Are Advertising Agencies Regulated Utilities?

Ad Week has a June 7 article “Unilever Set to Join Cost-Cutting Push: Agencies working for the CPG giant face lower margins, extended payment terms.”

Dictating a 5 percent profit margin, up-front, on its agencies, Unilever is now acting like a governmental agency that regulates how much profit a utility can earn.

This is happening because agencies are resisting the necessity of changing their pricing model from selling hours to selling intellectual capital. That onus is on them. To the extent they don’t do it, their clients will do it for them.

The article incorrectly, in my opinion, equates this move by Unilever with Coca-Coca’s new Value-Based Compensation Model. They are not equivalent at all. Coke is not dictating a profit margin on its agencies.

This is an interesting quote from the article:

Clients have never had a higher demand for big ideas, greater creativity and innovation, said a source. At the same time, they have never been more prepared to treat everything we do as a commodity. The source added that the trend “has been happening for a while, but the intensity of it now…is just pervasive.”

Well, that’s just nonsense. No one can treat your offering like a commodity without your permission. There are some agencies out there who refuse to accept the premise they are commodities, and have differentiated themselves based on a focused strategy and innovative value offerings.

If bottled water companies can differentiate themselves, why can’t a Professional Knowledge Firm?

The choice continues to be up to agency leadership. You can innovate new pricing/business models, or your clients will be happy to do so on your behalf.

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