• More big advertisers are considering dumping their ad agencies as spending levels recover from pandemic lows.
  • A new focus on efficiency and flexibility threatens legacy holding companies that rely on hourly billings while speciality agencies could benefit.
  • Big agencies are fighting back, launching consulting practices to avoid losing business to upstarts.
  • Meanwhile, consultants expect even more advertisers to consider changing agencies in 2021.
  • Visit Business Insider's homepage for more stories.

After big cutbacks in the pandemic, marketers are about to start spending again, and it could determine winners and losers in the ad industry.

Several big brands, including T-Mobile, Visa, and JPMorgan Chase, are reviewing their ad agencies, and 37% of marketers said in a survey they plan to increase spending in the fourth quarter, making such pitches potentially even more valuable to agencies.

Executives said the volume of money at stake may approach 2015's historic high that industry insiders called "Mediapalooza," when Coca-Cola, Procter & Gamble and other big names put nearly $20 billion in ad spend up for review. 

Agencies that don't quickly adjust to the new pandemic marketplace — especially the legacy holding companies like WPP and Publicis — risk being left behind.

Small and flexible agencies stand to gain from the spending boom

Ad spending trends are working against the holding companies. Big advertisers used to consolidate their business with a single agency in the interest of simplicity and savings. But as CMOs scrutinize their budgets more, they're dividing it among multiple agencies, said Tom Denton, CEO of consulting firm ID Comms.

Big holding companies have acquired specialty firms to position themselves as one-stop shops, but such agencies still stand out in a crowded market.

Donna Sharp, managing director of MediaLink, which advises marketers and agencies, said she now sees big advertisers hiring niche agencies just to handle their data needs, for example.

And experts said the pandemic has revealed, more than ever before, how the holding companies' hourly billing model favors them over the clients, because the more a marketer spends, the more an agency makes.

Employees are increasingly working remotely, and agencies that can cut office and IT costs may have a significant advantage in pitches because they can afford to charge less. Agencies like McCann Worldgroup and holding company Dentsu have said they would seek to reduce office space.

Tech, consulting capabilities are more important than ever before

Many advertisers have shifted big chunks of ad spend to platforms like Amazon in recent months as TV ratings declined in the absence of live sports, Sharp said, a trend that benefits specialty firms and makes agencies' tech capabilities particularly important.

Holding companies have adapted; Omnicom Media Group developed a custom Amazon interface that allows its agencies to quickly cancel or redirect ad buys in a crisis scenario when a product like toilet paper isn't available, and North America CEO Scott Hagedorn said potential clients have asked how Omnicom could automate this process.

In other big changes to the agency world, clients also are shifting to consulting and in-housing services, which positions new and small agencies to benefit.

MediaLink's Sharp sees more demand by marketers for consulting on short-term projects, like adjusting to Apple's new mobile ad tracking policy.

Holding companies are trying to adjust to this reality; IPG recently launched a consulting firm called Black Glass run by a former Deloitte Digital executive.

If there's a bright side for agencies, the trend of marketers doing more of their advertising themselves may have hit a bump; Sharp also said some MediaLink clients have delayed plans to in-house their marketing, and Hagedorn said some Omnicom clients' in-house teams weren't prepared to switch gears when the pandemic hit.

Denford, whose company just acquired auditing firm PJL Media, said more clients are asking for audit services like ones provided by PJL because they realize that in-housing alone won't ensure a better return on their investment.

More advertising will be up for grabs in 2021

Mitchell Caplan, managing director of consulting firm Flock Associates, said the businesses most likely to review their agencies in 2021 are banks, which have yet to feel the full effects of the pandemic; retail chains fearing another lockdown; automakers whose sales have dropped with plants closing; and pharmaceutical companies.

Olivier Gauthier, CEO of market research firm Comvergence, said the big holding companies are in a Catch-22 because they need to grow, but limited resources force them to focus on their largest clients.

According to MediaLink CEO Michael Kassan, the theme for marketers and agencies alike in the coming months will be "adapt or die."

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