Why advertising isn’t working (and what might fix it)
Opinion
Parts of the ad industry are in rude health; but the particular issues agencies face is a key challenge for anyone who wants our industry to do better.
We went to the Who Cares? conference a couple of weeks ago, a collective of concerned individuals about the future of the ad industry. Their main issue was that we are all producing advertising that not only doesn’t work but is at the same time unpopular with the public whilst abusing their trust.
However, UK adspend is growing at around at 6-8% a year in the UK, so it’s relatively healthy. The issue is a lot of this growth is from search, digital display and broadcaster VoD (albeit from a low base.)
Agencies don’t seem to be growing at this level, most of the major holding companies are showing low single digit growth, if at all. I suspect some ad revenue growth is from clients spending directly with media owners and platforms; Meta’s revenues (worldwide) grew 22% in Q2 2024, probably not generated by agencies.
But the concern Who Cares? should address isn’t the health of the advertising sector. it’s how agencies of the future should develop.
And I’m not convinced the current operating structure of agencies will be the most effective for the future.
Quality and quantity concerns
Two stinger facts from the day:
>> Sir John Hegarty said that only 6% of advertising is truly effective. I don’t think it means that 94% of advertising is truly ineffective, but it’s still shockingly low.
>> Michael Farmer (an American advertising business analyst) said that in 1992 the average creative employee at an American ad agency worked on seven briefs a year. In 2019 it was 311 briefs, that’s churning out about one ad a day.
These are stark findings. The latter probably partially explains the first fact.
Who Cares? easily identified the issues facing the industry: a lot of low-quality ads, many inaccurately targeted, agencies being poorly remunerated, and recruitment of talent being a struggle.
I think they should add that many clients are testing non-agency models and don’t necessarily see agencies as a solution to fixing communication issues.
The conference didn’t come any clear solutions; the consensus seemed to be we need to make better ads and be more trusted by consumers and clients.
Meanwhile, better craft isn’t a viable solution if clients are avoiding agencies, it’s a more fundamental issue about demonstrating where agencies can add real value (in terms of financial performance).
The real media issue: behaviour
But there was remarkably little mention nor insight into how consumers are behaving.
How have people changed, especially managing 14 years of economic stagnation? How are they ‘coping’ by being bombarded 6,000-10,000 commercial messages a day (in the US) and increasingly blocking and avoiding advertising?
This is the real issue, and better ads isn’t the solution in a world where half of the UK’s Gen Z’s watch no scheduled, live TV in any week.
I was surprised that it wasn’t really explored. It’s a tipping point that will dictate the whole future of the industry.
Meanwhile, the consumption of ad-funded media is rapidly changing.
Take-up of subscription video-on-demand services has levelled out at just over two-thirds of the UK population and just over 20% of UK adults now listen to at least one podcast a week — that’s 11.7m people, podcast brands are now live events, both The News Agents at the Royal Albert Hall and The Rest is Politics at the O2 will probably sell out.
Media consumption is fundamentally shifting, and this has implications for every aspect of developing advertising content.
Why the agency model is broken
At the most basic level, paid-for advertising exists to fund commercial media channels and brands invest in it because it gives access to audiences and ultimately deliver sales. It always evolves, as both consumers and media change driven by economic circumstance and technology.
The agency model needs to evolve as this changes, the current structure of agencies is possibly inappropriate for a more complex future. If we don’t, we run the risk of being increasingly marginalised.
But there was no discussion at the Who Cares? about what the agency of the future might deliver.
We are entering an era where mass reach is almost impossible and doesn’t guarantee interaction — it’s a fundamental shift. Driving growth for brands is increasingly competitive, consumers are tribal, cynical and often highly critical.
The launch and recent collapse of the second-hand car marketplace, Cazoo, is, perhaps, a case in point. Cazoo spent hundreds of millions on brand advertising and sports sponsorships which built 74% brand awareness, but probably achieved less than 1% share of the used car market (it said it had sold 120,000 cars in the UK).
Mass fame now doesn’t necessarily equate to mass appeal nor interaction.
The issue we used to face was scarcity of opportunity to reach consumers, however there is now an overload of channels. As an industry, we still measure mass awareness, because we assume that ads will be universally seen, we now need to measure attention and focus on reaching people who are genuinely in market; mass reach is now longer viable nor affordable.
The rules of engagement have changed massively, but we still operate through legacy agency models.
Key challenges for agencies
So we need to redefine what effective role agencies can contribute in the future:
>> The role of advertising is to help generate consumer demand for brands, which means driving long term engagement with core prospects. It affects everything from share price to long-term valuation of a client’s business. We need to help clients get better insight into where investment in communications will create long term value. I think advertising is often regarded as a short-term cost rather than a long-term value creator.
>> Agencies need to change their business models to align more closely with clients’ objectives, perhaps sharing more of the risk. I think the reason many clients go directly to digital platforms is because agencies may be regarded as slow, expensive and opaque. We need to show where we contribute value through our expertise and objectivity.
>> The constant pitching process means that all effort goes into winning business rather than delivering value to existing clients and means that clients focus on short term solutions rather than long term value creation. The industry is obsessed with volume and the consequence is that many agencies become large generalists, competing fiercely for competitive briefs that are broadly executional and increasingly short term, and offer little real differentiation. There should be more room for specialists, working on specific projects, on shorter term, high value contracts, working with bigger generalists.
>> The pitching process, procurement and focus on costs rather than value has also eroded the number of senior staff. In an increasingly complex world, clients need expert advice. The Who Cares? conference highlighted how difficult recruitment is, agencies should consider bringing back experienced people, perhaps on flexible contracts?
>> Agencies need to be genuine experts on consumer data and insight, this needs to be detailed, robust and forensic. I see a lot of briefs with inaccurate or superficial descriptions of potential consumers. I think a huge opportunity is being able to articulate who the future customers of a brand are, how to reach them, what will persuade them to engage and how valuable they are. We claim to be in a data driven economy, a lot of consumer data I’ve seen is often pretty superficial and generated from unverified digital sources.
>> People in media agencies need to be more forensic and objective about distribution issues with digital and programmatic media. As Bob Hoffman has shown, there is massive misattribution and overclaim, we need to be real experts in the pros and cons of platforms rather than acting as resellers. This is where agencies will add value to clients and be able to move spend back into the agencies rather than going directly to the likes of Meta.
>> We should reconsider a new form of full-service delivery with creative and media people working as one team, where we deliver comprehensive responses to briefs across multiple channels. It needs to be driven by data and consumer insight, generating a channel strategy that is matched by inspirational content that resonates with specific groups of consumers.
>> Clients’ remits are increasingly complex whilst the advertising and media world is becoming more complicated. The explosion of choice makes finding the right investment strategy riskier, whilst there is increasing commercial pressure to deliver. We need to get involved in upstream business and investment planning. This is where trust comes in, we can only achieve this if we are seen to be truly impartial.
Opportunity knocks if we focus on what matters
Who Cares? is a really interesting initiative. Whilst it talks about issues with the ad industry, I think the real focus should be around the future of agencies.
Parts of the ad industry are in rude health; but the issue is how to help agencies deliver what clients need to grow their businesses. We need to look to the future, I think we are potentially at the beginning of an era of significant growth in the industry.
But the agency operating model needs to evolve to drive this.
Charlie Makin is co-founder of agencies BLM (which became part of Havas Media) and Pintarget. He launched Be Addressable, an addressable media agency, with the Pintarget team earlier this year.
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