Strategy but for Agencies: Broad Strategies
So we’ve talked about niche strategies for agencies. The opportunities there are to outcompete broad agencies for particular segments of clients or needs, and the big challenges are attaining some minimum economies of scale and staying focused on focus.
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:
What are all the unexpected ways we could make our integration add value to non-integrated engagements? (And can we make them un-copyable?)
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.