New media channels and data raise agency profits

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Brands and direct and digital marketers get candid about the challenges and opportunities
Brands and direct and digital marketers get candid about the challenges and opportunities

Now that the recession is arguably over, direct marketing agencies are in an especially fortunate position. Given their efficiency and accountability, they're poised for success in the data driven digital marketing revolution — and business is finally beginning to grow, according to many agency heads. At this time last year, the chief executives at direct and digital agencies were cautiously optimistic as revenues began to gain ground after the recession.

This year, as Direct Marketing News interviewed executives at many of the leading firms, the message we heard over and over again was one of growth.

Growth does not come without its challenges. Agencies these days are expected to do more with existing resources. “Shrinking budgets in some markets are causing media shifts, as are so-called ‘digital dimes from direct dollars' where channel spending may shift, but the amounts spent on each channel are not the same,” says Gary Skidmore, president of direct marketing at Harte-Hanks. “Clients simply expect more for less.”

More than half of marketers are asking agencies to look for ways to cut costs internally this year, according to the Association of National Advertisers' sixth annual spending survey published in April. Marketers are asking agencies to create marketing platforms that address strategic goals, rather than simply designing campaigns. From CRM, e-commerce and database management to mobile and social media platforms, RFPs now require that agencies build out platforms that take a long-term approach.

“Marketing that is a set of campaigns bearing no relation to the consumer context no longer breaks through,” says Daniel Morel, CEO of Wunderman. “We are learning how, when and where to engage consumers through their conversations, experiences and passions,” Morel adds.

Customer-centric experiences

Christa Carone, CMO of Xerox Corp., says that agencies need to take “a cross-media approach to more relevant and customized programs that are less about selling to customers and more about engaging them to start the sales cycle.” For Xerox, this means “using our marketing insights and data to define more personalized approaches that really cuts through the clutter.”

Xerox is not alone. Fortune 500 brands across the board are looking to cut through the noise and reach customers wherever they are, making it easy for them to communicate with brands on their own terms. Agencies must be able to take a customer-centric approach and create multichannel experiences that can also evolve based on a consumer's response.

“CMOs are focused more today on the overall customer experience, and in today's multichannel world, that translates to customer engagement and brand interactions that are measured,” Skidmore explains.

This is good news for direct marketers as measurement is a foundation of the discipline. “While branding is constant, the skills and discipline we bring from two decades of customer relationship management across channels, and how we integrate these with branding — through invitations to converse, compelling content and calls-to-action — are enabling brands to have more of a direct relationship with their customers,” Skidmore explains.

Focus on integration

At the core of these marketing programs is a demand for integration. While multichannel integration is nothing new, the challenge hasn't gone away and marketers are still asking their agencies for streamlined platforms that work across channels. “Clients have a

hunger for integration,” says Brian Fetherstonhaugh, chairman and CEO of OgilvyOne Worldwide. “As the world becomes more complex and fragmented, clients need an agency that can put all the pieces together.”

Borders continue to blur as cutting edge digital agencies are competing against more traditional direct marketing agencies, because both offer in-house tools to help clients execute campaigns. “As marketing integrates, the lines between agencies of record, branding, CRM, digital … increasingly blur on who does what,” Skidmore says. “Consolidation among agency players is both an opportunity and a threat.”

Q&A: Daniel Morel, chairman and CEO, Wunderman

Wunderman chairman and CEO Daniel Morel on challenges agencies are facing and the opportunities ahead.

Click to read the Q&A.

Digital is definitely an opportunity for companies that have traditionally focused on database marketing because of their expertise in analytics. However, it is important that these companies innovate in order to prevent getting wiped out by more emerging, leading edge companies.

“Direct marketers have to step up their digital game, and fast,” says David Williams, president and CEO at Merkle. “Digital marketing is more than just “likes” on a Facebook page or the creation of mobile apps. It's about creating an intersection of information, analytics and technology to develop integrated media and channel interactions that maximize customer experience.”

Williams says having a solid understanding of direct marketing will help in the digital world. “Digital marketers often think that they are creating brand new marketing capabilities, but we would argue that direct marketing is the skill, and that digital is just new media through which we deploy it,” he adds.

Digital agencies are expected to be innovative, and brands need these agencies to quickly keep up with the latest in consumer experiences and desires. “Expectations of speed, ease-of-use and usefulness grow with every new innovation that succeeds in allowing users to accomplish their goals even faster,” says Aaron Shapiro, CEO of HUGE. “In direct marketing, specifically, it's not just focusing on service through messaging or branded experience that's necessary, but also ‘frictionlessly' guiding the user to conversion.”

For Shapiro, building a consumer experience on the Web, mobile or any other kind of digital platform requires more than extending experiences from more traditional channels.

“It's not enough for digital to be a microsite that extends a TV campaign or a Facebook ad buy,” Shapiro explains. “It's about evolving all aspects of your business around technology and consumer behavior on the Web.”

Brands still demand creativity

Faced with competition and new technologies, agencies can sometimes forget one of their core offerings: creative. While it is true that agencies must learn to create more sophisticated platforms that integrate across channels, brands still want agencies to innovate.

For Draftfcb, the goal is to focus on its “creative accountability,” says Laurence Boschetto, CEO and president of Draftfcb. “The idea still dominates and ignites the channels that lead to a simple goal: increased sales,” Boschetto says.

While most brand managers are looking for accountability, they still want to see agencies that are willing to push boundaries and take marketing to new places.

“Agencies must challenge the status quo,” says Patrick McLean, VP of digital brand strategy at Capital One. “If an agency is only following instructions from their client, they won't last very long. They must innovate and bring thought leadership to the relationship.”

But agencies aren't the only ones who can get stuck in their ways. Some push to innovate and present new and challenging work, only to be met with resistance from clients. This can be a challenge, especially when clients are not embracing new consumer behaviors.

Morel says that there is “a gap between those who operate at the pace and depth demanded by the new consumer behaviors and those who cling to traditional ways of working.”

Mobile and social media platforms will continue to take center stage in agency work this year, as more brands are looking to drive transactions on social commerce pages and tablet-optimized e-commerce sites. But it is no longer acceptable to only have a mobile-optimized website or just a Facebook page. Brands are looking for their agencies to create robust platforms and form long-term goals that will drive conversions. This means looking at customer behavior holistically and tying these new media channels into tried-and-true offline channels. For example, agencies should be connecting mobile phones with in-store experiences and tablet shopping platforms with catalogs.

“We need to intersect and guide behavior along the new customer decision journey,” Boschetto says. “This new, actively engaged customer model balances all disciplines and practices in a channel-agnostic manner from advertising to direct, from social to retail activation, from online to offline.”

Data mining is key

At the center of this digital and offline marketing strategy is data mining. “We're seeing that the age of data-driven marketing has taken on a whole new velocity, driven in large part by the acceleration in digital media,” says Bryan Kennedy, CEO of Epsilon. “That has presented a lot of new challenges in thinking about attribution, budget allocation and optimization, and how to really engineer meaningful brand experiences for consumers in real time across both traditional and emerging channels.”

With so many different kinds of agencies coming together to create work in various channels, brands often have issues accurately crediting the channel that led to a conversion. While a mobile site may be the place a sale took place, a social media program or an insert media mailer may have been the driving force. Jim Kabakow, president and CEO of Media Horizons, Inc., says that one big challenge facing the industry today is “accurately attributing customers to the correct marketing channel that they were generated from.”

Brand marketers discuss what they look for at agencies

Top brand executives from Xerox Corp., Capital One and Esurance on the qualities they seek in an agency.

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While marketers are hungry for metrics, and digital channels present more ways to measure marketing efforts, too much data can be overwhelming. “One of the biggest challenges facing the direct marketing industry is the deluge of data,” OgilvyOne Worldwide's Fetherstonhaugh says. “Marketing data is ugly — it is unstructured and sourced from multiple places. It takes a lot to make it meaningful and relevant.”

To address these concerns, direct marketing agencies are focusing on database analysis as a business model. Big data is playing an important role, as marketers are looking for more ways to manage and evaluate the large amounts of information they have about their clients in a bid to send more meaningful and personalized messages across channels. Agencies including Epsilon, Merkle, Harte-Hanks and Acxiom, to name a few, are investing in infrastructure and database and call center tools, as well as digital marketing toolsets, in a move towards addressable advertising.

For Epsilon, it is important to invest in order to help the company grow to scale, since the agency has doubled its business in the last four years. Recently, Epsilon has focused on aligning its client services teams into highly focused industry verticals including auto, retail, CPG, financial services, healthcare, travel and hospitality, among others. “We've become increasingly focused on our product portfolio and the manner in which we configure those products into nimble vertical solution sets for our clients,” Kennedy says.

Larry Franklin, chairman and CEO of Harte-Hanks, said in an earnings call in January that the company has been investing in contact centers and database businesses. These investments will continue in 2012, he said, as the company works to bring new products and services to the marketplace.

Agencies are expected to be more efficient. Acxiom president and CEO Scott Howe said in an earnings call in January that the company is focusing on improving its top management team. “We aspire to increase the speed and efficiency of everything we do, and to update the quality of the senior leadership,” he said. “One way to help the company achieve its goal of being more efficient is to focus on data services this year.” The firm is spending $30 million to build an “enterprise data platform,” which Howe says will help grow the business by expanding the company's leadership in the digital marketing space.

From C-level executives down to account teams and creatives, agencies are continuing to search for talented employees who are creative, understand data and are good with clients. “Talent is an ongoing issue,” Fetherstonhaugh says. “The challenge is finding people with deep quantitative and data skills, who thrive in a brand-oriented environment.”

Building and hiring talented employees is at the center of growing an agency to scale. This can be both a challenge and an opportunity. On the digital agency side, talent is also an issue. HUGE is attracting a lot of account wins, but Shapiro says that the company is careful to make sure that the quality of the work scales with the growth of the agency. “We won't sacrifice quality in order to grow, so finding the best talent in the industry in order to be able to keep on growing at our current rate is a big challenge,” he adds.

This year, direct and digital marketing agencies have the opportunity to attract big business and win clients by putting the building blocks in place to achieve long-term marketing goals. But the challenge is executing an effective program. “Everyone talks a good game, but what separates the winners from the losers is who can truly bring it to scale in a world-class manner,” Williams says.

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