing. Since you don’t have a noble cause at the heart of your business, you’re supposed to find one. And not just any one – the right one. How is that decision made?

Such a cause is not chosen at random. Every proponent of purpose-led marketing will tell you that your purpose must be authentic, which might seem tricky, since you are now essentially working out which cause will make you the most money. In terms of authenticity, it must have some reasonable connection to what your business does and shouldn’t contradict how your business does it.

Then, if the theory is that customers are more likely to buy a brand aligned with a cause they believe in, the cause should be one that most of your target customers believe in.

Finally – and I haven’t seen this talked about so much – I am assuming that businesses are also told to choose a cause (or a particular approach to a cause) that competitors have not already chosen themselves.

If the above sounds familiar, it could be because you have some experience with positioning. Firstly, what is the intersection between what you can offer and your customers want?

And then how or what do you offer that competitors can’t?

In other words, proponents of purpose-led marketing recommend that your purpose/cause be:

• Authentic – it should make sense in light of the commercial activities of your business, the value proposition of its products, etc.

• Appealing – it should be close to the heart of a significant number of your target market or market segment.

• Differentiated – it should be recognisably distinct from any causes competitors are championing.

Note that there’s another aspect of authenticity which is “not faking it”, ensuring consistency of operations with purpose, etc. Coca-Cola attracted some criticism recently for doing some clever ads about recycling while being one of the bigger polluters out there. (I doubt that’ll stop it being effective.)

Where does that leave our hypothetical stain-removal brand? With some mental gymnastics and some flashy presentation slides, maybe you could make the case that stain removal helps clothing last longer and so cuts down on industry waste in the environment. Like… Hmm. I just came up with that on the fly and it’s not half bad. I should be a jazz-handsy strategisht.

Let’s say that this environmentalism is appealing (my target audience cares about it) and differentiated (no other stain removers are owning this space). The theory of purpose-led marketing is that my target audience are moved by my brand’s tales of environmental waste, support my cause, etc. – and will choose my products over competitors.

With purpose-led marketing, I think we have another of the “post hoc ergo propter hoc” situations mentioned in the last post. That is, commercial results may follow, but not necessarily for the reasons we think.

So, why might identifying a brand with a cause be effective, other than because the audience supports the cause and therefore likes and therefore prefers the brand over competitors?

Well, consider two situations. In one, a brand is differentiated in the traditional sense – it offers something competitors do not. Imagine a brand which offers a range of household cleaning products for pet owners. The brand adopts (hah) rescue-dog welfare as its cause. Pet owners now have a range of brands to choose from in cleaning their house, including this one specially formulated for pet mess and helping find homes for poor dogs just like yours.

Does the customer buy the brand to support saving dogs? Or does the brand’s dog-saving remind the customer about the point of difference of this brand – which suits the customer’s particular needs.

So in that case, the choice of noble cause has reinforced and reminded the customer of the brand’s actual differentiation. As long as other marketing activity is communicating the differentiated benefits of the products. Pretty key point there.

Consider the second situation: a brand is undifferentiated in a commoditised market. That is, its products and competitors’ products are all basically as good as each other for anyone who might use them. Imagine a brand of pet food kibble. The brand adopts (teehee) rescue-dog welfare as its cause. As the customer is walking down the pet-food aisle with 15 different brands, sees one it recognises as the rescue-dog one, picks it up, keeps moving.

Does the customer buy the brand to support saving dogs? Does the customer buy the brand because it feels affinity with the saving-dogs cause? Or does the brand’s dog-saving just make the brand distinctive enough that the customer can make a low-involvement decision of which product to buy among a bunch of brands that will all do the job well enough.

In both cases, we can explain the sales impact of the “purpose-led marketing” in terms of other marketing theories it has supposedly superseded – differentiation and distinctiveness.

A third explanation was proposed to me recently that purpose-led marketing communicates alignment of values, and alignment of values builds trust, and trust is an important component of brand effectiveness.

In all three cases, the purpose-led marketing is one of a number of possible ways to create commercial impact – one way to remind about differentiation, one way to be distinctive, or one way to build trust.

In any case, I do generally reject the notion in the excerpt above that good-doing noble-cause purpose-led marketing is a new essential approach to brand marketing which replaces all previous ones because consumers today are more cynical or caring than consumers yesterday.

There’s another possible reason why noble brand purposes and “making the world a better place” marketing are so popular. And that is that many marketers have felt slightly embarrassed and dirty about their professions.

Advertising consistently rates lower politicians and even lower than fucking POLLSTERS for trustworthiness. I mean, dear God. Pollsters.

And who wants that? Plus, so much of advertising is done by creative people, artists and writers, and most artists and writers grow up rejecting the notion of selling out, NO LOGOing their way through university or art school.

So there we are, the least trusted people in society internalising our disdain for being sellouts, and someone comes along and says, “Hey! Did you know that the most effective kind of marketing is SAVING THE WORLD?”

We can be forgiven for not looking too closely at the fine print or noticing how lucrative it is to go around telling marketers that they can be heroes.

Basically, they had a bunch of people with headaches. Half were given paracetamol with a glass of water, and the other half were given identical-looking sugar pills with a glass of water.

The same headaches went away. What was the moral of the story? Well, they figured that if someone believed they were taking a painkiller, that was as good as taking the paracetamol. The power of suggestion.

But no, that wasn't the end of the story.

It turned out that the cause of the headaches was mostly dehydration. Neither the paracetamol nor the fake pills had anything to do with the pain relief.

It was the glasses of water.

When I first heard about brand archetypes, I was in love. If you're not familiar, the idea is that there are 12 archetypes which tap into a kind of cultural consciousness of storytelling. Things like "The Sage" and "The Caregiver". In theory, they have their origins in Jungian psychology.

By aligning a brand with the right archetype, a marketer can unlock all of the meaning and power latent in the consumers' collective unconscious. For someone like me, with an interest in storytelling, underlying patterns, the symbolism of the Tarot, etc., it was intoxicating.

So I read the book that kicked off this trend – The Hero and the Outlaw. Case study after case study was laid out, showing how successful brands aligned closely with one or another of these archetypes.

Levis consistently presented itself as the Outlaw and succeeded in the market. Google consistently presented itself as the Sage and succeeded in the market. Mercedez-Benz consistently presented itself as the Ruler and succeeded in the market.

But while proponents of brand archetypes attribute this success to the power of these Jungian archetypes, there was something else going on in all of those cases – consistency.

Here's something that's important to realise:

The first job of a brand is to exist as a cohesive idea in people's heads. From there, a constellation of associations can be established and reinforced over and over – associations with moments of need, with category-entry points, with points of difference, with points of parity.

And all of those things can be chosen poorly or chosen cleverly, for stronger or weaker competitive effects. They can be executed poorly or well, for stronger or weaker competitive effects.

But it doesn't matter how well chosen those things are or how well they are executed if they cannot be associated with a cohesive idea of the brand.

And given the relatively few and tiny moments in people's lives when we have their attention enough to convey something to them about our brand, there is just no hope without consistency.

From the marketing side of things, with all those associations listed above that we want to convey about the brand, consistency can actually be really challenging. It's conceivable that you could put into market activity which ticks every one of those strategic boxes above over the course of a year, but because each one is being treated in isolation, the coherent brand idea at the centre of them all is lost.

Keeping the brand identity consistent helps a lot – that is, the distinctive brand assets, how the brand looks like itself – but if the brand idea signified by those signatures is inconsistent, it's more difficult for the audience to develop a sense of the brand as an agent, however abstract, behind its products and services.

In The Charisma Myth, Olivia Cabane talks about the thousands of subtle body-language cues which communicate things like warmth and interest when people talk to each other. Her practical advice is that it's basically impossible to try to memorise all of those cues and enact them intentionally to convey warmth or interest – the eye contact, the posture, even things like dilating pupils. So instead, she advises that you actually adopt the mindset/attitude you want to convey and rely on your body's autonomic processes to do the body-language communication subconsciously.

That is – instead of trying to pretend to care, actually care and the body language will do the rest.

For marketers and agencies tasked with conveying a brand, there is a similar practical lesson. Instead of trying to juggle all of the interconnected bits of a brand intentionally to convey a consistent brand idea, have a consistent brand idea in mind as you carry out the activity and you'll naturally end up conveying a cohesive whole.

Here, finally, is a possible practical use for "brand purpose" that sidesteps my criticisms about them often being a bunch of strategish bullshit and customers not actually having the befuckedness to care.

And that is that many articulations of "brand purpose" are very helpful to the marketers and agencies in maintaining and conveying a consistent brand idea. It helps with ensuring that a brand is. It is useful insofar as it is consistently applied, but it is the consistent application that is useful, rather than the content of the "purpose".

To counter Sinek, people don't buy why you do it, but people need an idea of who or what you are before the various actual effective "whys" can attach to anything in their heads. And many articulations of a "why" are very useful to marketers in achieving that.

(Note that I am here talking about the effect of the brand on marketing. The internal usefulness of a "why" for team cohesion and inspiration is a separate matter. In fairness to Sinek, he is big on that too.)

Great anxiety is created by mistaking this incidental utility of a brand purpose for a direct causal precedent. Marketers wring their hands over whether or not their brands have the "right" purpose, agency strategists confidently argue that such-and-such a purpose is better or worse for whatever reasons, when actually almost any purpose would do – so long as it does the job of helping consistently convey the brand idea.

Similarly, if some other tool is doing a sufficient job of helping consistently convey the brand idea (for example, some archetype-based notion), brand purpose is unnecessary. Hell, if some other tool is already doing a sufficient job, adding something else into the mix would only confuse that usefulness.

In other words, marketers dither about which is the right lane, when they actually just need to pick a lane.

So my recommendation to anyone trying to work out what their "brand purpose" should be (as distinct from discovering what the "company purpose" is) is to evaluate a "brand purpose" in terms of its usefulness, not its rightness. That has a lot more to do with the articulation of the brand purpose than its content. In trying to "get brand purpose right", many marketers flap about with vague and poetic language (strategishness) and end up with a sentence that lacks the clarity and single-mindedness necessary to aid consistency.

Compare these two entirely invented brand purposes for an imaginary range of cleaning products:

"To empower the freedom of families of every shape and size to live their best lives in the place they should feel safest."

"To rid the world of grime."

I can imagine either being sold in to execs, a board, a client, but what are we supposed to do with the former? What effect do we expect it to have on the work of creatives ideas and marketers’ decisions? The range of activities that could be informed and justified by this vague loftiness is vast.

• Feeling safe... We could partner with a home-security brand.

• Families of every shape and size... We could have a float in the pride parade.

• Living their best lives... We could offer scholarships to underprivileged kids.

And at the end of all of those activities, does the customer have any clearer idea in their head of who/what this brand is? They probably only noticed one or two of the activities in the first place. Having seen the home-security partnership, what sense is there to them of the float in the pride parade? Having seen the float in the pride parade, what sense is there to them of the scholarships?

And after all of that, we still have actual marketing to do. What needs and category entry points are we associating the brand with? What are its points of difference? Which points of parity are we driving to neutralise competitor points of difference? What user and usage imagery do we need to convey?

Regardless, no one bought the brand to nobly empower the freedom of families to live their best lives and no one bought the brand to rid the world of grime. They bought the brand because it seemed best or good enough for what they needed it to do – but they could only recognise and remember that if there was consistency in how they’d been told.

So, what are some of the implications if the above hypothesis is accurate?

• It’s an argument for “company purpose” (if there is such a thing) being used as the brand purpose, because it is consistent over time by definition.

• It’s an argument for keeping an existing brand purpose unchanged, BUT it’s also an argument for updating the articulation of a brand purpose if it is not fit for purpose (pun intended) as an aid to communicating a consistent brand idea.

• A usefully articulated brand purpose is sufficient but not necessary for aiding the communication of a consistent brand idea, and so…

• It’s an argument for not adding a brand purpose if there is already some brand element or elements which are sufficient for aiding conveying a consistent brand idea.

There is still more to investigate, however.

Many definitions or explanations of “brand purpose” are connected to the idea of a brand/company doing good in the world. What is the relationship between brand purpose, doing good, and corporate social responsibility?

Is any single element of a brand strategy sufficient for directing the communication of a coherent brand idea, or are several elements required, or are a multitude a hindrance to single-mindedness?

And what is the brand purpose of the fabulously successful Compare the Market brand?

Which leaves the question of what “brand purpose” might be in contrast – that if it is different from “company purpose”, it can be a strategic choice, and it can be changed many times while the company purpose remains the same.

To explore potential definitions of “brand purpose”, I will look at those definitions out in the world, excluding the ones which just restate “company purpose”. As an example, I provided Special Group’s definition: “The role we want to play in people’s lives.”

When I started looking around at examples, I found it was difficult to explain my thinking without first introducing a particular new concept. So, as an interlude, let me explain this thought.

In 2005, in the first episode of The Colbert Report, Stephen Colbert coined the term “truthiness”, partly as a way to describe George W Bush’s vague hand-waving in justifying the illegal 2003 invasion of Iraq. The term filled a gap in the English language, it became Word of the Year, was added to dictionaries, and was also adjectivalised (which is my verbification of the adjective “adjectival”) into the word “truthy”.

I find there is a similar gap in language when I try to describe a certain phenomenon which pervades brand strategy, marketing strategy, and perhaps strategy in general. And that is the jazz-handy poetic impressive-sounding-yet-somehow-devoid-of-any-practical-meaning nonsense that is so often passed off as “strategy”.

For lack of a better word, I have often found myself describing things I’ve read (and occasionally written) as “strategish” rather than “strategic”. (Pronounced strah-TEE-jish.)

It’s particularly prevalent in brand strategy for a few reasons.

• Brand is (correctly) seen as something that exists in people’s heads, something conceptual, which seems to open the door to vagueness.

• Some elements of brand are emotive rather than rational, and because emotions are best conveyed with poetic rather than prosaic language, it may seem as if brand strategy is therefore best articulated in poetic language.

• Most marketing strategists have no formal education in brand strategy, which doesn’t bother any of them, because of the above – it seems crazy to think about formal education in brand when brand seems so creative, poetic and emotive. I’m not saying that formal education is necessary for doing brand strategy, just highlighting a certain lack of agreed standards. (In fairness, even among formal educators.)

• There is low accountability in brand strategy, because its impacts are long-term, gradual, and difficult to distinguish from confounding environmental factors.

Finally, add to this mix the context of brand-strategy work. The people who are doing brand strategy are either agency strategists or marketing leaders. In either case, they have two audiences to think about: the market and whomever they’re presenting their brand strategy to. For agency folks, the latter means the client. For marketing leaders, that means exec teams and boards.

By far the dominant success factor of their brand strategy is how it is received by the people they present it to, rather than commercial success in the market.

Without defining what’s involved in each, let’s hypothesise that there are two kinds of brand strategies – strategic and strategish.

A strategic brand strategy results in commercial success in the market.

A strategish brand strategy feels really… strategish… to clients/execs/boards. They’re left thinking either “wow, that feels so right” or sometimes “that’s so clever that I didn’t even quite understand it myself!” But it has no real substance to it.

Now, effectiveness and saleability are not mutually exclusive. A brand strategy can be both effective and also feel right and appeal to clients/execs/boards. In fact, effective brand strategies will indeed tend to ring true, feel right. But brand strategies can “feel right” without being effective. And let’s also assume that it’s easier to make a brand strategy feel right than to feel right and be effective.

So what happens over time? Well, if clients/execs/boards judge brand strategies on “feeling right”, then in an evolutionary sense, strategishness is the more advantageous trait. Strategish brand strategies will win pitches. Strategish brand strategies will be approved by clients, execs and boards. Agencies which produce strategish strategies will profit. The careers of strategists who produce strategish strategies will flourish. Training courses teaching strategishness will fill seats – and those students will profit too.

It’s not that effectiveness is a hindrance – it’s just incidental. Some of the strategies will be effective, most neither good nor bad, a few counterproductive. But by the time that’s discovered, the strategish CMO or agency strategist has moved on to a new role, buoyed by their success in strategish-sounding strategy, and the brand agency has probably been replaced. And even if they haven’t, who’s to say why commercial performance hasn’t improved? There’s Gen Z and climate change and the recession and… AI… the TikToks…

I want to be very clear about something. In this hypothesis, strategish strategists are not (necessarily) con artists. The CMOs and agencies producing these strategish strategies are doing so because they believe that’s how effective brand strategy is done.

And who can blame them? Everyone successfully doing brand strategy around them seems to be doing something similar. Even when looking at effective brand strategies, it may be the “feeling right”-ness of them that stands out and is mistaken for the sufficient cause of their effectiveness. So they try to replicate it.

And we also have fabulously successful thought leaders like Simon Sinek saying strategish things like this with a straight face:

People don’t buy what you do; they buy why you do it.

I mean, it’s just obviously nonsense. People don’t buy why you do it, they buy why they do it. People have a lot going on. You’re just not that important in their lives and you don’t need to be.

But it feels so good to say. It looks so good on a presentation slide. You put that up and the CEO goes, “Oh wow, shiiiiiiiit. People buy whyyyyyyy we do it. Oh man, for sure.” And then the next slide is, “And here’s our why.” And the CEO goes, “Fuuuuuuuuuck yeah. That is totally our why. Goddam, does that…? It rhymes! Shit, it rhymes and three of the words start with the same letter. Oh man, that’s the whyest why I’ve ever seen.”

Okay, end of hypothetical. I digress. And I exaggerate to make a point. And that CEO was clearly high. And there are other related points I would like to make, for example about the inherent value of consistency for consistency’s sake.

My point is that it’s a very believable scenario, that a whole culture of brand strategy could evolve which rewards and replicates a certain jazz-handy vague poetic sophistry with near-zero accountability.

For now, let me at least just table this notion of strategishness, of phrases and diagrams which…

• Give a strong feeling of cleverness and meaningfulness

• Can be very compelling for internal and external clients

• While having remarkably little practical value and/or commercial impact.

Because as we dive into the world of alternatives to “company purpose” as definitions for “brand purpose”, I fear we cannot explain what we find without it.

We can define company purpose as that organisational objective which rationalises all other objectives. In commercial businesses, that is either maximising shareholder value or whatever sits higher in the hierarchy than maximising shareholder value – if anything.

The idea of a company purpose is not new. 15 years before Simon Sinek TED-talked a load of nonsense that everyone lapped up, the Harvard Business Review published a 1996 article entitled “Building Your Company’s Vision”. It was written by Jerry Porras and Jim Collins (five years before he published Good to Great). They laid out a framework which included:

• Core purpose

• Core values

• Big Hairy Audacious Goal

• Vivid description

(Yes, this article is the origin of the popularisation of “BHAGs”.)

They defined “core purpose” similarly to how I have defined “company purpose” above. As with my previous post about Mindy from Animaniacs, Porras and Collins recommended asking “why” over and over to reach this core purpose. And they were perhaps a little less cynical than I about how often that final answer is “money”.

To dramatise the difference between shareholder value and a non-financial core purpose, Porras and Collins suggested this fun little thought experiment:

The Random Corporate Serial Killer Game

Suppose you could sell the company to someone who would pay a price that everyone inside and outside the company agrees is more than fair (even with a very generous set of assumptions about the expected future cash flows of the company). Suppose further that this buyer would guarantee stable employment for all employees at the same pay scale after the purchase but with no guarantee that those jobs would be in the same industry.

Finally, suppose the buyer plans to kill the company after the purchase—its products or services would be discontinued, its operations would be shut down, its brand names would be shelved forever, and so on. The company would utterly and completely cease to exist.

Would you accept the offer? Why or why not? What would be lost if the company ceased to exist? Why is it important that the company continue to exist? We’ve found this exercise to be very powerful for helping hard-nosed, financially focused executives reflect on their organization’s deeper reasons for being.

Porras and Collins also note that a company’s core purpose should last for “at least 100 years”, in contrast with “specific goals and business strategies”, which should change many times in 100 years.

Whereas you might achieve a goal or complete a strategy, you cannot fulfil a purpose; it is like a guiding star on the horizon – forever pursued but never reached. Yet although purpose itself does not change, it does inspire change. The very fact that purpose can never be fully realised means that an organisation can never stop stimulating change and progress.

(Me being cynical again – this does also describe maximising shareholder value.)

It’s instructive that every explanation of the impact of the core purpose refers back to the motivation of the employees of the company:

When a Boeing engineer talks about launching an exciting and revolutionary new aircraft, she does not say, “I put my heart and soul into this project because it would add 37 cents to our earnings per share.”

Which is not to say that the customer is absent from the equation – it is what the company does for customers that is presented as the deeper motivation for the employees. But the emphasis is on motivation, comprehension and unity among the company’s team members.

Now, contrast the above with the way “brand purpose” is commonly used.

Firstly, brand purpose is typically part of a brand strategy, including its place in a brand strategy on a page kind of framework. These frameworks tend to include elements like:

• Purpose

• Vision

• Mission

• Values

• Brand proposition

• Reasons to believe

• Tone of voice

I won’t explore all of these elements here. I’ll just note that some of the elements are similarly vaguely or inconsistently defined depending on who is using them. For example, a quick Google finds one LinkedIn post confidently asserting that “mission” is “why we exist”, while a framework from Forbes defines “mission” as “what you’re going to do today to achieve your vision”.

Ignoring ostensible definitions for a moment, how do we see brand strategies being used (and all the components that come with whatever framework is involved)?

Well, for a start, they often seem to change at least as frequently as a client’s brand agency does. Depending on the scope of agency engagement, agencies will often include a proposed brand strategy as part of a competitive pitch to win the business. And if they’re using a branding framework that includes “purpose”, they’ll include a proposed purpose in their pitch. That can mean a client is receiving five or six proposed “brand purposes” to choose from in the process.

Even if a brand strategy is not part of the pitching process, the appointed agency will often kick a new relationship off with something like a “brand strategy audit” or just jump straight to “doing a brand strategy” for the new client – to lay down a foundation for subsequent brand work. And if they’re using a framework that includes “purpose”, one will be generated.1

Finally, forgetting agencies for a moment, newly appointed CMOs will often want to make their mark in a new role with a new brand strategy that includes – you guessed it – a new brand purpose.

At this point, there are two logical possibilities.

1. The “purpose” element of these brand-strategy frameworks is supposed to refer to the unchanging company purpose and everyone is fucking it up by proposing new ones every few years.

2. The “purpose” element of these brand-strategy frameworks is different from company purpose, as evidenced by everyone’s willingness to change it every few years.

Keen-eyed readers will note that this, again, is the difference between purpose being descriptive and prescriptive. A descriptive purpose is a fact about the business, whether or not it’s yet been articulated. A prescriptive purpose is a strategic choice, made with reference to some higher-order objective.

If “brand purpose” is just another term for “company purpose”, which we’ve already identified as being descriptive, unchanging for 100 years, and so on, then no agency strategists or new CMOs should be proposing new purposes in their brand strategies. They should receive the existing purpose, slot it into that section of their brand-strategy framework, as the previous agency/CMO should have and as future agencies/CMOs should do, and change the other elements depending on circumstances.

But if “brand purpose” is a strategic choice and not simply the objective of strategy, then “brand purpose” is different from “company purpose”. In which case, there’s no inherent problem with it changing as circumstances evolve, and in fact there’s no inherent problem with more than one brand purpose being right. Remember, if purpose is descriptive, you can only be factually accurate or inaccurate about it. If purpose is prescriptive, then purposes can be better or worse at being effective.

But if brand purpose is different from company purpose, then what is it? How should we define it?

I think exploring that question will have to wait for next time, or else we’ll blow out the reading time for this article. But here are a few thoughts.

• While the question of company purpose is “what is it?”, the question of brand purpose is “what should it be?”

• If the question is “what should it be?”, what factors would inform the decision?

• Just because the definitions and roles of “company purpose” and “brand purpose” are distinct, doesn’t mean that they can’t be the same – that is, depending on how we define brand purpose, a company purpose might make a very good brand purpose.

And I’ll leave you with Special Group’s definition of brand purpose as food for thought:

Is that different from “why we exist”? Could the answers be the same? Could the answers be different? How could Special’s definition be a way of approaching the question “what should our purpose be?”?

Once she was partnered with The Brain. He tells her it’s time to take over the world. She asks why. He explains that his superior intellect means he should be in charge. She keeps asking why. Eventually he yells, “Because it’s what I wanna do!”

NB: In this post, in talking about “purpose”, I’m talking about “business purpose” (the reason the business or organisation exists) as distinct from “brand purpose” (what the business or organisation tells the world is the reason it exists). The two might be identical, and they’re certainly related, but don’t always have to be identical. Business purpose is typically internally facing, while brand purpose is public-facing.

When teaching about objective hierarchy, I often frame it as a series of answers to the question “why?” – in the sense of “to what end?” Of course, that can’t go on forever. At some point, you hit bedrock and there is no further answer. The only answer left is: “I just do.”

What’s always been interesting to me is that this is a different kind of answer. Up until this point, every “because” answer to every “why” question has been instrumental, a justification in terms of some higher-order objective. But when you hit that final answer, there’s no higher-order objective to which to appeal. The answer is instead a statement of fact, not of instrumental justification.

Incidentally, this is a huge hassle for people who believe in some kind of absolute objective morality in the universe. Justifications always take place within a moral framework, only have meaning inside a moral framework, and therefore the moral framework itself can’t be justified. To put that more simply…

What’s so good about good?

The utilitarian can justify all kinds of things in terms of increasing happiness in the world, but can’t justify “increasing happiness” itself. The Christian can justify all kinds of things in terms of doing God’s will, but can’t justify “God’s will” itself. And so on. The final answer is always that unsatisfactory: “You just should.” Or, “I just do.”

At the same time, “I just do,” can’t really be argued with. It’s a report, not an argument.

I touched on this in the last article, in the difference between prescriptive and descriptive elements in an objective hierarchy – “purposes” in particular.

That is, the highest-order purpose of a business is either to make money for its owners or to do whatever its non-financial purpose is. But in either case, if that is indeed its purpose, there is no further justification required for it. It’s a statement of fact about the business.

One reason this distinction is important is because getting it wrong is a different matter for prescription and description.

We can criticise description for being factually inaccurate. If we’re disagreeing about a descriptive purpose, we’re saying, “No, that’s not the business purpose. The business purpose is actually ________.”

We can criticise prescription for being inadequate or counterproductive – which means instrumentality in reference to some higher-order objective. If we’re saying that a “purpose” is wrong because a different one would be “better”, then we are referring to some higher-order purpose for that judgement.

In other words, any business purpose that can be “worse” or “better” than another one is not really the business purpose.

There’s no criticising or critiquing an actual business purpose in itself. The purpose, the highest-order objective, is the ultimate measure against which all strategic decisions are evaluated. But it itself cannot be measured. It is the measure. That is the reason I say that purpose isn’t strategic, if it is indeed the highest-order objective.

I keep saying “if indeed it is”, because I think some people do treat “business purpose” as a strategic choice. They look at the facts – facts about the market, the competition, the assets and capabilities of the business – and say, “This is what the purpose of the business should be.”

But that word “should” is the signal that some higher-order real purpose is being appealed to. And typically, that’s about profitability. They’re saying, “Since our purpose is to make money, and a different ‘business purpose’ would make more money, we should change our business purpose.”

And that’s fine – just be aware of it, don’t fool yourself.

Arguably, there is one thing you could critique about a descriptive business purpose: the way it’s worded. This is an interesting one, because I think the criticism here can be either about accuracy (is that really your purpose?) or about instrumentality (it would be better if your purpose were…)

Consider this thought: “If we define the business purpose a bit more broadly, that gives us room to expand into other products and services in the future.”

This could mean two things. On one hand, it could be about recognising the actual broader scope of the purpose of the business – describing it more accurately in a way that happens to rationalise brand extensions. On the other hand, it could be about finding a “purpose” that will be as profitable as possible in the future – recommending a “better” purpose.

There is one final aspect to the wording of a business purpose which does kind of combine both description (is) and prescription (should). And that is communicability. One instrumental use for a written business purpose is to align and inspire the team members in the business – it is useful for the effectiveness of any business if its employees share an idea of what they’re all trying to achieve. A clear and accurate statement of the purpose of the business can do this. And a better written purpose statement can achieve that more effectively than a poorly written one.

But to be clear, in this case, “your business purpose could be better” is not judging what the purpose actually is, but rather the quality of its articulation.

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Clarity is always useful, and whether the “business purpose” is the actual purpose of the business or is just the way it achieves the actual purpose of making money, it will benefit from the team cohesion and direction of a well-worded purpose statement. Asking a team to rally around the grand goal of maximising shareholder value is probably doomed to failure, so a more specific and inspirational objective is always going to be more effective as a motivator.

But let’s not fool ourselves.

In the next article, I’ll talk a bit about some of the motivations involved in “purpose” and the joys of fooling ourselves.