Independent Advertising Agencies - Making It Big

Those who read Advertising Age may have noticed a renaissance of independent advertising agencies worldwide. Back in January 2007, the advertising industry news magazine reported that the marketer with the biggest ad budget in the world, Procter & Gamble, was reaching outside of its roster of

The trend continued into 2007 with independent agency Mother being awarded Johnson & Johnson's K-Y sexual health brand, fellow indie Cramer-Krasselt grabbing the Zantac business and in the mix to collect the Porsche account, Wal-Mart shifting to The Martin Agency and Wieden & Kennedy picking up the global and strategic duties for the Nokia brand.

The Wieden & Kennedy story is the most interesting for trend-spotters, for the Nokia win, according to Advertising Age, "adds to Wieden's roster, which already includes major global brands such as Coca-Cola, Starbucks and Honda in Europe".

When does an indie become a multi-national? Wieden had 2006 reported billings of US$1.4 billion with 750 employees worldwide and grew 40 percent in the past three years. "The Wieden-style 'micro' ad network," says Advertising Age, "is what budget-conscious clients, desiring great creative, want."

What does this mean to New Zealand indies? Well, Jeremy Johnston, managing director of Sugar Advertising, who pointed NZ Marketing Magazine in the direction of the Ad Age reports, believes there are signs of a similar shift in thinking in this country. "We're proud," he says, "to have recently picked up the entire Estee Lauder suite of brands in New Zealand, after a two-way pitch with Y&R," - the same multinational agency it took Honda from in 2006.

That may mean that global clients are seeing the benefit of using the creative talents of local independent ad agencies but does it mean local indies will follow the Wieden & Kennedy example and start to build micro-ad networks outside New Zealand's borders? South-Island indie, Strategy Design & Advertising has expanded into the Australian market, and is planning to move into Brazil. Admission has an office in Brisbane and Consortium, also of Auckland, has a New York office.

"A lot of South Island large accounts prefer to keep the business relationships in the South," says Rachel Alexander, managing partner at Alexanders. "This gets even more pronounced the further south you go. Don't forget that 80 percent of businesses are small to medium, and there is always a place for a regional agency which can deliver strategic expertise and substantiated creative to match." The big three agencies in Christchurch have had their sights set on Auckland and Sydney.

The amount of time many local indie owners spend in Australia would seem to indicate a desire to break free from the restrictions of a limited local client pool, but it may be a while before we see a truly international micro network emanating from locally owned New Zealand agencies.

Sugar's Johnston sees that, irrespective of ownership structures, there appears to be a trend towards large companies plumping for what they call, "integrated single office" agencies.

"I think it's an important distinction," he says, "because ownership structure is a bit of a red herring; indie agencies are increasingly pumping out some of the best work worldwide, not just because they are 'indies' but because the indie structure helps create agencies that are focussed, driven by the work and capable of attracting spectacular talent.

"Talent that's increasingly recognising that, in fact, a creative industry run by bankers whose primary focus is profits remitted back to New York... is not always conducive to the best work."

Johnston also points out that the digital age allows great creative to cross borders without the need, necessarily, of a wholly owned subsidiary in each and every market.

Ant Salmon, managing director of Big Communications is another who believes that "ownership structure is a red herring". To him, it is all about size. "A lot of small agencies pick up bits and pieces of client work that the bigger agencies aren't keen on doing." Although having said that, a look at the Big portfolio shows a bevy of big clients that larger agencies would just love to have.

"A lot of local agencies [Salmon refuses to use the word 'indie'] are founded on the promise of one major client." Big wasn't. It started with no clients and now has a number of clients of substance (BankDirect, Vero Insurance, TVNZ, Auckland Rugby, SkyCity, Vision Senior Living and Woosh) none of whom is more than 25 percent of total business. Big acts as the full service agency for most of its clients but is happy to fill the role of second tier agency for others.

Big has what Dennis Simpson, managing director of local agency Magnum calls, "a mix of big agency ability, small agency capability". This is what he sees is needed to compete with larger international agencies.

"I see our local indies remaining in a strong position particularly when the multinationals can be driven by their overseas head office profit demands, which forces their teams into producing marketing and advertising that suit a certain overall business model as well as pandering to their own global profit requirements," says Simpson. He believes big agencies tend to favour customers with a healthy TV spend, bigger budgets and a higher likelihood of industry awards.

"Indies on the other hand can be more flexible, tailor their services and can react to local market trends a lot sooner," he says.

Daniel Barnes, who heads Barnes Advertising, sees the client's search for global economies of scale, which he calls "quite reasonable in principle", turned into "stupidities of scale" that have generated opportunities for the smaller local players.

Grant Leach, managing director of Revo, has noticed that in a couple of pitches, the client has specifically only selected independents. "I believe CAANZ should publicly encourage all marketers to have an independent on the pitch roster," he pleads.

The shift away from traditional media has also opened up new opportunities for local agencies. Alexander reports that with 16 percent of media time now spent online, new media opportunities are being created.

"As a mid-sized regional agency, we are more agile than larger firms and can quickly embrace media landscape changes," she claims. "This opportunity doesn't seem to have dawned on some of the big firms which still operate largely with traditional media channels. We've developed specific initiatives in this media sector."

Tango's Boyd Wason has noticed that the online and agency competitive environment has accelerated dramatically over the past 12 months and online growth has driven multinational agencies to develop their digital resources.

"This has been a double-edged sword for Tango," he says. "Multinationals are now talking about what we've been doing for years, as a result more clients are open to digital ideas, but we've had to compete in a more crowded market place."

Marketers are now under pressure to achieve more with fewer resources and there appears to be increased competition from emerging new business models. Andrew Mitchell and Ant Rainger, partners at Connect, have observed that the best people in large agencies are increasingly getting further away from the clients, spending most of their time managing. The mid-level staff left running the business seem to struggle to offer the true strategic partnership clients are looking for, they say.

"We've turned that on its head," says Mitchell, "with the partners in the agency deeply immersed in the client's business and offering high-level advice."

The new agency model is not burdened with in-house creatives and production. This has allowed Rainger and Mitchell to bring in the best creative and technical talent for each task.

"If you have your own engine, you have to use it to maintain profitability - and often it might not be the best tool for the job so the work suffers. Consciously or unconsciously, large agencies tend towards providing solutions for clients that suit their engine. Not having any of that gives us the structural and financial freedom to do what's best for the clients' business, with no internal factors influencing that decision."

A change in the creative and supplier landscape has allowed the new model to flourish. There is a lot of good creative talent that has tired of the big agency treadmill and is freelancing. Collectively, these creative stars can give smaller local partnerships an immensely powerful 'creative department', without the overhead.

So far Rainger and Mitchell have seen no disadvantages with the new agency model, only immense advantages. "Our clients are noticing it too," they say. "We can also deliver quickly because we can scale our resource up and down very easily to handle varying workloads."

Perhaps the freelance route is the answer for the smaller independents. Q Brand Agency's Tania Harold says that finding good staff is the hardest part of its business. Barnes observes a shortage of "young writers who can actually write", perhaps a reflection of the different work ethics of Generation Y.

"It's quite easy to downsize," says Joe Holden, creative director at Big Communications, "but hard to up scale. There are not that many great people out there." As it happens, Big has only had one redundancy in four-and-a-half years and "that", says Holden, "is one more than we ever wanted to do".

Any perception of independents being second-rate is certainly not evident within the indies themselves. "Do I feel second-rate?" asks Salmon, rhetorically. "No! That's an ad-industry perception," he says, referring to the dismissive attitude held by some of the large multinational agencies. "It's not a client perception. We want our clients to get the kind of strategic input and the creative output that they could expect to get from a bigger agency."

Alexander says she has never lost an account to a multinational agency. "Long may that last," she exclaims.

But Leach acknowledges that there is a perceived critical mass and resource allocation consideration. "Pitches that are over the $3-$4 million mark tend to be mainly multinationals," he admits. "Could the independents handle the workload?" he asks. "From my observation, absolutely," he replies.

Salmon has some reservations as to what effect an account the size of Telecom's would have on his agency and Simpson says Magnum does not attempt to pick up the business the multinationals have as there is enough work in mid-tier customers to focus on. "Indies have to be careful and resist the urge to expand too quickly," he warns, echoing a similar sentiment expressed by Salmon.

"We don't want to grow too quickly," he says. "There is a perceived wisdom that when an agency gets to 15 people, there's a major decision to be made whether to push on." It is beyond this size that partners have to delegate to employees and face the danger of losing touch with their clients. For many, managing people comes at the expense of doing the work and that is an advantage many indies are loath to give up.

Graham Medcalf is editor of NZ Marketing Magazine.

graham@marketingmag.co.nz

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View From Outside

Nick Baylis was a founder partner of successful indie Generator. Today he is chief executive officer of the New Zealand arm of international ad agency M&C Saatchi. He sees the fundamental issue for indie success as a lack of big name breakaways nowadays compared to the UK and even Australia, where big names often start up.

"This is a significant issue for New Zealand indies," he says, "because 'indie' is not necessarily standing for outstanding fresh creative or breakthrough strategy but more for one-on-one service. In essence, indies today seem to be small one-man bands without big, recognised, track record figureheads. It is increasingly hard for them to break out of the small (and by that I mean under 30 staff level) which results in them being unable to pick up the blue chip high profile accounts, which in turn means that they tend to lack credibility competitively in the market's eyes against the multinationals. Shine got Mac's but Publicis got Lion, Consortium got Ferrit but Saatchi has Telecom.

"In my mind the indie is driven by the success and profile of its owners and if you look at what I consider to be the most successful indies in the last 20 years - HKM, Angles, Meares Taine, Generator, Assignment, that is exactly what they promised - high profile track record ad guys that work on the business.

"I am sorry and no disrespect intended to the current indie owners but I just don't see big name breakaways. I see small one-man bands. Part of Generator's success was that Meares Taine opened at the same time as did Whybin, and M&C Saatchi - whilst not a local indie - was playing in that space. Instantly there were four strong indie brands with big names operating, which gave clients a real sense of reassurance. The four brands together created an anti big multinational category almost overnight.

"Credibility is always the key issue facing any indie. Will they be here in a year? Can they really deliver everything that I need? Do they have the firepower to give me a great solution? And this is not helped by a perception that today's indies are small shops with small clients.

"It is really hard for an indie to compete and get the momentum and visibility to get onto the big pitch lists and even harder to win them. Indies appeal to a certain kind of client, one that absolutely buys into the owner's and the brand's advertising philosophy, track record and promise. If you don't have all of these elements as an indie then I don't think you will ever really challenge the big players. You might make a buck or two, but you won't go down in the annals of New Zealand advertising history."