When Worlds Collide: The Coming Reckoning Between Ad Agencies and Business Consultants

Perhaps 'reckoning' is too strong of a word. Maybe not.

Saying that marketing and advertising agencies need to find their competitive and comparative advantages, however, is not too strong or bold of a phrase. It is true- the advertising and marketing world (AdLand, as it has usually been called by insiders), continues to face challenges to its relevancy in the current business environment. With more brands bringing marketing and media buying in-house, AdLand has been in decline, on average, since the early 2000s. While there are several variables involved with the shrinkage, I want to highlight one in particular- the comparative advantage with business consulting firms.

Comparative vs. Competitive Advantages

To make sure we're on the same page, let's first define the differences between competitive and comparative advantages. The example about comparative advantage that one of my college professors would use dealt with Firm 1 and Firm 2 in the business chair sector. Firm 1 could manufacture the chair for $8, while Firm 2 could make the same chair for $5. That comparative advantage then translates to price, giving Firm 2 the edge. A competitive advantage, in this case, could be that Firm 1 started the business before Firm 2, and has a bigger marketing budget, and has some key endorsements. So a comparative advantage doesn't necessarily translates to a competitive advantage.

Business Consulting Firms Add A Comparative Advantage

As a student would learn in business school, sometimes being in the wrong place at the wrong time is all it takes to tank a business. Or, as businesses look to stay relevant in one sector, an indirect competitor can quickly become a direct competitor. The latter is happening between marketing/advertising firms, and business consulting firms. Both verticals are looking for ways to expand offerings to current clients, and business consulting firms have struck first in adding marketing and advertising services to their portfolios. For example:

• Accenture has a department called Customer Insight and Growth. Within that department, are leaders from all around the marketing landscape, including one of its executives, a former marketing leader from one of the biggest advertising spenders in the world, Procter & Gamble.
• Bain & Company does a fantastic job articulating how it can align marketing objectives with business goals and strategies. They are also the owners of the Net Promoter Score system, which is a nice tool for businesses trying to align business services and marketing objectives.
• Deloitte has built an impressive outlet of marketing and advertising insight through its strategy and operations division. With multiple reports of primary research and customer insights, Deloitte is proving itself as a formidable player in the marketing and advertising world.
• FTI is positioning itself in the marketing and advertising vertical with its digital and insights practice. It offers marketing strategy, branding, and content marketing. While its practice feels a little newer than the others, its current leader was part of the leadership team of a large PR agency now owned by WPP.

So what's the comparative advantage? Business consulting firms are already serving brands on how to run a good business. Advertising/marketing agencies, on the other hand, would have to spin up a team to add business/product services, at a much higher cost than (possibly) it takes for the business consulting companies to add marketing/branding support.

Another perspective. Imagine a CEO with these two questions:

1) How can I make my business more efficient for the long run? (Business Operations)

2) How can I differentiate my business from others? (Marketing)

If business consultancies can answer #1, it is very possible they could answer #2. If marketing/advertising agencies can answer #2, it is not obvious that they can also answer #1. The comparative advantage goes to the business consulting firms.

AdLand is Behind- But Can it Catch Up?

With Marketing ROI and analytics staying top of mind with many brands and marketing executives, it doesn't take long to understand how business consultancies have the upper hand. These firms have used CRMs, ERPs, and CDPs well before marketing and advertising firms. The term 'Business Intelligence' is simply software that has made these consulting firms better at what they do- and marketing firms are trying to adopt them for 'Marketing Intelligence' programs.

Are firms responding? In short, yes. More marketing and advertising companies are implementing technologies and processes focused on customer lifetime value, product lifecycle, and marketing analytics. For example, Publicis Sapient has been building a CDP and Enterprise Solution services for quite some time.

Finally- The Prediction

In a rapidly changing business world, something has to give. I believe that by 2030 there will be a major ad group holding/ business consulting merger. Think something like Deloitte/WPP (just an example, I have no inside information or insight to believe these two players would actually merge), as both ad agencies and business consulting firms are realizing the value in the other's services. Why spend the money building in-house when the skill can be acquired? As big brands look for continued efficiencies, it just seems like a business consulting firm/ad firm merger makes logical business sense. We'll see if the markets agree.

Conclusion

I want advertising/marketing agencies to succeed, I really do. But with business consulting firms steadily creeping in their territory, it might only be a matter of time for the lot of them to be swallowed up by business consulting firms. Maybe that's okay.