ABBC: The business plan that proves an AI-Powered advertising agency is viable.

This work is part of my graduation assignment for the Foundations of Business Strategy Course by the University of Virginia Darden School of Business. Abridged version. (c) 2017, Patricio Cavalli.

Memo

To: Whom it may concern

From: Patricio Cavalli

Subject: Executive Summary: ABBC Competitive Position Analysis

Note: The company’s and competitor's names have been changed due to confidentiality reasons. All other data is accurate.

Company Name: ABBC Buenos Aires (ABBC)

Company type: Advertising Agency.

Industry: Advertising / marketing communications services.

---------------------------------------------------------------------------------------------------------

Industry Analysis:

The advertising and marketing communications market in Argentina is growing fast, after significant government reforms taken between early 2016 and 2017.

New product introductions by major companies on the Fast Moving Consumer Goods, Automobile, Tourism and Telecommunications services, have resulted in broad competition between brands, and thus a significant rise in advertising investing has began to emerge.

As investments grow, so do costs and expenditures. In Argentina’s market, and because of outdated labour laws, workforce hirings are among the most expensive investments a company can make.

A Unique Technology Offers a Unique Competitive Advantage:

During 2014 and 2015, ABBC developed -along with a technology partner company-, a signature software (nicknamed CARS: Creative Automated Review System), which, using an algorithm allows the agency to produce up to 60% of its ads (print, outdoors and web banners) via computer AI, almost without human intervention.

The fact that more than 85% of ads around the world are created using solely an image, a standard grid, a logo and a few lines of text (therefore, not requiring much use of creative input) gave the company the idea to let a machine (AI in early stage) do this work, and free its human and talented resources to dive in more creative assignments.

Similar experiments (and in much larger scale) were produced in Japan, Italy and other places, but no agency had introduced this software technology in Argentina, or for that matter, in the Latin American region.

No person was fired or replaced because of this. To the contrary, the company has found an enhanced internal climate, after its people were ‘freed’ from the burden of repetitive, non-creative, and yes, boring work.

Even though the system is still in beta phase, the company has been able to make the system work so that it produces very simple, target-specific ads for specific campaigns.

In overall, the system is simple. A list of tagged photographs is set in a repository, the ads layout is inputed in the system, and a person puts the headlines and copy. The AI system produces then a hundred or so alternatives for the ad, varying in size, colors, images and visual clues.

As one of the largest ad agencies in the country, ABBC competes within a specialized service industry fueled by the app USD 780 million invested in advertising annually by companies. ABBC’s main competitors are part of large global advertising holdings, like Omnicom, WPP and Publicis.

A strong competitive position.

ABBC has an found via its AI system, a strong competitive position in this industry due to its fast expansion capacities. More “production line” ads mean more money saved, which can be allocated in hiring talent, needed for highly creative work.

The industry evaluation shows that, the key environmental factors are market development, client trends, technology development by competitors, and the danger of government regulations. (Exhibit 1). The company’s strategic position is strong, but it needs to stay vigilant, in order not to lose sight of its customers’ preferences.

A Growth Analysis (Exhibits2 and 2-2) shows how the company has thrived, despite market stagnation and fierce competition, to always stay above the average growth of the market. This shows capacity for adaptation, initiative and business intelligence.

The Porter’s Five Forces analysis (Exhibit 3) shows that the company has established a solid presence in the advertising / marketing communications segment. It has 100 employees, offices in Argentina’s capital Buenos Aires and two other major cities, and works with a roster of high-end and marquee brands. Due to NDA agreements these cannot be disclosed, but it includes two major banks, a car manufacturer, FMCG companies and brands, a fast food chain, a retail company, along with several other clients.

The company has established a relatively small but respectable position as a creative powerhouse, winning several international awards in the past years, but it is chosen by its clients mainly because of its quality of service, and knowledge of client needs. It is fast when needed, highly creative on ad-hoc cases, delivers always on time, and has a fair pricing strategy.

Strategic Groups & Positioning

ABBC is mainly focused on growing in the enlarging marketing services segment in Argentina. It shares this space with fellow agencies, media production houses, creative shops, fully-digital agencies, and independent contractors, with small scale operations but in-depth penetration into the clients’ business.

Competitor Analysis

ABBC’s main competitors are JWT, Ogilvy & Mather, Young&Rubicam (WPP, Plc Group); Hagas (Havas Publicis Worldwide);Rapp; BBDO (Omnicom); and local -but highly reputed- creative agencies Santo and Ni?a.

The competitive forces analysis reveals that ABBC is in a strong position to get out and conquer some large scale clients. Three large advertisers, McCain Food Company, YPF (Argentina’s state owned oil & gas company), and Carrefour have announced they will review their advertising accounts during 2017 - 2018. This is a tremendous opportunity. If won, the combined size of the three accounts could mean a 200% growth for the company, with income rising in nearly USD 300.000.000 yearly. By Argentina’s standards, it’s a large sum of money.

ABBC has a significant competitive advantage to its competitors by offering a unique value proposition in the service: “Via AI we can be extremely effective when needed, with talent we can be very creative when desired”.

Not only that, its flexible price structure, helps it ramp up its competitive position, gaining client satisfaction and loyalty.

Nevertheless, competition is fierce, and nothing prevents one of its competitors from gaining an advantage, be it via a new AI system, faster and stronger, a better creative offering, or other unforeseen factors.

Also, the company needs to stay focused on generating profits to its shareholders. After two years of market stagnation, and as said previously, the market is growing again, but if reforms stops, or consumer activity slows, the investment by large clients could also halt, or diminish, leaving the company in a less favorable position.

Conclusion

We strongly believe that ABBC is positioned perfectly to give a shake to the market, and seize the opportunities in the horizon. Be it by growing in its existing clients, by getting more of their brands’ ad business and investment; or by growing in the market, by getting new clients, specially one or more of the above mentioned.

The company’s management has to convince its board and investors that this is the time to invest heavily on two key areas: talent acquisition, and software, more that anything perfecting and making stronger its signature AI system. 

Annexes:

Exhibit 1: Environmental Analysis: 

Exhibit 2: Growth Percentage Analysis YoY 2012-2016. 

Exhibit 2-2: Growth Percentage Analysis YoY 2012-2016 between main competitors. 

Exhibit 3: Porter’s Five Force Analysis. 

R

References:

Omicom Group Lt, 2016 Annual Report.

WPP, Plc, 2012, 2013, 2014, 2015, 2016 Annual Reports.

Argentine Association of Advertising Agencies, 2012, 2013, 2014, 2015, 2016 Annual Reports on Investment.

Argentine Association of Newspapers, TV and Media, 2012, 2013, 2014, 2015, 2016 Annual Reports on Investment.

www.adlatina.com

www.mercado.com.ar www.adage.com