Marketing at speed. Seeking higher-quality content at a faster pace, marketers hunt for specialised marketing agencies.

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1 Seeking higher-quality content at a faster pace, marketers hunt for specialised marketing agencies. Nuno Teles has a difficult job: getting US consumers to show some brand loyalty. As chief marketing officer of Heineken USA, he depends on using content, in multiple formats and published at a quick pace, to keep digitally savvy, slogan-leery customers engaged. Unlike in the past, when a catchy ad delivered across multiple channels would be enough, marketers today often have to manage a stream of fresh ideas across video, social media and other digital platforms. Like other marketers, he increasingly has to look beyond an agency of record (AOR) to find external partners with specialised capabilities that can help deliver value to his company. However, finding and vetting these new kinds of partners are significant challenges. An Economist Intelligence Unit survey of 307 business leaders from the US, UK and Europe that was commissioned by Globality found that the majority of executives that work with external marketing agencies are planning in the next 12 months to replace work previously done by an AOR with smaller agencies and individual contributors. And in the next five years, the surveyed executives are mainly focused on two marketing areas: digital strategy and content marketing. A report from The Economist Intelligence Unit 1

2 Small agencies and individual contributors will increasingly fill gaps For multinationals, working with a single large AOR can actually cost more than partnering with a roster of specialised agencies because of retainers and rising hourly rates. Billing rates have increased for technical, analytics, project management and public relations work, and large New York ad firms are charging US$ per hour for top talent, according to a report from the American Association of Advertising Agencies. Working with an AOR has the advantage of building a highly knowledgeable team that can provide you with above average quality work, according to Monika Schulze, global head of marketing at Zurich Insurance. This only makes sense if you have a certain amount of budget, creative and media in order to have a return on investment on the fees you need to pay, she says. Among survey respondents who rely on external marketing firms, more than twothirds of respondents (67%) either have an AOR or are planning to appoint one. But as companies face increasing pressure to derive more value for their businesses from marketing strategies, digital campaigns and multi-channel solutions, they are filling gaps with smaller and perhaps more innovative firms. Indeed, 66% of respondents expect to use a small or medium-sized agency in the next year instead of their AOR for marketing projects, and 34% say they will work with individual consultants. Small and medium-sized enterprises (SMEs) and individual contributors can often bring new skills to the table that mainstream firms may not have. Especially in the world of technology, it adds value if you bring smaller companies as challengers to the table, Ms Schulze says. For example, in 2016 IPG and Zurich worked together with &samhoud media, a Dutch company that specialises in augmented reality (AR). Samhoud has a proven track record, for example, with AR campaigns, she notes. We had a campaign launched in three months, and it had a huge PR effect. Finding firms that focus on a specific area of expertise is appealing to marketing executives striving to deliver more innovative campaigns. Overall, 40% of respondents say they strongly agree firms with specialised skills will be more valuable than providers with a broad range of offerings in five years. Furthermore, 30% of respondents say they strongly agree that SME service providers will play an important role in their companies in five years. 66% of respondents expect to use a small or medium-sized agency in the next year instead of their AOR for marketing projects, and 34% say they will work with individual consultants. SMEs and individual contributors can often bring new skills to the table that mainstream firms may not have. These data suggest corporate executives see increasing value in strategically working with different kinds of agencies. You always need to think about what your core team does well versus what particular expertise you may need to find elsewhere, Ms Schulze says. When that expertise lies in a boutique, then CMOs will be increasingly looking to work with them. 40% of respondents say they strongly agree that firms with specialised skills will be more valuable than providers with a broad range of offerings in five years. 2

3 Large agencies may no longer have the best talent One of the benefits of looking beyond the larger, well-known agencies is that multinationals can find talented and eager teams willing to go the extra mile to win a company s business, says Mr Teles. Heineken has an AOR for each of its core brands, but they are not all big global firms. Last year, the company shifted marketing for its Tecate brand to a mid-sized agency with offices in Mexico and Argentina because his team felt they had a better grasp on the Hispanic consumer. This switch underscores his philosophy that talent is more important than brand. Great talent can take a mediocre strategy and make something amazing, whereas mediocre talent can destroy even the best campaign idea, Mr Teles says. His roster includes a long list of firms that are encouraged to pitch new ideas along with the larger agencies. To make sure they have the ability to deliver, he insists that the people he ll be working with are involved with every pitch. Although Mr Teles says he appreciates the trust and long-term relationships built with the company s AORs, he s also not afraid to cut them loose if they don t deliver outstanding work. One of the benefits of looking beyond the larger, well-known agencies is that multinationals can find talented and eager teams willing to go the extra mile to win a company s business. Nuno Teles, chief marketing officer of Heineken USA Mitigating cost pressures Today, campaign execution includes how content is delivered, as well as how consumers engage with it. This means integrating new technologies and expertise to keep up with the digital transformation of entire industries. From adopting artificial intelligence and virtual reality to developing analytics that track customer engagement, marketing agencies need new talent to adapt to a digital world. But that talent isn t easy to find. A quarter of respondents say sourcing external agencies is one of the main challenges to working with them. Mr Teles faces this issue on a regular basis. His latest challenge is how to adapt a traditional marketing campaign for a largely mobile-first audience. He expects agency pitches to focus on how the idea will translate for mobile, and how they will capture the consumer s attention in the five seconds before they can click off the ad. From adopting artificial intelligence and virtual reality to developing analytics that track customer engagement, marketing agencies need new talent to adapt to a digital world. But that talent isn t easy to find. Top five challenges experienced with external marketing agencies % of respondents Cost 56% Evaluating agency capabilities Negotiating contracts Sourcing agencies Lack of familiarity with my business 34% 28% 25% 23% 3

4 More than half of survey respondents (56%) say cost is their top challenge in working with external agencies. They also say lower costs are the top reason they would choose an SME over a large one during the next year. Cost is always a big topic, and sometimes the big agencies charge too much for things that are not overly complicated, Ms Schulze says. Bringing in smaller agencies that can deliver quality work at a lower price can reduce budget pressures without affecting output. For example, Zurich Insurance has a roster of small agencies that track net promoter scores and consult on digital customer journeys. This mitigates her costs but still provides access to high-quality talent. Bringing in smaller agencies that can deliver quality work at a lower price can reduce budget pressures without affecting output. Finding and onboarding smaller agencies are challenges High costs are not the only challenge that marketers face when choosing external agencies, according to the survey results. Other challenges cited in the survey also shed light on what sort of issues companies should anticipate as they shift towards a more diverse portfolio of marketing partners. More than a third of respondents (34%) say evaluating agency capabilities is a top challenge and a quarter (25%) say sourcing agencies is an obstacle. These are precisely the types of challenges that companies looking for new partners will face. Smaller, younger firms may not have the portfolio or name recognition of the larger firms, making it more challenging to determine whether they will be a good fit. Five years from now, service providers with specialised expertise will be more valuable to my firm than providers with a broad range of offerings % of respondents 78% Agree In addition, all new agencies, big or small, need to be educated about brand strategy, corporate culture and team dynamics to ensure they deliver messages that align with the client s brand. That requires more time and effort to get them up to speed. Still, our research indicates that multinationals are keen on expanding their marketing partners beyond AORs to stay relevant and keep their customers engaged. This will be marketing s future. 12% Neither agree nor disagree 10% Disagree About the research This report was written by The Economist Intelligence Unit. In October-November 2017 we conducted a survey of 307 corporate executives from companies headquartered in the US, UK and continental Europe. All respondents were director-level or above. They were responsible for managing relationships with external professional service providers, and their companies had a minimum of US$1bn in annual revenue. 4

5 While every effort has been taken to verify the accuracy of this information, The Economist Intelligence Unit Ltd. cannot accept any responsibility or liability for reliance by any person on this report or any of the information, opinions or conclusions set out in this report. The findings and views expressed in the report do not necessarily reflect the views of the sponsor. London The Adelphi 1-11 John Adam Street London WC2N 6HT United Kingdom Tel: (44.20) Fax: (44.20) New York 750 Third Avenue 5th Floor New York, NY United States Tel: (1.212) Fax: (1.212) Hong Kong 1301 Cityplaza Four 12 Taikoo Wan Road Taikoo Shing Hong Kong Tel: (852) Fax: (852) Geneva Boulevard des Tranchées Geneva Switzerland Tel: (41) Fax: (41) Dubai Office 1301a Aurora Tower Dubai Media City Dubai Tel: (971) Fax: (971) dubai@eiu.com The Economist Intelligence Unit Limited 2018