Marketing Organizations Are Bringing Agency Services Home to Roost

Traditional agencies face an increasing challenge as marketers move more work in-house, a new ANA survey finds

By John Wolfe

Daniel Haskett/Getty Images

As far as news coverage of emerging trends in marketing go, this one was exceptional: "New Report Cites Skyrocketing Growth of Internal Agencies," the Ad Age headline shouted, while Adweek weighed in with, "ANA Report: In-Housing Agency Work Is Accelerating." MediaPost followed suit with "ANA: Over Three-Quarters of Our Members Have In-House Agencies" and Campaign US ran with, "Number of In-House Agencies Rise Dramatically, ANA Study Finds."

Those were the headlines on only four of more than 20 news stories that covered the results of a recent ANA study showing that 78 percent of ANA members reported having some form of an in-house agency in 2018, compared to 58 percent in 2013 and 42 percent in 2008, the last two times the survey was conducted.

The report was released in mid-October and got the advertising and marketing industries buzzing. It was a major topic of conversation onstage and in the hotel lobby and cocktail parties at the ANA's Masters of Marketing Conference in Orlando in late October. The general consensus among industry experts on both sides of the debate was that, for both marketers and agencies, the industry is undergoing profound changes regarding agency services, and there are likely more to come.

The study, "The Continued Rise of the In-House Agency," revealed that 44 percent of respondents brought agency services in house within the past five years and that 90 percent of the respondents said the workload of their in-house agency has increased in the past year. Once within the realm of agencies, services now being provided in house include strategy, creative (for both traditional and digital media), media planning and buying, media strategy, and social media, the survey finds.

To explore the trend more closely, the ANA recently announced it would hold its first-ever in-house agency national conference next year. The conference will focus on topics important to the overall in-house agency and marketing industry, including driving cost efficiencies, project prioritization, building a strong culture and fostering talent, and the future of in-house agencies, among other related topics.

"This report makes clear that the work being done by in-house agencies is no longer confined to 'low-hanging fruit' such as collateral/promotional materials and internal videos," says ANA CEO Bob Liodice. "Traditional agencies are becoming increasingly challenged as marketers move more work in house while encouraging their external agencies to provide differentiated services and increased value. We expect the current trends to continue, with accelerated client movement to in-house agencies."

The survey showed that over the past three years, 70 percent of respondents have moved work formerly handled by an external agency to their in-house operation, including content marketing, social media, and influencer marketing. Also, 79 percent said they have in-house video production capabilities, and almost half (49 percent) established their in-house production capabilities within the past five years.

The types of marketers taking agency services in house vary, but they include some big names such as Verizon, Progressive, PwC, Chobani, and Clorox. Another major brand, Unilever, has reportedly saved 30 percent on agency fees after bringing more advertising work in house.

To be fair, the majority of marketers with in-house agencies still retain relationships with external shops as well; the report said 90 percent of respondents indicated they still use outside agencies. Nonetheless, the evidence is solid that the trend to internalize is real and is likely to grow.

 

Reasons for Bringing Work In House Are Growing Beyond the Need to Control Costs

"Agencies of all shapes will be affected by the trend toward moving services in house, because marketers are looking at bringing in a wide variety of pieces: content development, media planning and buying, and data, analytics, and measurement," says Michael Kassan, chairman-CEO at MediaLink, one of the most influential and plugged-in consultancies in the industry. "The key thing to remember, though, is that the brands getting this right are taking it slow and being strategic about how they can use outside partners to complement what they do decide to bring in house."

Mark Wagman, managing director, head of data and technology solutions, and Kassan's colleague at MediaLink, advises clients on in-house moves. He adds that insourcing is all a matter of degree, for both agencies and clients.

"For example, having a team of three interns work on six-second social videos is not a 'fully insourced content studio,'" Wagman says. "And 78 percent of ANA members are certainly not operating robust, internal content/creative, media, or data analytics capabilities to the point that they are turning away their agencies. The real question is more focused on what portion of their marketing supply chain is being insourced — whether that's creative/content development, media planning and buying, or data, analytics, and measurement."

FIGURE 1

The Number of Marketer Organizations with In-House Agencies Is On the Rise

 

The reasons for the trend are varied, but several key themes have surfaced. In the ANA survey, respondents said that cost efficiencies were the primary benefit of moving agency services in house, followed by better knowledge of brands, institutional knowledge, dedicated staff, and speed and nimbleness.

"It all starts because of a desire to control costs — why pay agency rates for work we can do in house?" says Jack Teuber, creative leader at PricewaterhouseCoopers LLP (PwC), which brought a range of creative marketing services in house in 2014. "That's the initial impetus. But over time, people begin to see the advantages of having a proximity to the business. It takes a lot of time to brief outside agencies on what we do. People who are close to the business and have more access are naturally more comfortable and familiar with the company's culture."

Andrew McKechnie, SVP and chief creative officer at Verizon, which opened an in-house agency called 140 in 2017, agreed. Costs were only one reason why Verizon brought agency services inside, he says.

"I don't always recommended that cost efficiency be the lead cause for bringing work in house," McKechnie says. "If that's the only reason, you're asking for trouble. The fact is, marketers who believe in the power of marketing and creativity need to leverage opportunities and tackle issues quickly and nimbly. Coming in house gives you more consistency and control over the creative product. There's a certain knowledge gap that we're filling in terms of having people we can invest in who understand our products with great depth and can provide better creative solutions."

Michael Perdigao, president of advertising and corporate communications at the Wonderful Co., which operates a full-service in-house agency and does not employ any external shops, echoed McKechnie's sentiments. "The deep connection that occurs between the in-house agency and the 'client' is proving very valuable," Perdigao says. "We're working with common bases of knowledge, and across common goals. There is little confusion or debate about motives and priorities."

FIGURE 2

Key Benefits to Bringing Agency Services In House

 
note: Only top responses shown; respondents were asked to select all that apply.
source: 2018 ANA report "The Continued Rise of the In-House Agency"

Another less-discussed but apparently underlying reason for moving services in house is the ongoing trust and transparency issue that has existed between agencies and clients as a result of investigations into alleged irregularities — including rebates — in the media buying ecosystem.

"Industry issues with transparency have accelerated the idea of 'I need to go in house because I need better control over how my brand name is used and campaigns are run,'" says MediaLink's Wagman.

 

Developing a Stable Pool of Talent with First-Rate Skills

McKechnie also cited the difficulty of dealing with the agencies' revolving door of talent as another reason to move services inside.

"Too often the talent pool at external agencies circles in and out quickly," he says. "Just when they get up to speed they move off the business, so it helps to have in-house people who are closer to the brand. Another benefit of in-house agencies is you can streamline communications between multiple players and create seamless communication paths between all stakeholders by removing layers."

Industry observers also point out that the talent pool at agencies is changing in a way never seen before. Only a few years ago, the conventional wisdom was that creatives moved in house toward the end of their careers, when their most productive and high-powered creative juices weren't flowing as rapidly as they once did. But experts say that's no longer the case; they cite creative celebrities like Crispin Porter + Bogusky's Andrew Keller moving to Facebook, Grey's Tor Myhren leaving for Apple, and Wieden + Kennedy's Todd Waterbury taking over creative duties at Target. Moves like that inspire other hotshot creative talent to consider similar moves, observers say.

Experts were mixed on which services should go inside and which should stay with external shops. However, the ANA study indicated a marked increase in the amount of specialty services offered by in-house agencies in the past five years. For example: Content marketing is handled in house by 75 percent of current respondents compared to 34 percent in the 2013 survey, and data/marketing analytics are handled in house by 59 percent of respondents versus 42 percent in 2013. In addition, several specialty services not provided as options in the 2013 survey are now being handled in house. These include influencer marketing (39 percent), experiential marketing (38 percent), and commercial production (22 percent).

FIGURE 3

How In-House Strategic Services Have Progressed from 2013 to 2018

Respondents were asked which services were handled by their in-house agencies

 

"It's an art to get this right," explains MediaLink's Wagman, referring to the process of moving advertising duties in house. "Marketers need to do an assessment and ascertain their brand's current status and place in the marketplace. They need to understand what's happening today and identify their pain points and decide where they want to be in the future."

 

The Future of Agencies

As for agencies, there is widespread agreement that there will always be a need for their services, and marketers say they want to continue establishing meaningful partnerships with them. At the same time, all the players need to accept and understand that the rules have changed.

"I certainly don't see their role disappearing, but agencies need to focus on their offering," contends Verizon's McKechnie. "Many agencies are very strong in certain areas, but it's when they try to do everything they get into a trap trying to service too many types of clients and too many variations of a client's business."

PwC's Teuber agrees, stressing that agencies bring something special to the table and, as such, will always be welcome — and needed — by marketers.

"Agencies take chances that are harder for in-house people to take," he says. "They also have special skills, especially with new technology. Sometimes you need people who can work with things like holograms and I don't have that skill in house."

Marla Kaplowitz, president and CEO of the 4A's, says it was understandable why certain marketers wanted to bring some services in house, but she maintains there is still plenty of opportunities for agencies to contribute and succeed in an evolving marketplace.

"We live in a dynamic and increasingly complex world — especially in business and marketing — that is impacted by the velocity of change and the impact of technology," Kaplowitz says. "It's human nature that as complexity increases, people want to exert more control. Agencies will continue to do what they do best: provide an external perspective to develop brilliant creative ideas and solutions that solve business problems."

She said that agencies also need to stay focused on the business of growing brands and marketers need to not only focus on short-term ROI, but assess long-term metrics for success.

"Procurement departments have driven agency costs down as well as pushed for excessive payment terms without valuing the business-building contributions of agencies," she says. "There needs to be a focus on effectiveness — not just efficiency — to revisit the larger issue of driving business growth."

 

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