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Dear Commercial Acuman, how can we use effectiveness to drive agency business growth?

Dear Commercial Acuman, how can we use effectiveness to drive agency business growth?
If effectiveness is all about creating value for our clients, agency business growth is about capturing a share of the value created for agencies themselves.

We can see this as part of a virtuous circle; to capture commercial value, agencies need first to create value and quantify it, then deliver it in order to be able to price for it.

Looked at the other way round, agencies that are better able to capture a greater share of value created will be better positioned to invest in the talent to create more value.

Agencies therefore need to pull three levers simultaneously in order to drive maximum business growth – Commercial, Effectiveness and Talent.

The IPA’s recent Effectiveness Week put better marketing effectiveness at its heart; so what commercial lessons were there to be drawn?

Key commercial lessons from Effectiveness Week

A key theme of the observations was the risks of short-termism; the issue was best summed up by Les Binet and Peter Field demonstrating that short-termism is rising:

short-termism is rising

At the same time, Effectiveness is (generally) falling:

is effectiveness declining

This presents both a challenge and an opportunity for agencies; to persuade clients of the importance of longer-term, brand-building strategies in creating value.

Les and Peter’s seminal work, The Long and The Short of It, contains all the information agencies need to make this argument; it is simply a case of reading and absorbing the lessons.

But knowing the answer and persuading someone else of the answer are different things.

Paddy Barwise’s presentation, Beyond the Marketing Budget: Marketing’s Wider Effectiveness, looked at the world from the view of marketing directors. At its bluntest, marketing (customer focus) is important but marketers often aren’t.

Paddy went on to identify the three gaps marketers face (trust, power and skills) and the solutions to bridge these gaps – mobilising their teams, their bosses, their colleagues and themselves.

Agencies, seeking to make the case for their brand-building solutions, would do well to establish whether their client is bridging the inherent gaps of their role and therefore possessed of the requisite gravitas and relationships.

The importance of seeing an issue beyond its immediate context echoed an observation made by Blair Enns at the Commercial Conference in July – that Challengers are the most effective personality types in a complex selling environment.

In Blair’s words, challengers push back on the client’s flawed thinking on their problem, their solution and their selection process.

So, if effectiveness allows us to create value and a challenger approach delivers value, what is left is to capture value – for the agency. Capturing value is the role of the Pricing Council and Chief Pricing Officer – if you have one – as I have written about previously.

The task for the agency’s Pricing Council is the same as the over-arching question of Effectiveness Week – how do we best quantify effectiveness and value?

We know, of course, that value is subjective, in the eye of the beholder and changes over time; so the task is not so much to put a finite numerical figure on effectiveness as to come to a mutual agreement about it.

Paddy Barwise, London School of Business,  noted that executive remuneration is lower in firms with strong brands; this underlines the point that CEOs know the power of a good brand when they see it – they are prepared to take a reduction in remuneration for the long-term value that having a particular brand on their CV will deliver.

Speaking at an event at the FT, agency-man-turned-financial-analyst Martin Deboo observed that investors know the value of brands and like branded businesses; they simply do not fully understand how brands are built and tend to follow Stephen King’s Accountant’s Brand Building logic that you spend money on advertising and get more money back.

A presentation by Sam Dias of ZenithOptimedia at the same event proved highly insightful about the language of capturing value.

  • Brand building is like financial investment; it involves investment, risk and return
  • Provided you play enough times, greater risk will lead to greater returns
  • Brand builders therefore need to add the language, theory and principles of financial investment to their knowledge of the craft of advertising and the business of advertising

Sam also highlighted the manifold effects of marketing that make up value – not all of these are financially measurable in the short term, but that does not mean that they do not exist:

  • Reduced price sensitivity
  • Reduced base erosion of sales
  • Economies of scale
  • More-successful new product launches
  • Brand extensions
  • Reduced risk of competitor entry

A final thought on the pitfalls of short-termism; in 2015, the IPA demonstrated the correlation between CPD investment and agency business growth. As well as encouraging clients to take a longer and broader view of marketing value, for commercial success agencies need to do the same themselves when it comes to developing and retaining their best people.

Last updated 24/11/2016

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