Competing for consumers' affections

By IRENE CHAPPLE

DDB chief executive Martin O'Halloran envisions a future where advertising agencies are brand-builders - creating not just the advertising, but ideas, products and packaging.

He leads one of New Zealand's biggest agencies - DDB cracked $100 million in billings last year.

Pulling in the billings is fine, but maintaining profit margins can be tough in an industry where marketing spend is under increased scrutiny.

O'Halloran says the local agency has kept its profit margins by expanding its services to, for example, direct marketing and call centre work.

DDB is owned by the global advertising giant Omnicom Group, whose 14.4 per cent increase in revenue, to US$8.6 billion ($13.1 billion), last year was not reflected in its 5 per cent increase in profit, which came in at US$675.9 million.

The DDB group is offering new strategies to compete for the consumer's affection.

Traditional advertising, such as television, newspaper and radio - commonly called "above the line" - which reaches mass audiences, is being sidelined in favour of more subtle marketing strategies.

O'Halloran said that traditional advertising had fallen from being 95 per cent of an agency's work in the 1980s to around 60 per cent now.

He quotes American research that shows that the internet, rather than television, is the main form of media for teens.

"That is an extraordinary change and I don't think marketers have gotten around that yet. It puts a lot of pressure back on the agencies to think about media."

Potential clients often complain agencies are offering only traditional ideas, he said.

"They are sick of being told advertising is the solution. There are so many other ways to build a brand, so many other things that can work for them ... it might be as simple as sampling products."

DDB's San Francisco office has created and sold the idea of cat beverages, including an energy drink.

O'Halloran said the concept was funded and researched by the agency before being sold to a new client.

DDB Paris has created a soap opera for its client Henkel which is set in a laundromat. It runs for two minutes every weekday and advertises a brand of soap powder.

Product placement sells the powder, which can also wind its way into the storyline. O'Halloran said the sitcom had gained a cult following.

In Brazil, a DDB "premium agency", an offshoot of the main office, is limited to eight clients. The agency charges above-market rates and helps with business strategy and planning.

The line between the client and the agency is blurring.

At DDB New Zealand, staff are immersed in the clients' business. DDB staff are being placed with clients' marketing teams.

"Often there is a bit of double handling between the brand manager and account manager," says O'Halloran.

"So [we ask] can we create one person that sits across both organisations that facilitates the advertising ... That's just trying to be more efficient with the resources."

He believes such evolution will significantly change how agencies operate - but lessen stress on margins.

Agencies will morph into branding centres, with a weighting towards strategic planners rather than account directors.

"It will be shifting more towards people who have got the ability to strategically move brands forward rather than people who can just get ads made."