Two overall themes are evident:
1) The structure of agency types is polarising as the agency sector consolidates
2) Activations agencies are responding to pressure from manufacturers by increasing their strategic capabilities.
As the agency sector consolidates and smaller players are incorporated into larger groups (for example Active Adval’s acquisition by STW; POP Impact/OSS Digital now ‘POS Collective’) the role of various kinds of agencies is becoming more distinct.
Traditional POP suppliers are separating into two types of suppliers:
1) Some partnering with activations agencies and direct with brands: these agencies are required to bring more strategic thinking, including examples and technology to thinking. They are less about procurement or building a widget to a specification, more about value add. They ask questions such as,”What should we be doing?” and “What’s the best way to solve the problem?’
2) Procurement based suppliers: accept their position in the value chain has lowered, and now supply the POP suppliers (and some manufacturers). They focus on obtention of materials at the lowest price, in an environment where lowest price is the cost of entry. Little shopper strategy or understanding of shopper behaviour is involved.
Both of these types, because of their focus on ‘making things’, are distinct from activations agencies who typically work at a more holistic campaign communications level involving the total purchase journey and multiple touchpoints.
In our survey, retailers want activations agencies who can deliver insight and creative program ideas, where manufacturers value path to purchase and shopper strategy nearly as highly as creative program ideas.
Retailers’ tactical focus is evident in lack of priority on purchase journey or shopper strategy, potentially because they expect manufacturers to provide some of this at a category level. Retailers also look to agencies for post-program measurement.
Manufacturers’ need for shopper strategy from agencies, potentially due to a lack of strategic capability in their own organisations where shopper marketing is trade marketing rebadged, is resulting in some agencies investing in shopper strategy people to establish credibility and demonstrate capability. Agencies told us this is having a number of effects:
- Manufacturers are unwilling to pay for strategy and this combined with the increased strategy resource agency side is reducing profitability; the cost to serve is becoming higher
- More time is required to shape briefs
- The timeline is pushed out at the front end as discussions between manufacturers and agencies are commencing earlier, but the execution deadlines remain the same.
The net result is more labour intensiveness. The current catch 22 is that agencies need to invest to help prove shopper worth, but the lag in payment from clients for this service will make this difficult for most agencies to sustain this business model long term.
While there has been an increase in clients pitching out briefs competitively, on the plus side, agencies did say that briefs from manufacturers are becoming less instructional and more invitational.
On the one hand the expectation of delivering strategy means manufacturers are leaning on agencies more heavily, but on the other it also offers them a chance for them to demonstrate the quality of their thinking.
As clients increasingly look to agencies and POP suppliers to add value, agencies need to be clear on what services they want to offer and their value proposition, and upskill their team quickly otherwise they risk either being caught in the middle or left behind.
Both manufacturers and retailers need to increase their strategic capabilities, rather than outsourcing them. Commentary from agencies and manufacturers in the July 2014 issue of the US Path to Purchase Institute’s Shopper Marketing magazine cites the talent pool issue as being one of the biggest challenges the industry faces.
Next week we’ll look at what’s actually getting activated in the marketplace.
“The Unrealised Potential of Shopper Marketing” POPAI/GfK industry benchmark report is available from Popai for members for $395 and non-members for $995. For more information, click here.
Norrelle Goldring is head of shopper experience and retail performance at global retail research house GfK. Norrelle can be contacted on 0437 335 686 or email firstname.lastname@example.org
Lee McClymont is GM of Popai Australia and New Zealand and has 15+ years’ industry experience in specialty retail, agency, and brand. Lee can be contacted on 0414 941 585 or email email@example.com.