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Reinventing Madison Ave.

Corporations are losing faith in conventional advertising. For some, the solution might be contract marketing, a comprehensive approach that aims to deliver services including marketing, consulting, and communications.

Things began to go amiss in the advertising business back in the late 1960s. At that time, The Wall Street Journal quoted Mary Wells Lawrence as saying her ad agency wasn't interested in doing "cheap" trade advertising or sales promotion work for its clients. To me, that comment represented the abdication of much that had been a part of the advertising industry's domain and the beginning of a high-handed, wrong-headed posture that would ultimately destroy the industry's credibility as effective communicators.

This is not to imply Mrs. Lawrence deserves the blame for that. Even so, over the last several decades, many advertising agencies have made it clear their primary interest is making money. Paradoxically, revenues in the industry are down, and recession isn't the only reason. Another factor: Corporate America is turning away from traditional forms of advertising and betting instead on sales promotion, couponing, public relations, and other types of "cheap media." By their own admission, many ad agencies have little interest or expertise in these areas.

These sweeping changes threaten to make conventional agencies obsolete. As a result, at McCabe & Co. we are experimenting with "contract marketing," the seamless integration of consulting, marketing, advertising, and communications functions into one performance-oriented entity. Under the concept, clients contract only for results--for example, they might seek to increase market share or improve retail margins.

WHERE THEY WENT WRONG

A glance at the history of ad agencies provides some perspective on changes buffeting the industry.

Advertising agencies started out in the late 1800s as media brokers, buying print space--and then radio time--for advertisers. In return, agencies received a 15 percent commission from the media.

Gradually, the business evolved. To justify their commissions, agencies began to create advertisements and commercials to run in the media they worked with. To gain a competitive edge, some agencies began to involve themselves in the marketing of their clients' products, offering professional advice on product development, pricing, and distribution. Some actually created programming on radio, and later, on television. Hence, the term "soap opera," programs sponsored by and created for soap companies.

This trend led to the development of more "services," not all of which were strictly professional, and for a time the industry earned a rather seamy reputation for some of its methods of "serving" clients. Regrettably, some of those practices, and expectations, persist.

By the 1960s, advertising had come to be known as a service business, a business that existed to please its clients. Theoretically, this meant helping to increase clients' sales. It should be that simple.

CRIPPLED AT BIRTH

Perhaps you've heard the quote often attributed to William Wrigley: "I know half the money I spend on advertising is wasted. The problem is, I don't know which half."

Inherent in that observation, whether real or apocryphal, is a clue to the one big problem advertising agencies have always faced. And that is difficulty in justifying their worth.

Financially and emotionally linked to how much their clients spend, rather than how well their advertising works, ad agencies have always been subject to questions and doubts about their value. It is an industry that came into being with a birth defect, one that has handicapped it ever since.

Another specter haunting the industry is the view--often espoused by advertisers themselves--that advertising is a virtual commodity. Some say you get so much advertising for so much money, and it doesn't much matter from whom you get it. Today, this is an archaic and foolish attitude that lacks a qualitative component. But it survives in some quarters.

Having engaged in commodity pricing for more than a century, the industry has only itself to blame for that mistaken notion. In most cases, an agency's compensation is still based on, or descended from, the 15 percent commission system. And if they all charge basically the same, they must be basically the same, right?

Proceeding from that assumption, agencies embraced the "service business" concept to differentiate themselves. In doing so, they assumed the stature of servants. And it's impossible to manage your own destiny when you're not your own master.

BURGEONING BUREAUCRACIES

Until recently, ad agencies have proved resourceful in adapting to meet their clients' needs. As clients' marketing bureaucracies have grown, for example, agencies have expanded to match. They've even staffed themselves with people who think, act, and are trained like the personnel with whom they interface.

That means they are likely to be career-minded MBAs, whose primary goal is to quickly scale the corporate ladder. In many cases, their focus is on short-term money making rather than long-term image making. Ironically, this means agency management and client brand management end up working hand in hand against the long-range best interests of the corporation.

The problem for ad agencies is that clients' needs are beginning to change at a faster rate than any existing agency's ability to profitably reinvent itself. In business today, the buzzwords are downsizing, bureaucracy busting and outsourcing: The emphasis is off process and on performance. While this trend has yet to manifest itself in the area of corporate marketing, I believe it is inevitable.

The last thing American business needs these days is to support two bureaucracies, however complementary they might seem.

ANALYSIS PARALYSIS

About a year ago, I read that a major consumer products manufacturer was bringing in a new president. The company had been losing market share on many of its traditional products and had not launched a successful new product in more than three years. The new man was quoted as saying something like, "They've been testing, testing, testing. Now we're going to start doing."

Some companies are so bound up in this process, they even test their testing. Yet their products remain also-rans in the marketplace. The point: Testing has supplanted doing as the country's major business activity. The time and money wasted on non-productive work is unparalleled in American history.

I would not ascribe this to marketing trying to justify its existence to top management, or to a generalized fear of failure, or to a process that ends with debilitating inertia. But such "analysis paralysis" does tend to breed a new kind of corporate cat, whose aim seems to be covering all the ABBs--Asses, Bases and Bosses. This type loves to play but doesn't really want to win.

As one example, take the way a corporation currently chooses an ad agency. Did you realize the No. 1 criterion used in that selection is size? Yet size is irrelevant to results. Which would you rather have? Forty people working on your advertising? Or a 40 percent increase in sales?

Another rampant misconception involves the notion of clout derived from economies of scale. It has long been held that large ad agencies can buy media more efficiently than small ones. But with the advent of media buying services, many of which wield truly enormous influence, smaller agencies with such affiliations can actually outbuy the giants, provided the outside services are well-guided and closely supervised.

The result: There exists today an equality among advertising agencies the likes of which we've never known. Fundamentally, only one criterion now distinguishes one ad agency from another. Certainly it is the most important one, and the one most easily proved or disproved. That is the relative performance of advertising firms in the conception and execution of ideas and the results those ideas achieve.

Given this, one might conclude the selection of an ad agency would be easy. But the process has never been more complex. More and more companies are bringing in outside consultants to help with the selection process. Is there no one qualified to make what should be a simple selection?

A BETTER WAY?

At this point, you could jump to the conclusion that I am anti-large, anti-bureaucracy, anti-consultant and pro-small. Not so. I am simply confident of the need for a new approach to marketing.

That's where contract marketing comes in. Contract marketing asks the client to contract for specific results. Not advertising. Not public relations. Not services of any kind. Just results.

Here's how it works:

Reporting directly to the chairman, president, or other designated top executives at the client company--and thus unfettered by a traditional, hierarchical organizational structure--the marketing and communications contractor assumes stewardship of a certain amount of funds. The contractor is responsible for channeling those funds into disciplines that will best achieve, or surpass, the agreed-upon marketing, sales, or pricing goals. The only interest of such a concern is to provide superior results, even if that means contracting outside for the completion of certain tasks. Of course, the contractor would closely supervise any such operations.

Among the benefits to the client: The remuneration to such a marketing-services contractor has nothing to do with how much money is spent, or where. The client pays only costs, while the marketing and communications contractor's profits are derived from increased client revenues.

Many advertising agencies--Ogilvy & Mather, Young & Rubicam, DDB Needham, to name a few--have touted the concept of "integrated communications" for some time. They contend that an interdisciplinary approach leads to greater synergy and effectiveness.

To be sure, this is true. But as long as the management of these activities remains decentralized within the client organization, the arrangement can't work. In other words, while many advertising groups have acquired specialist companies that can provide a full menu of communications services, each course is still cooked in a different kitchen. There must be only one profit center--not subsidiary companies vying for separate slices of the marketing-dollar pie.

QUESTIONS, ANYONE?

Obviously, this is a rather simplistic blue-print for change in the advertising business, one that may prompt questions, including:

* If a contract marketer were unable to achieve the specified results, how would he make any money? He wouldn't.

* Isn't it risky to hand over a corporation's marketing destiny to an outsider? It depends on the people, their track records, your faith in them, and the potential you see for success.

* With access to our corporate secrets, wouldn't a contractor have to be even more circumspect than our ad agency about product conflicts? Absolutely. The contractor could not do business with any company in any product areas even remotely similar to yours.

* Would we have to replace our existing marketing organization? Not necessarily. You could hand over to a contractor a discrete assignment and let the relationship develop gradually.

* What if we reduce the amount we spend on marketing and seek improved results? If the contractor agrees with that proviso, that's what you have a right to expect. Similarly, the contractor could improve results and end up using less of the funds previously earmarked for expenditure. In which case, he should be entitled to a share of the savings, which would be stipulated up front.

* Would a contractor be so result-oriented that he would be unable to coexist within the moral, ethical, and cultural parameters of our organization? Not at all. Implicit in any agreement would be the responsibility to understand and protect a company's long-range interests.

WANTED: FRESH THINKING

If you're the leader of one of the handful of corporations currently blessed with a superb marketing organization, if you're getting brilliant sales results in a cost-effective manner, you're probably making the best of a ponderous and costly system. If you have an advertising agency that functions in a traditional way while serving you well, there's no reason to consider an alternative.

But if you have an extensive marketing operation eating up millions in overhead, if your company's sales performance is lackluster, you might consider a change in direction. Likewise, if you head a smaller organization, one without the resources to establish a costly marketing infrastructure. Ask yourself this: Is marketing something that could be better handled outside? This is a question more and more companies have been asking themselves about a growing number of aspects of their operations. Waste management, computers, telecommunications--why not marketing and its management?

Contract marketing is an idea whose time may be coming. It offers the potential for something that's rare in American business today: simplicity and effectiveness. In other words, the most sense with the least nonsense, for maximum possible results.

Edward A. McCabe is CEO of McCabe & Company, a NY-based advertising and communications company. A founding partner of ad firm Scali, McCabe & Sloves, and a member of the Copywriters' Hall of Fame, he has coined such memorable slogans as, "It takes a tough man to make a tender chicken," which thrust Perdue Farms' chairman, Frank Perdue, into the media spotlight.
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Copyright 1993, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:contract marketing for advertising
Author:McCabe, Edward A.
Publication:Chief Executive (U.S.)
Date:Jan 1, 1993
Words:2107
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