Ask HN: Are advertising agencies broken?

[jakarta]

I've been learning a lot about this space lately and figure that some people here may have worked in it. Is what I'm seeing correct?

I think the traditional advertising holding companies are structurally broken. Particularly those that have been unable to make acquisitions of digital agencies.  Ad companies have been turned on their head - they were put together in order to provide economies of scale on purchasing for media that gave scale (e.g., TV).  Digital is the exact opposite - it is fragmented and targeted. It doesn't lend itself to the way holding companies are set up. 

Technological expertise combined with global delivery and creative talent is what matters - not fiefdoms of agencies whose big pitch is creative with the benefit of purchasing at scale.  Moreover, digital removes a great deal of inefficiency from the marketplace so the overall ad pie is shrinking.

[il]

They are absolutely broken. Most (digital) agencies spend large amounts of their clients' money without delivering measurable, trackable results, or anything beyond a vague sense of "branding". In fact, in my work, I've found that most of the reason for rising CPMs for banner buys is agencies driving up prices to unsustainable levels- it's like another bubble waiting to burst.

[_delirium → il]

I probably agree with this view of it more than the other side (I'm From The Internet, after all), but the view from the other side is that the online-advertising ethos is too short-term-focused, so misses the forest for the trees: it's all about whether this $0.15 click is going to sell measurably more $8 widgets on the landing page, and doesn't measure whether the ad campaign raises brand awareness / brand loyalty / positive associations in a way that will improve average sales/profitability over the longer term (say, a year or two).

Of course, you could argue that those vague branding goals aren't particularly important, but I think in a lot of areas they are: the reason someone like Corona or Budweiser sells as much beer as they do is largely because of those brand ads that don't necessarily directly lead to sales, but build an image around the brand that lets them sell more beer for more money than they'd be able to do if they were unknown Brand X.

[il → _delirium]

It's the old battle between measurable performance marketing and vague branding/artsy advertising, I guess everyone picks a side.

Since you used a beer example however, I will point out that Claude Hopkins famously made Schlitz beer #1 by using modern, trackable, results-driven advertising that he split tested relentlessly. This was close to 100 years ago, so I guess not much has changed(or brand advertisers haven't evolved much in the last century).

[qq66 → _delirium]

This is what Foursquare is trying to solve - correlating online advertising with long-term IRL behaviors.

[_delirium → qq66]

Hmm, I can see it tackling part of the problem, but I don't think it's quite the brand-advertising part of it. Foursquare can only differentiate long-term behavior of user A versus user B, and correlate that with ads, but it can't answer: how did a large advertising campaign change the long-term behavior of a large segment of society? The problem is that behavior in that case is highly correlated: the goal with brand advertising is to change general cultural perception of a product, which depends in large part on word-of-mouth and shared perceptions among social groups. You're hoping to somehow intervene into that so that in the 2010s, 7-Up will seem cool to young people (or at least, cooler than if you hadn't launched your big ad campaign).

So the A/B test you want can't be something as simple as: we show user A a 7-Up ad and don't show it to user B, and see if that changes 7-Up purchasing habits.

Rather, it's something like: in the year 2011, spend $m on brand ads trying to improve the image of 7-Up, so people think it's cool and not the red-headed step-child version of Sprite. Then, re-run that same year 2011 without spending the money, and see how much difference there was in total sales.

The problem, of course, is that it's really hard to rerun years. ;-) You can try it in different years, e.g. increase or decrease your ad budget in 2012 relative to 2011, and see if it has an effect. But then you have to find some way to control for the fact that 2012 is different than 2011 in a lot of other ways too, not to mention that it follows 2011 so isn't independent of it, which makes it hard to draw any firm conclusions about which level of ad spending had what effects.

[CyberFonic → il]

Advertising is often mistaken for marketing. Marketing identifies the need, the target audience and the USP. Advertising is the means of delivering the message about the USP for the product/service to the target audience.

"Branding" is the "feel good" about spending obscene amounts of money which generates no sales only to justify the existence of the VP Marketing.

Clarification: USP = Unique Selling Proposition, the statement of why your product/service is the one to choose.

[instakill]

Traditional advertising agencies are definitely behind the times and are still using outdated models. In fact, if you study marketing at a college/university, by the time you graduate a good lot of the information you've learned has changed significantly.

However, despite their laggard tendencies, most advertising (non-digital) is still being done this way. Brand and marketing managers are also partially to blame because they're acquiescent with the status quo.

I disagree with the comment about digital agencies not delivering analytical reporting. Not in South African at any rate. Here, the market is ruled by a handful of large agencies, all of which provide measurable results. I'm certain that all the worthwhile agencies in the US do the same.

[CyberFonic]

YES! and they have been for a long time. Suggest reading: <a href="http://www.amazon.com/Gonzo-Marketing-Winning-Through-Practi... Marketing</a>

But of course, the big accounts only want to deal with the big agencies. So the smaller, really creative outfits only survive if they have a couple people on the board who come from the big end of town. Going after small business is just as (if not more) time consuming and the payback is far smaller too. Selling is the biggest chunk of effort and costs. Creativity is the fun part but the very poor cousin.

[kyrai]

I work at a full service marketing agency and we are very much alive and bigger then ever. Have been around since 1982.