The Industry’s Business Model needs a Transformation

What Needs to be Fixed? Where’s the Leadership?

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Michael Farmer & Business Model Group

The Business Model Structure

Creative & Media

Ad Agencies

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Holding Companies

Advertiser CEO, CFO, CPO

Indy

Ad Agencies

Marketing CMO

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The Business Model Structure

Creative & Media

Ad Agencies

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Holding Companies

Advertiser CEO, CFO, CPO

Indy

Ad Agencies

Marketing CMO

3

The Business Model – TOP Structure

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Holding Companies

Advertiser CEO, CFO, CPO

• Accelerate Growth & Profitability
• Grow Stock Market Price
• Maintain High C-Suite Comp

THE CITY

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The Business Model – TOP Structure

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Holding Companies

Advertiser CEO, CFO, CPO

• Accelerate Growth & Profitability
• Grow Stock Market Price
• Maintain High C-Suite Comp

THE CITY

“It is difficult to get a man to understand

something when his salary depends upon

his not understanding it.”

Upton Sinclair (per David Beaton)

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Advertiser Choices — 15 Years

Advertiser CEO, CFO, CPO

Marketing CMO

2009-2023

Media Spend

Doubled

Creative Deliverables

Trebled

Creative FTEs Used

Up 17%

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Advertiser Outcomes

Advertiser CEO, CFO, CPO

Growth Underperformance

Marketing CMO

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Price Advertisers Pay for Agency Services

Advertiser CEO, CFO, CPO

Marketing CMO

-50%

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Outputs Required by SOWs

Advertiser CEO, CFO, CPO

Marketing CMO

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Holding Company Outcomes

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Holding Companies

Creative & Media

Ad Agencies

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Holding Company Outcomes

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Holding Companies

Creative & Media

Ad Agencies

2009-2023

Senior talent

Downsized

Salary levels

Low & Uncompetitive

Structure

Merged; Centralized

Agency Brands

Downgraded

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CONCLUSIONS — 1

With special thanks to David Beaton, Pete Robins, Lee Elliott, Nick Charlton, David Porter, Paul Bay, Rachana Lokhande and Joel Coppersmith

1. Advertiser Executives have been defeated by media complexity
2. Only 40% use any form of MMM
3. Underinvested in measuring “what works” in SOWs
4. Instead, “on faith,” embraced & grew hyper-targeting & hyper-segmentation
5. But: “they cut costs, too, since they don’t really trust their advertising investment”

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Conclusions - 2

6. Agencies have not “filled the intellectual gap” — no investment in capability�
7. Insufficient involvement in Scopes of Work “that actually work for the brands”�
8. Unable to “get paid for SOW deliverables” — no documentation or measurement

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• Holding companies provide inadequate and mis-directed leadership�

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Current Business Model remains “stuck”

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Business Model Transformation Elements

1. Relationships should endure as long as agencies ad value. Longevity is key.

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• Agency must become a strategic partner — with expertise to address brand growth issues

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• High quality brand strategic plans must developed and shared with agency partners

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• Agency must provide informed advice about proposed SOWs and associated briefs

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• Agency must be paid for its work in approved, documented, quantified SOWs

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Leadership

1. Holding companies — and agencies — must upgrade their missions and capabilities to help clients achieve higher growth

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• CMOs must engage their C-Suite Execs and agencies to solve brand growth problems �
• Intensive, joint efforts must be begun to “unravel the media complexity and low-growth problems”�

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Leadership Initiatives must originate with CMOs, encouraged by their Agencies

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DEFEND YOUR CONTINUED EXISTENCE IN AN AI WORLD

1. Advertising is an investment, not a cost, if the right choices are made. PROVE IT
2. Brands can reliably grow again if SOWs become more focused. PROVE IT
3. Creativity, strategy, technology and process are required for success. PROVE IT
4. Agencies can work more effectively for the benefit of clients. PROVE IT
5. Long-term relationships are the route to higher shareholder value. PROVE IT
6. New business efforts must be secondary. Current clients matter. IMPLEMENT
7. Agencies must care about and train their people appropriately. IMPLEMENT
8. Downsizings and cost reductions must be last-gasp actions only. IMPLEMENT
9. Agency pricing must be based on its actual work for clients. IMPLEMENT
10. Fraud is offensive and must be ruthlessly eliminated. IMPLEMENT

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