ASSESSING THE DIFFERENT STRATEGIES OF THE PLAYERS WITHIN
THE ADVERTISING INDUSTRY LOCATED IN THE WESTERN CAPE
A Research Report
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Presented to
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The Graduate School of Business
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University of Cape Town
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in partial fulfillment
of the requirements for the
Masters of Business Administration Degree
By
Nikki Soboil
Anthony Njua
November 2000
Supervisor: Professor Gary J. Stockport
Acknowledgements
This report is not confidential and may be used freely by the Graduate School of
Business.
We wish to thank Professor Gary.J.Stockport, Graduate School of Business Cape Town,
supervisor of this report, for his valuable advice, guidance and support throughout the
design and implementation of the research questionnaire, case study and the final analysis
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of the findings.
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We address further thanks to the shareholders of Joe Public (Pty) Ltd who spent much of
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their valuable time and effort in assisting us with information regarding their business.
Thanks must also go to those agencies that took the time and effort to respond to our
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questionnaire and in addition to this, often spent extra time with us in discussion on the
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dynamics of this changing industry.
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Finally, we wish to thank Jean and Rene Wouters for allowing us to use their home office
from which to work. Without this privacy and tranquil surrounds, our time spent on this
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report would surely have not been as enjoyable.
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We certify that the report is our own work and all references are accurately reported.
Signed:
NICHOLE CAREY SOBOIL
ANTHONY RICHU NJUA
Dedications:
The authors would like to dedicate this report to their families, friends and loved ones for
all the help and support they have offered during the year.
A. Njua would especially like to dedicate this to SK Amisi, “for helping me to get it
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together”.
TABLE OF CONTENTS
1. GLOSSARY OF TERMS .................................................................................................. 3
2. INTRODUCTION ............................................................................................................. 4
2.1.
Background to the South African Advertising Industry ............................................. 4
2.1.1.
1979-1999 in Brief ............................................................................................... 4
2.1.2.
Current Trends...................................................................................................... 4
2.2.
Choice of Topic and Objectives of Report.................................................................. 6
An Industry Undergoing Change.......................................................................... 6
2.2.2.
Objectives of this Report ...................................................................................... 7
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2.2.1.
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3. LITERATURE REVIEW .................................................................................................. 8
Introduction ................................................................................................................. 8
3.2.
The Value Chain ......................................................................................................... 9
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3.1.
3.2.1.
Industry Value Chain............................................................................................ 9
3.2.2.
Traditional Agency Value Chain........................................................................ 10
Porters Five Forces Model ........................................................................................ 14
3.4.
Generic Strategies ..................................................................................................... 15
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3.3.
Low Cost Leadership.......................................................................................... 15
3.4.2.
Differentiation Strategy ...................................................................................... 16
3.4.3.
Focus Strategy .................................................................................................... 18
3.4.4.
Stuck in the Middle ............................................................................................ 19
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3.5.
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3.4.1.
Other Factors Influencing Corporate Strategy .......................................................... 19
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3.5.1.Customer Segmentation .......................................................................................... 20
3.5.2.
Consumer Needs................................................................................................. 20
3.5.3.
Environmental Factors........................................................................................ 20
4. RESEARCH METHODOLOGY..................................................................................... 24
4.1.
Area of Study ............................................................................................................ 24
4.2.
Methodology Used for Data Collection .................................................................... 24
5. FINDINGS....................................................................................................................... 27
5.1.
Section A – Key Drivers for Industry Change .......................................................... 27
5.1.1.
Industry overview............................................................................................... 27
5.1.2.
Importance of buyers .......................................................................................... 30
5.1.3.
Barriers to market entry...................................................................................... 35
5.1.4.
Bargaining power of the suppliers...................................................................... 40
5.1.5.
Power of substitute service providers................................................................. 43
5.1.6.
Rivalry between industry players ....................................................................... 47
Conclusions...................................................................................................................... 50
5.2.
Section B – Agency Strategies.................................................................................. 52
5.2.1.
Traditional Agencies .......................................................................................... 52
5.2.2.
Specialist Agencies............................................................................................. 63
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6. CONCLUSIONS.............................................................................................................. 72
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7. RECOMMENDATIONS................................................................................................. 75
8.1.
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8. MINI CASE STUDY: JOE PUBLIC............................................................................... 76
Appendices to Mini Case Study................................................................................ 86
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9. FURTHER AREAS FOR STUDY .................................................................................. 87
LIMITATIONS PERTAINING TO THE REPORT .................................................... 89
11.
REFERENCES ............................................................................................................. 90
12.
APPENDICES .............................................................................................................. 92
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10.
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1.
GLOSSARY OF TERMS
Adspend
The total sum of money per annum that an organisation spends on its advertising campaigns.
Billings
The total amount of money that an advertising agency receives from the client in settlement of
all bills that relate to the advertising work done. Advertising agencies disclose this as a
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reflection of the volume of work that has passed through their agency.
Commissions
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This relates to a commission received by the agency from the media (16.5%) and production
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houses (20%), on all advertising channeled through these medium.
Fee income
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Agency revenue for work done other than that based on commissions.
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Specialist agency
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These agencies focus only on one aspect of the marketing communication chain. They tend to
be owner managed and with no rigid organisational structure. They are also characterised by
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outsourcing of those services in which they have no developed competency.
Traditional agency
An agency that offers a broad base of marketing communication services to its clients. They
have a well-developed and hierarchical organisational structure that supports the broad base
of offerings to their clients.
Polarisation of the industry
An industry term used to denote the two dominant strategies that pervade the market, namely
broad based service offering by traditional players and focused services offered by the
specialists.
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2.
2.1.
INTRODUCTION
Background to the South African Advertising Industry
2.1.1. 1979-1999 in Brief
The South African advertising industry enjoyed an unprecedented boom between 1979 and
1984, generating a growth in total adspend of 26% per annum for this period (Adfocus, May
2000). This boom abruptly ended in 1985 when civil unrest and P.W. Botha’s “Rubicon”
speech1 plunged the country into a political and financial crisis. Advertising was also
included in the value-added tax net, which extended this industries recession. Globally,
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advertising was losing credibility and commentators were proclaiming the “death of the
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brand” (Adfocus, May 2000).
The recovery of the South African Advertising Industry was slow and mirrored the economy
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as a whole as the political transition of the early nineties took place. However, by the mid
nineties, pressure for transformation within the industry mounted as its pace of change slowed
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relative to the pace of the changing socio-political situation.
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The re-entrance of South Africa into the world economy brought additional pressures to the
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industry. Multinational agencies and their clients bought back into the formerly isolated
South African advertising industry and introduced global best practice. This included the
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lowering of remuneration levels and moving away from commission to fees.
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2.1.2. Current Trends
According to Adindex, billings for 1999 were the lowest on record since 1985. In contrast to
this, according to an Adfocus survey conducted in March 2000, agency heads indicated
greater optimism about business prospects for the year than in any of the surveys conducted in
the six years prior.
1
Prime Ministers speech advocating apartheid.
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However, further readings in Adfocus, Advantage and other trade journals, indicate a mood of
uncertainty and declining “self-confidence” within the industry. This is related to the
unprecedented pace of change and numerous threats posed by factors such as
transformation pressures, the evolving nature of the industry, narrowing margins and growing
client demands.
The sense of uncertainty is exemplified by the recent accelerated rate of account switching.
According to figures submitted by South African based agencies to Adfocus, the value of
business that moved during 1999 was R 1.95 billion which was greater than 24% of national
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adspend, 4% higher than 1998 and 13% higher than 1992. International alignments play a
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large role for the growth of these figures, due to the choice of agency being made
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internationally based on the perceptions of a worldwide agency network.
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According to Robyn Putter, CEO of O&M Rightford, “The growing influence on the local ad
industry of global trends, global agencies and global clients is undoubtedly a factor for the
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alarming rate of account switching.”
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In the face of a rapidly changing marketplace and dwindling resources, advertising agencies
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are being met with numerous new challenges. Reduced advertising budgets have called for a
reduction in media consumption. In the light of reduced adspend, greater creativity is
required in order to engage the viewer, reader or listeners attention so that the information or
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experience can be delivered accurately. Agencies need to find ways of securing creativity and
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leveraging it as widely as possible (Business Report, June 2000). Together with reducing adspend, businesses are increasing their demand for integrated marketing solutions as opposed
to purely media marketing activities. The industry is moving away from being advertising
driven to one that is marketing driven.
In the USA and the UK, global clients are demanding global advertising agencies and as a
result agencies are consolidating. An article published by Dow Jones (Business Day, March
2000), suggests that the push towards growth is not creatively motivated but rather as a result
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of required financial benefits. It appears that South African agencies are not following global
strategic trends. The recorded average income growth rate for traditional advertising agencies
in South Africa for year ending 1999 was 13%, with the fastest growing category being small
agencies. This figure was below the inflation rate of media costs and thus in real terms,
agency income declined (Adfocus, May 2000). Recorded facts for 1999 state that the number
of non-traditional/specialised agencies continued to rise and the recorded growth rate of their
combined income was given at 24%, more than twice the growth rate of media advertising
(Adfocus, May 2000). These figures further emphasise the question surrounding the abilities
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of traditional agencies to survive.
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Advertising agencies have historically followed a similar generic strategy of differentiation by
way of their creativity, strategy, media and or client relationship skills. The organisation was
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therefore structured around what they perceived as their core competence. As a result of the
dramatic changes mentioned above in the marketplace, industry players are facing new
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challenges. To overcome these challenges new strategies are emerging.
Whilst emergent strategies are clearly apparent, their effectiveness and sustainability have yet
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to be proven.
According to Thomas Oosthuizen CEO of O2, “The advertising agency as we know it today,
does not have a future. There are many types of future for the ad agency and the key to
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success is to assess, as objectively as possible, its core competencies and the values which it
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can add to clients’ businesses.”
2.2.
Choice of Topic and Objectives of Report
2.2.1. An Industry Undergoing Change
In the last decade the advertising industry has faced numerous challenges in all aspects of
their business including: the political and legal, the consumer, the media, and client needs.
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Change and paradigm shifting have become commonplace – agencies have merged, strategic
alliances been formed and specialist agencies “sprouted” in what can be seen as an attempt to
over come the challenges facing the industry.
Dynamic players in the industry have responded to the necessity for change but this appears
to have contributed to a polarization of this R 8 billion industry [Business Day, May 2000].
New business models now supply some or all of the services once only offered by the
traditional one stop full service agency. The majority of these new business models have
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creative hub of the South African advertising industry.
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appeared in the Western Cape, a region that over the last decade has established itself as the
It was with the above in mind, together with the authors’ interests in corporate strategy and
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strategies adopted by industry players.
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industry change that concluded their decision in examining this particular industry and the
2.2.2. Objectives of this Report
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The objectives of this research report are as follows:
gain greater insight into the advertising industry in South Africa.
„ To
establish the key drivers for change.
„ To
evaluate the different strategies adopted by the industry players.
„ To
evaluate the sustainability of the strategies adopted.
„ To
assess the ability of these players to overcome the sources of fragmentation by way of
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„ To
strategic change.
The presentation of a case study within the main body of this report is to avail the reader with
an opportunity of gaining insight into an emergent strategy formulation process of an agency
that indicates success in the industry’s current economic climate.
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3.
3.1.
LITERATURE REVIEW
Introduction
The primary role of this literature review was to provide a theoretical framework from which
the authors were be able to gain greater understanding of the industry, and thus be enabled to
conduct an exhaustive industry and competitor’s analysis.
Porter developed a series of theoretical frameworks for this type of industry examination.
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Theory on industry and enterprise value chains was used to gain a broad perspective of the
advertising industry within the general economy and the activities that constitute the
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operations of an advertising agency.
Using Porter’s Five Forces Model, an industry analysis was done to identify the sources of
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competitive forces within the industry and hence the most important factors that contributed
towards the industry change and the polarisation thereof. Through developing a more in
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depth understanding of the industry, the authors were able to identify this industry as being
fragmented. This led the authors to an examination of theory on the different generic
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strategies available to the industry players and the problems associated with interpreting these
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strategies and overcoming the sources of fragmentation.
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The development of a competitive strategy adopted by an organisation is a result of all of the
above factors. There are however other factors, for example macro economic factors that
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influence the future attractiveness of the industry or that may influence the development of
corporate strategy, and were therefore also included in the authors examination of literature.
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3.2.
The Value Chain
3.2.1. Industry Value Chain
An organisations value chain for competing in a particular industry is embedded in a larger
stream of activities, commonly referred to as the industry value chain. This includes suppliers
and distribution channels. Competitive advantage is a function of how well an organisation
manages the entire industry value chain and can create sustainable competitive advantage by
coordinating its links in the chain.
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Historically, advertising has been considered to be the most important element of a business’s
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marketing communication strategy as it reaches masses of consumers with only one
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marketing communication message. Advertising is defined as any paid, impersonal transfer
of a message of a need-satisfying product, service, or idea: through a an identifiable sponsor,
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to a specific target audience with the purpose to inform and/or remind and/or persuade the
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target audience to engage in a specific action ( van der Walt, Strydom, Marx, Jooste,1996:10)
The starting point of the advertising process is therefore the organisations marketing
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department. The marketer will draft the “advertising brief” which outlines to the agency the
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product’s strength’s and weaknesses, its image and positioning, the target audience, their
needs and usage patterns, the objective of advertising and the advertising budget.
The advertising agency then creates the advertisement. This process is known as production
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and requires substantial creative ability from the advertising artists.
The advertising campaign is then channeled to the media through the chosen mode of
delivery. This may be through print media for example newspapers and magazines; outdoor
advertising or point of sale advertisements. Audiovisual medium is via radio, television,
internet or cinema. The owners of these mediums are considered to be the suppliers to the
advertising industry and the various mediums, the distribution channels.
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Figure 3.1.is a schematic representation of the industry value chain.
Client brief from
the marketing
department
Ad agency creative
input, media
coordination
Owners of Mass
media; audio, visual,
Internet, outdoor,
etc.
Distribution
channels: the
audio and visual
stations, the
Internet portals,
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3.2.2. Traditional Agency Value Chain
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Figure 3.1. The industry value chain
The primary, value adding activities of an organisation include those involved in the
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production, marketing delivery, and servicing of a product or service. They are linked,
generally in a chain. Support activities include those providing purchased inputs, technology,
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human resources, or overall infrastructure functions that support primary activities.
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By coordinating linked activities, an enterprise should be able to reduce transaction costs,
gather better information for control purposes, and substitute less costly operations in one
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activity for more costly ones elsewhere. Coordinating linked activities is also an important
way to reduce the combined time required to perform them and hence, is increasingly
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important to sustainable competitive advantage (van der Walt et al, 1996).
Gaining competitive advantage requires that an enterprise’s value chain be managed as a
system rather than as collection of separate parts. Reconfiguring the value chain, by relocating, re-ordering, re-grouping, or even eliminating activities is often at the root of a major
improvement in competitive positioning.
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The Agency Value Chain
firm infrastructure (e.g. finance, planning)
human resource management
support
activities
technology development
marketing
and
sales
after
sales
service
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primary
activities
margin
out
bound
logistics
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operations
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Inbound
logistics
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procurement
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Figure 3.2: Agency value chain
Inbound logistics
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Operations
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is called a brief.
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This is work received from the client in a form of what they, the client, would like done. This
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On receiving the brief from the client, the advertising agency will apply strategic planning
and creative talent to this, in order to come up with what they see, as the best way of
communicating their clients message to the general public. Other client services such as
Public Relations are also handled by the agency.
A department, commonly referred to as traffic, coordinates the various activities within the
agency.
Depending on what the agency identifies as its core competence for example strategic
planning, media or creative determines the organizational structure and the flow of
operational activities.
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Outbound logistics
This involves media planning and includes booking of space on the medium of
communication agreed upon with the client, ensuring that they are aired or printed as
specified.
Marketing and sales
This is the selling of the services that the advertising agency provides and is referred to as a
“pitch” within the industry. In order to achieve recognition within the industry, agencies try
and win awards for the best advert. As a result, agencies have been accused of sacrificing
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clients needs, effective advertising, in exchange for recognition from award winning adverts.
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After sales service
This is an evaluation undertaken by the agency, together with the client, on the effectiveness
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of the adverts produced. An account executive, AE, is charged with this responsibility.
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fig.3.3. The structure of a traditional advertising agency
Traditional agency structure
strategy
media
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e-commerce
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traffic
public
relations
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organisational
core competence
creative
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production
accounts
CRM
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client
service
3.3.
Porters Five Forces Model
Porter identifies and groups the factors affecting an industry into five forces namely:
suppliers, new entrants, buyers, substitutes and industry competitors (Porter, 1980).
The bargaining power of suppliers and buyers determine the profit margins that the
organisation can make. The ability of new entrants to enter the market and compete with
incumbent players due to low barriers of entry may also threaten the organisations
profitability and in addition, the competition that exists between industry players may be
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positive or destructive to an organisation. Organisations are therefore able to analyse the
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industry they are in according to this model and are thus able to determine their generic
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strategy in order to maximise profits.
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Within the advertising industry, the buyers are identified as companies that require a means of
delivering their marketing message to a target market, the end user. The suppliers to the
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industry include those organisations that offer media channels through which the marketing
messages can be delivered as well as reproduction houses, film and photographic studios,
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model agencies etc. Within this industry, substitutes are alternative organizations that offer
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the same services as those provided by advertising agencies. These are for example strategic
planning by management consultants and creative work undertaken by free agents. With
regard to the threat of new entrants, barriers to entry into the advertising agency industry need
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to be considered. Industry rivalry refers to the competition that exists between industry
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players and the factors that influence this.
Industries may be fragmented as a result of a number of reasons but many fragmented
industries appear to be in this position as a result of certain underlying economic causes
(Porter, 1980). Some of these causes are apparent within the advertising industry and include
the following:
x The industry has low barriers to entry.
x There is an absence of economies of scale.
x No advantages of size in dealing with buyers or suppliers.
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3.4.
Generic Strategies
Porter suggests that there are three generic strategies that firms can engage in order to achieve
superior long-term gains. These generic strategies are given as overall cost leadership,
differentiation, and focus.
3.4.1. Low Cost Leadership
By adopting this strategy, a firm strives to achieve the lowest costs of production and
distribution so that it can price lower than its competitors and thus win greater market share.
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Firms that have a cost advantage usually have a broad scope, serve many industry segments
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and in some cases, operate in related industries. A broad scope often offering to a firm, its
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cost advantage. Firms in this position have a defense against competition because they are
able to make profits whilst their rivals often get caught up in price wars, usually resulting in
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losses.
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These firms are protected from powerful buyers in their pricing, due to the fact that prices can
only be driven down to the next lowest competitor. In addition to this, these firms are at an
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from suppliers more readily.
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advantage because due to their lower costs of production, they can absorb price increases
Sources of cost advantage are varied and arise from the structure of the specific industry.
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These sources may include economies of scale, proprietary technology, preferential access to
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suppliers etc. Low cost providers typically sell a standard no frills product or service and
place considerable emphasis on reaping economies of scale or absolute cost advantages from
all sources.
Within the advertising industry there are no economies of scale to be had from repeat jobs.
Each assignment is unique and the production process is different from that of the previous
job. In addition, the level of creative content in each job is so high as to negate any
uniformity in the eventual product. There are few suppliers to the advertising industry and
none of the advertising agencies have a monopoly over their services. There are no
advantages gained from dealing with a preferred supplier and costs do not vary accordingly.
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The final product offering from any advertising agency cannot be merely of an acceptable
standard or no frills attached. Each offering has to be of an acceptable quality that will
build the brand of the ad agencies client. There is also the potential of each advert being
highly regarded within the industry and thus may be used as a name building opportunity for
an agency. It would therefore not be to their advantage to produce low quality or substandard
deliverables, as this would be detrimental to the individual agency and the industry as a
whole.
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Given the above, and the billing system that prevails within the advertising industry, standard
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media commissions of 16.5% and production of 20%, advertising agencies should be less
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likely to compete on price. However, within South Africa, we are beginning to see the
opposite. Competition for business has intensified to the degree that advertising agencies are
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willing to reduce their commissions, and hence profits, in order to win business.
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Low cost strategies are often found in markets where commodity-like products and price
sensitive buyers collectively pressure firms to engage in price competition (Faulkner,
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Johnson, 1992:4). This would appear to add confirmation to the emerging trends within the
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advertising industry. The firms are under constant pressure from the buyers to lower their
prices and yet, they still have to produce a unique product!
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Balancing these two aspects is putting advertising agencies between a rock and a hard place.
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3.4.2.
Differentiation Strategy
In adopting this strategy, the company concentrates on creating highly differentiated products
or services, delivery systems, marketing programs or other factors perceived as unique within
the industry by buyers. Selecting one of the attributes that many buyers perceive as important
and positioning itself to meet buyer needs rewards the firm by enabling them to charge a
premium price. A differentiation strategy does not allow a firm to ignore costs, but rather
prohibits them from being the primary target (Porter, 1980). However, a cost emphasis
remains. Firstly, to ensure that the price premium benefits are not lost in the extra costs
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necessary to differentiate and secondly, to maintain the ability to retain price parity with its
competitors.
Companies pursuing this strategy have major strengths such as design, quality control or
marketing. These strengths provide the company with brand loyal customers who, by their
loyalty, are less sensitive to price and therefore less likely to switch to competitors. In
addition, uniqueness and customer loyalty raise the barriers to entry, reduce buyer power
because of the lack of alternatives, and places the firm in a better position than its rivals to
cope with substitutes. The price premium also provides the firm greater latitude in coping
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with supplier power.
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The nature of the differentiation for each industry is shaped by the demands peculiar to the
industry in question. Within the advertising industry, firms have historically differentiated
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themselves along the lines of creativity, strategy, media planning and/or client relationship
skills. The traditional agency was therefore structured around what they perceived as their
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core competence although still offering all the other services, a typical one stop shop for their
clients. Recently, new startup agencies have differentiated themselves by offering one
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specialist service only, be it strategy, media planning or creativity.
The ultimate test for the differentiator is whether they are able to command a premium price
(Porter, 1980). Given the standard commission based fee structure of the advertising
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industry, this does not appear to be the case within this industry. Rather, the advantage of
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differentiating would appear to be in gaining market share. This occurs when the firm excels
in one of the disciplines and thus wins business from its competitors. This is in accordance
with Hill’s suggestion that the aim of differentiation is to capture more of the market at the
same price. Hill does not associate differentiation with premium pricing (Faulkner, Johnson,
1992).
It is suggested that another distinction exists. This is a distinction between innovative
differentiation and marketing differentiation. Innovative differentiation strives to create the
most up-to-date and attractive products or services by being ahead of competitors in terms of
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quality, efficiency, design innovation, or style. Marketing differentiation strives to create a
unique image for a product or service through marketing practices (Faulkner, Johnson, 1992).
Within the advertising industry, agencies appear to be striving for innovative differentiation.
A recent example of this would be the competing of agencies on turnaround times.
Traditional agencies tend to be slow in their response time to client needs for advertising and
can typically take up to six weeks for work to roll out. Client dissatisfaction and the increased
product competition for the buyers have created a differentiating opportunity for new entrants,
particularly the specialists.
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It would appear that innovative and marketing differentiation is particularly important when
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pursuing a strategy of differentiation and cost leadership simultaneously. According to
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Porter, this would lead to the firm being stuck in the middle. By out-sourcing areas of work
in which the firm has no core competence, the firm is able to concentrate on its own strengths,
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as well being able to capitalize on the strengths of its collaborators (Porter, 1980). This has
led to the appearance of strategic alliances in the advertising industry, with firms
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complimenting each other rather than competing. In this way, all benefit.
Focus Strategy
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3.4.3.
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The focus strategy indicates that the firm focuses its efforts on serving a segment or group of
segments in the market very well rather than going after the total mass market.
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Low cost leadership and differentiation strategies are aimed at achieving company objectives
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industry wide whereas a focus strategy is built around serving a particular customer or
segmented group of customers, well. The premise inherent in adopting this strategy, lies in
the firms belief that it can serve its narrow target market more effectively and efficiently than
its competitors, who are competing more broadly or targeting other niche markets. Through
focusing on particular market segments the firm is able to identify their market needs and
competitive advantage may then be attained by either low cost or differentiation within each
segment. A focus strategy thus provides a defense against each competitive force.
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Within the advertising industry, due to the historically ethical issue of “ a conflict of
interests,” firms do not focus on a particular segment of the market, for example the retail
market industry or the automotive industry. More recently however, there has been an
attempt made by some firms to focus their services on emerging e-commerce companies as
opposed to the traditional “bricks and mortar” companies.
3.4.4. Stuck in the Middle
A firm that engages in each generic strategy but fails to achieve any of them is “stuck in the
middle” and possesses no competitive advantage. Becoming stuck in the middle is
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often a manifestation of a firm’s unwillingness to make choices about how to compete. The
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firm attempts to gain a competitive advantage through every means and achieves none
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(Porter, 1985).
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In conclusion Porter’s generic strategies provide a theoretical framework from which the
organisation can draw its strategy. However, there are important questions of interpretation
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that arise and which the management of the firm has to address. Only then can the firm move
on to the next phase, which involves looking at their ability to meet the market demands, at a
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Other Factors Influencing Corporate Strategy
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3.5.
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profit.
There are three main players to be taken into account when developing corporate strategy.
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These are the corporation itself, the customer, and the competition. Each of these three C’s
exist as separate entities with their own interests, goals and objectives and are referred to
collectively as the “strategic triangle” (Ohmae, 1982).
Constant change inevitably causes shifts from time to time in the relative positions of each of
the strategic three C’s. Ohmae views corporate strategy as constantly changing to keep up
with the constantly changing environment of the three C’s.
19
3.5.1.Customer Segmentation
Customer based strategies, involve segmentation of the market. They require the firm to
identify one or more subsets of customers within the total market and then to concentrate its
efforts on meeting the needs of these subsets of customers. Segmentation can occur by way
of defining your market according to how they make use of your product or service or by way
of customer coverage, that is in terms of geographical boundaries.
Within the advertising industry, segmentation of the market is largely determined by way of
geographical boundaries. The clients of advertising agencies demand that the agency have
T
extensive knowledge of their customers and thus usually require an agency that is familiar to
U
3.5.2.
C
the region and the clients’ customer base.
Consumer Needs
H
T
There are numerous factors influencing the ever changing consumer needs, altering the utility
of product lines and services, and shifting the end consumers purchase priorities. This in turn
IG
results in the needs of advertising agencies clients to undergo constant change.
R
Other factors that influence consumer needs include trends in the sociopolitical environment,
PY
new government regulations, and replacement threats arising from the offering of alternative
products and services.
O
3.5.3. Environmental Factors
C
The environment of an organization is a crucial influence in the determination of its strategy.
Some of the factors that are considered to be significant influences include technology,
ecology, economics, industry, society, and politics (Andrews, 1987).
Technology:
Historically, technology has been of particular influence on the advertising industry. The
advent of radio and TV as tools of mass media, computers and the Internet, have greatly
advanced the speed of advertising production as well as reduced the relative costs
involved. Of even greater consequence is the effect on the time available for consumers
20
ability to absorb advertising and the marketing message attached. The number of hours of
exposure to advertising has not increased over the last forty years (estimated to be
16hours a day) and yet, the numbers of adverts have increased as more and more
companies advertise and their wide range of products increase. The pressure is therefore
on agencies to produce adverts that will effectively communicate the message and
consequently deliver results.
Economic:
There are five elements within the economic environment that influence corporate
T
strategy. These are continued low growth; market maturity and strategic stalemate;
C
uneven distribution of resources; growing international complexities, and irreversible
U
inflation (Ohmae, 1982).
The most alarming of these is the effect of continued low growth within an organization.
H
T
It dramatically limits the margin of error acceptable in manager’s decision-makings, and
narrows the leeway within which mistakes in judgment can be accommodated. “Over
IG
optimism and other judgmental errors that frequently escape serious penalty in times of
prosperity may turn out to be catastrophic in periods of economic stagnation” (Ohmae,
PY
R
1982: 13).
Within a South African context, the advertising industry experienced a “boom period” in
the nineteen eighties and early nineties. There was limited competition and the entire
O
economy was doing well, riding on the back of high gold prices. In recent years however,
C
the South African economy has experienced a slow down coupled with a lack of investor
confidence. This has put a squeeze on profits of firms and required organisations to
become more conscious of their costs. In large corporates particularly, advertising is the
second largest item on the profit and loss account after salaries, and has therefore been
targeted for reduction. Advertising agencies have got less money to work with but are
demanded to produce even better results than what was expected in the hay days of the
eighties.
21
Sociopolitical:
The last ten years in South Africa have witnessed socio-political changes on a grand scale.
The end of the apartheid era and the transition to democracy has created a totally different
social climate.
The previously disadvantaged black community has access to better paying jobs and thus
a better standard of living. The marketing of products to this new social group has proved
a challenge to many organisations that have turned to advertising agencies to provide
C
U
strategies to accommodate the changing demographics.
T
solutions. Agencies have in turn had to quickly learn and adapt their advertising
Socio-political changes have also seen the entry of new players in the market place.
H
T
Black empowerment groups and organisations have emerged. Their claims of having a
better understanding of this new developing market has gained them business and taken it
IG
away from others. Government legislation concerning employment equity has also had an
impact on the advertising industry. In accordance with The Association of Advertising
R
Agencies, associated agencies have recently signed a “transformation charter” (Appendix
PY
1), which promises to change the face of the South African advertising industry.
The opening up of South Africa in 1994, saw the re-entry of international advertising
O
agencies back into the country. Instead of setting up new agencies they have bought into
C
existing ones and thus local subsidiaries are susceptible to “insiderisation”, a replication
of the home country business system in the new national market (Ohmae, 1993).
Rapid Change:
The classical school sees strategy as the establishment of competitive advantage of
companies over each other in the long term. This view of strategy has often been
associated with long term planning (Whittington, 1993).
22
Other schools of thought on strategy formulation for example, time pacing and adaptive
strategies, assume that rapid change is part of business reality and that organisations must
attempt these strategies in order to survive in an ever-changing market place. It is
suggested that having an adaptive population of strategies in place, keeps an array of
options open and thus minimizing long term and irreversible commitments. This enables
companies to adapt to the ever-changing world they find themselves in, without being
totally blinded by unforeseen changes that may occur.
Organisational strategy therefore needs to be both flexible and adaptive. Innovative
T
strategies and mainstream strategies have therefore got to be inter-linked to ensure the
C
future success of the company. An organization that has a rigid and traditional
U
hierarchical structure will find it difficult to keep up with the demands of speed (Kruger,
1999). In the new economy, speed determines the difference between predator and prey
C
O
PY
R
IG
H
T
and the organisation needs to be dedicated to being first to market.
23
4.
RESEARCH METHODOLOGY
4.1.
Area of Study
The research was led by theory on industry analysis and generic strategy. The authors also
examined further theory on market signals, corporate strategy and organizational
transformation.
The application of various theoretical models was applied to determine the market trends and
T
forces at play that determine the current shape of the advertising industry. The authors also
C
attempted to gain insight into the formulation of the strategies adopted by the industry players
U
and the reasons associated with the polarization of the industry, as it exists today.
The report is aimed at providing the reader with greater insight into the strategies adopted by
IG
industry exposed to such turbulence.
H
T
advertising agencies and the complexities of formulating sustainable strategies within an
In addition to the research, the authors have presented a case study of Joe Public, a new player
R
within the industry that has formulated a differentiation strategy and business model that is
Methodology Used for Data Collection
O
4.2.
PY
unique to the global industry.
C
The research methodology was exploratory in nature in that strategic theory was used to
explore the industry, its attractiveness, the players and the sustainable strategies adopted by
these players.
To determine the key drivers for change within the industry as well as its current
attractiveness, Porters Five Forces model was used as well as theory relating to factors
influencing corporate strategy. This theory was used as the framework from which to develop
Section A of the questionnaire presented to the interviewees. Section A of the questionnaire
was divided up into subsections based on the five areas as per Porters Five Forces Model.
Respondents were asked to rank the drivers for change within these areas according to their
24
perception of importance. The Likert scale used, enabled the authors to draw conclusions on
the key drivers for change, according to the rankings given by the respondents.
Porters theory on Generic strategies was applied in the development of Section B of the
questionnaire. Theory on organizational transformation was also applied in the development
of this section. Section B was made up of semi structured questions in order to determine the
strategic orientation and level of strategic awareness of the various players within the industry
and their current positions on the generic positioning matrix (Appendix 2). These questions
further allowed the authors to gain insight into the ability of these players to adapt to
C
T
changing market conditions.
U
The full questionnaire can be found in the appendix of this report, (Appendix 3)
H
T
A sample size of 8 traditional and 8 specialist agencies, located within the boundaries of the
Western Cape, were identified and telephonically contacted to arrange suitable times for
IG
interviews. The choice of traditional agencies was determined according to their size and the
range of services that they offer. The specialist agencies were chosen according to their
R
diverse service offerings and period of existence.
PY
Due to the sensitive nature of some of the information requested, the list of participants is not
included within this report.
O
Both primary and secondary data were used to acquire information needed for the exploration
C
of the advertising industry and the preparation of this report. This information was obtained
from the following sources:
x Personal interviews based on the questionnaire presented with senior management of
both traditional and specialized agencies.
x Discussions with six recognized authorities within the advertising industry
x In depth discussions with the shareholders and staff and an examination of the
operations of Joe Public (Pty) Ltd.
x Internal documentation of Joe Public (Pty) Ltd.
x A literature survey of strategic theory.
25
x A newspaper search to discern industry trends from 1995 to date.
x Trade magazines and journals.
x Prior research reports and case studies.
In addition to the interviews arranged, the authors were also invited by one of the traditional
agencies to take part in a panel discussion with the members of the agency’s strategy
formulation department. The discussion was based on the questionnaire presented by the
authors.
The data gathered was interpreted and analysed using strategic theory to enable the authors to
T
gain greater insight and understanding of the industry, to assess and conceptualise the
C
O
PY
R
IG
H
T
U
C
strategies of the players, and the sustainability of the strategies adopted by them.
26
5.
FINDINGS
5.1.
Section A – Key Drivers for Industry Change
5.1.1. Industry overview
Rate the following factors according to what you perceive to be the most significant driver for
current change within the advertising industry
T
a) Increased bargaining power of the client
not important
5
2
3
U
4
C
extremely important
1
2
Specialist agencies
1
1
H
T
Traditional agencies
1
1
N/A
1
4
1
4
IG
Eight out of sixteen of the respondents indicated that this was not a key driver for change.
The general consensus amongst all these respondents, both traditional and specialists, was
R
that the client had always had a large degree of bargaining power.
PY
However, the traditional and specialist players that indicated ratings of 3 and above all gave
similar comment that there was increased pressure from clients for accountability and
O
agencies had smaller client budgets to work with.
C
b) Increased ease of entry into the industry
Traditional agencies
extremely important
not important
5
4
3
2
1
N/A
2
3
3
1
1
1
1
4
Specialist agencies
27
The traditional agencies seemed to consider this as an important factor for the industry
change: their responses all rated from important to very important. They sited the recent
emergence of many small agencies as an indication of this fact.
In comparison, responses from the specialist agencies indicated a different view. Six of the
respondents indicated they did not see this as being important.
One of the comments made was “Throughout time, entry has been easy.” Only one of the
specialist players indicated that they thought this was very important and one other thought
that it was important. The reasons they gave for this was the low overheads that they carried.
C
U
now…all you need is a good computer and a telephone”.
T
One of the specialists was quoted as saying “It is possible to set up your own agency right
H
T
c) Innovative ways of doing business adopted by new players
5
3
2
1
N/A
1
5
1
1
1
1
1
IG
not important
4
4
1
PY
Specialist agencies
R
Traditional agencies
extremely important
Again the divergence of opinion regarding this factor is clear. The majority of the traditional
O
agencies rated it as somewhat important while the majority of the specialists rated it as
extremely important. Specialist agencies quoted their business models as being radically
C
different from those of the traditional agencies. “We offer one specialized service unlike the
traditional agencies who offer a whole range of services but cannot deliver the best in any of
them”.
28
d) New channels for communicating the marketing message and building the brand
(for example web sites developers, management consultants)
extremely important
not important
5
Traditional agencies
Specialist agencies
1
4
3
2
1
2
4
1
1
1
1
4
1
N/A
T
The ratings given by traditional agencies would suggest that they considered this a significant
C
factor. Six out of the eight traditional agencies questioned thought that it was important or
U
very important. The reasons they all gave for this was the rapid adoption of the Internet by
many people in the last five years. One of these respondents stated that “This has been
H
T
accepted as a channel of communication and many people are happy to do their shopping on
IG
line. We therefore have to advertise on line!”
Out of the specialist agencies only 3 thought that it was extremely important or important. It
R
must be noted that among the specialists, the one agency that rated it as extremely important
PY
specialised in web site development and internet advertising.
O
e) Rapid technological change
not important
5
4
3
2
1
Traditional agencies
3
1
2
1
1
Specialist agencies
3
2
1
2
1
C
extremely important
N/A
The ratings indicated on this factor by both traditional and specialist agencies seemed to
concur on the fact that it was a key driver for change. Both types of agencies gave the
following reasons for this as being that the use of computers and the Internet have greatly
changed the way they do their work and society in general. All their production and editing
29
of commercials could be done on the computer. One of the agencies noted that technology
and its uses was becoming the differentiator between themselves and other agencies,
“Whoever manages to master technology has the edge over his competitors.”
Conclusion
It is interesting to note that the specialist agencies identify their own “new and innovative
ways of doing business” as the key driver of change within the industry whereas the
traditional agencies considered “new channels of communicating the message and building
the brand” as the most significant driver of change. This may be indicative of the fact that
T
during the nineties, larger traditional agencies credibility declined with regard to their abilities
C
to strategise and build brands, and in many cases, management consultant groups replaced the
U
strategic function of the agency.
H
T
5.1.2. Importance of buyers
IG
Do you think the changes in client demands are driven by the following?
PY
R
a) The need to develop global brands
O
Traditional agencies
extremely important
not important
5
4
3
2
2
2
2
3
3
1
N/A
1
1
1
C
Specialist agencies
1
It is interesting to note that six out of eight respondents from both sectors indicated that they
felt clients demand for developing global brands as an important factor driving change.
This may be indicative of the fact that South Africa has only recently been invited back into
the global trade arena
30
b) Client exposure to international competitors
extremely important
not important
5
2
4
Traditional agencies
Specialist agencies
3
3
3
1
6
2
1
1
N/A
Specialist agencies indicated this factor as being of greater significance compared to the
C
T
traditional players who indicate this factor as being of moderate importance only.
U
It can be assumed however that with any increased competition, clients would identify this as
H
T
a threat and to a greater extent, intensify their marketing campaigns.
PY
Traditional agencies
R
IG
c) Changes in their customer profile – euro centric versus afro centric
extremely important
not important
5
4
3
2
2
2
2
2
6
N/A
1
1
1
O
Specialist agencies
1
C
Six of the eight traditional agencies identified this factor as being important to extremely
important, whereas six of the specialist agencies felt this was only somewhat important. One
of these specialist respondents stated “A good product will appeal to all races. If you are
really clever with your advertising, your target (race) market doesn’t matter!”
The authors suggest that the traditional agencies ratings may be indicative of the recent
negative press (Adfocus, May 2000), regarding the lack of understanding that agencies appear
to have of the new emerging black market and thus their inability to correctly communicate
the marketing message.
31
d) Retention versus acquisition costs
extremely important
not important
5
Traditional agencies
4
3
2
1
1
3
3
1
4
1
2
Specialist agencies
N/A.
1
T
Seven out of the sixteen respondents rated this factor as being of moderate importance with
C
the remaining respondents indicating that they felt this factor as being of lesser importance.
U
Two of the latter respondents suggested that it has always been an important factor for
H
T
agencies to retain their clients.
PY
Traditional agencies
R
IG
e) Decreases in marketing budgets
not important
5
4
2
6
2
6
1
3
1
N/A.
1
O
Specialist agencies
extremely important
C
Both sectors of industry players indicated the significance of this factor.
Traditional agencies indicated that there profit margins were being pushed down further and
further as the costs of intellectual capital steadily increased where as client budgets relatively
decreased. Although specialist agencies indicated that clients marketing budgets were
declining, their margins are not being stretched because of their substantially lower
overheads.
32
f) Increased awareness of “return on time invested
extremely important
not important
5
2
4
3
Traditional agencies
6
2
Specialist agencies
4
2
1
N/A
2
All eight of the traditional agencies and six of the specialist agencies believed this factor as
C
T
being important or very important.
U
This may be related to their high ratings related to decreases in client budgets, suggesting that
clients are needing to communicate their message with smaller budgets and hence agencies
H
T
are required to create more effective adverts.
PY
R
IG
g) Attitudes towards historic agency effectiveness
extremely important
not important
5
2
4
3
3
2
Specialist agencies
3
2
N/A
3
3
C
O
Traditional agencies
1
It was interesting to note the similarity in the ratings of this factor. However, although the
agencies indicated similar feelings, the responses were found to be spread over a rather wide
range, making it difficult for the authors to offer any final conclusions.
33
h) Increased need for personalised services
extremely important
not important
5
2
4
3
Traditional agencies
2
4
Specialist agencies
6
2
1
N/A
1
1
All eight of the specialist agencies and six traditional agencies rated this factor as being
T
important or very important and indicates the increased emphasis that agencies place on the
U
C
management of the agency/client relationship.
H
T
i) Other comments– Please specify
5
2
IG
not important
4
3
1
2
1
N/A.
6
7
PY
Specialist agencies
R
Traditional agencies
extremely important
One of the traditional agencies gave two additional factors as being very important. These
1.
“The clients demand for shorter turn around times”
2.
C
O
were:
“Clients lack of understanding of an agencies internal processes.”
One of the specialist respondents made a comment and rated it as being extremely important.
This was:
1.
“Industries of our clients are also experiencing significant change. This is a
reflection of the South African economy as a whole.”
34
Conclusion
Both traditional and specialist agencies rated the fact that the buyers marketing budgets had
decreased, as the most significant driver of industry change within this subsection.
This high rating can be closely linked to the second highest rating made by the specialist
players, being “the need for increased personalised services”. In addition to this, it links
closely with the traditional agencies second highest rating relating to the fact that “clients are
demanding more returns on less time invested”.
T
This appears to be a global trend within many industries where costs are being tightly
C
managed and yet, are coupled with the demand for high quality products and services. This is
U
evident by way of increased niche segmentation of the marketplace and customer relationship
H
T
marketing.
5.1.3. Barriers to market entry
IG
Rate the following factors according to their contribution in lowering entry barriers into the
R
industry.
PY
a) Acceptance of specialist service providers
not important
5
4
3
2
Traditional agencies
2
3
2
Specialist agencies
4
3
C
O
extremely important
1
N/A
1
1
Seven of the eight specialist players and seven of the eight traditional players rated this factor
as being important to extremely important which indicates that the acceptance of newer,
smaller players within the industry is increasing.
35
An implication of the increase in the acceptance of smaller players may be a “flood” of
specialists or free agents into the marketplace.
b) Foreign investment in start-ups and international alliances
extremely important
not important
5
3
2
1
N/A
2
3
1
1
Specialist agencies
1
7
T
1
C
Traditional agencies
4
U
Only one specialist player and three traditional players out of sixteen respondents rated this
factor as important or extremely important. Seven of the eight specialists players indicated a
H
T
rating of somewhat important.
IG
These ratings were somewhat suprising to the authors who throughout the research process
did not meet with any agency that indicated that they received financial assistance by
R
international players. All except one of the traditional agencies have an international
PY
affiliation.
O
c) Low fixed cost requirements
not important
5
4
2
Traditional agencies
2
5
Specialist agencies
2
3
C
extremely important
3
1
N/A
1
2
1
Fourteen out of the sixteen respondents believed that low fixed cost requirements were an
important to extremely important reason for the low barriers to entry into this industry. One
of these respondents was quoted as saying “Modern business practice has made it acceptable
36
for people to work from home, with use of a cell phone and laptop. Thus entry costs are
becoming lower and lower.”
d) Increased entrepreneurial drive within South Africa
extremely important
not important
5
2
Traditional agencies
3
3
2
2
3
1
N/A
3
1
2
T
Specialist agencies
4
C
It was interesting to note the disparity between the ratings of this question of those given by
U
specialists as opposed to those given by the traditional respondents. Six of the eight specialist
players believed this factor to be very to extremely important and is reflected in their actions
H
T
i.e. self owned organisations.
IG
One of the specialist players claimed “South Africans, due to the sociopolitical climate that
we’ve been exposed to, are dynamic and known to be risk takers. The need to start your own
PY
affirmative action.”
R
business has grown further, particularly for white South Africans, due to the introduction of
C
O
e) Advantage of size in dealing with the client
extremely important
not important
5
3
2
1
N/A
2
4
1
1
1
2
4
Traditional agencies
Specialist agencies
2
3
Once again the ratings of this factor clearly indicate the disparity of opinion between
traditional and specialist players. It suggests that the traditional players obviously do not feel
that their size creates an advantage for them when dealing with their clients whereas the
specialist players do perceive this to be an advantage.
37
This may suggest that the client may have a similar perception to that of the specialist players,
believing that “bigger is possibly better.” Smaller agencies however, are better able to offer a
personalised service.
f) Advantage of size in dealing with suppliers
extremely important
not important
5
2
1
1
1
4
2
1
5
1
1
N/A
C
Specialist agencies
3
T
Traditional agencies
4
U
Both categories of respondents suggest that the size of an agency provides little advantage
H
T
when dealing with suppliers.
This proved to be a surprise to the authors due to the fact that in the United States and United
IG
Kingdom, agencies are offered greater media discounts as the media billings increase. This
PY
bigger players in the future.
R
however is not applicable in South Africa as yet and may still prove to be an advantage to the
C
O
g) Wider range of service offerings
extremely important
not important
5
Traditional agencies
Specialist agencies
4
4
3
2
1
4
3
3
1
1
N/A
Four of the specialist players rated this factor as being extremely important and three as
important whereas one traditional player rated it as being very important, three as important
and one as somewhat important.
38
Although the ratings given for this question tended to be rather broad, services offered
increase as technology improves, for example internet advertising. It would therefore seem
appropriate to say that as the range of service offerings broaden, so does the scope for new
opportunities increase for specialist players and in order to keep abreast with the times,
traditional agencies are enforced to expand their service range.
h) Government legislation – black empowerment
extremely important
not important
5
2
Traditional agencies
2
5
Specialist agencies
2
U
4
1
T
3
C
4
2
N/A
1
1
H
T
Nine out of the sixteen respondents identified this factor as being of moderate importance,
Comments made included:
R
importance at all.
IG
four indicated this to be very important with the remaining respondents feeling this to be no
PY
-“There is very little black talent entering this profession. The emerging black professionals
do not believe this to be a prestigious career.”
O
-“Like all organizations we are striving towards equitable employment but there are not
C
many blacks attracted to this profession.”
It would appear that although all the agencies recognised the need for more blacks to enter the
industry, the authors believe that this was not a major driver for change within this particular
industry.
39
i) Other comments– Please specify
extremely important
not important
5
2
4
3
1
Traditional agencies
N/A
8
Specialist agencies
1
7
One specialist respondent stated that “low salaries and a lack of further career opportunities
C
T
within the traditional agencies is forcing more and more people to go out on their own.”
U
Conclusion
The most significant reason for the increased ease of entry into the industry appears to be that
H
T
the client is becoming more accepting and trusting of the smaller, innovative service
providers and thus open to the notion of outsourcing various requirements in communication
IG
of their marketing message. This aligns itself with a current global trend, namely one of
R
outsourcing areas of non core competencies.
PY
5.1.4. Bargaining power of the suppliers
Rate the following factors according to what you perceive as being the major influence on the
C
O
industry by suppliers.
a) Continuous change in the usage of new technology
extremely important
not important
5
2
Traditional agencies
Specialist agencies
3
40
4
3
6
2
3
2
1
N/A
Twelve of the sixteen respondents rated this factor as being very to extremely important and
four as somewhat important.
This confirms a previous conclusion made that services offered by agencies expand and the
opportunities for specialist players increase as technology advances.
b) Media segmentation by way of targeting niche markets versus mass markets
extremely important
not important
5
2
Traditional agencies
1
2
Specialist agencies
2
1
T
3
N/A
5
C
4
U
3
3
H
T
According to the ratings, thirteen out of the sixteen respondents feel this factor to be of only
somewhat to moderate importance and only three respondents feel it to be very important. It
IG
must be noted that the only specialist player specializing in media planning, rated this factor
R
as being only somewhat important.
O
PY
c) Media changes e.g. global television
extremely important
not important
5
3
2
1
4
3
1
5
2
C
Traditional agencies
Specialist agencies
1
4
N/A
Similar to that above, the respondents rated this factor of being only moderately to not
important except for one specialist player who gave this question a rating of extremely
important. It must be noted that this player specialises in internet advertising and web
development thus having a bias towards the advances in media change.
41
d) Other – Please specify
extremely important
not important
5
2
4
3
1
N/A
Traditional agencies
8
Specialist agencies
8
T
There was a nil response to this question. However, the specialist in internet advertising
C
made the following comment “As soon as internet broadband is introduced to South Africa,
H
T
Conclusion
U
there will be drastic change in advertising.”
Relative to the other subsections, this subsection had lower ratings suggesting that the
IG
industry players do not see the suppliers as having been significant in driving change within
R
this industry.
PY
One of the comments made by a traditional player was “Suppliers follow rather than lead.
O
Anyone who breaks this mindset will be a category leader.”
However, this response rate was suprising to the authors considering the advancement of
C
technology and the consequent changes that need to occur to keep up with these
advancements. During the collection of primary data, the authors noted that there were in fact
numerous changes within agencies operational structures as a result of e-commerce
development. Suppliers, particularly the large reproduction houses tend to keep abreast with
global technology advancements.
42
5.1.5. Power of substitute service providers
Rate the importance of the following factors as drivers for the use of alternative service
providers
a) Perceived ineffectiveness of current agencies
extremely important
not important
5
4
3
2
Traditional agencies
2
4
1
Specialist agencies
4
2
N/A
T
1
C
1
U
2
H
T
Fifteen of the sixteen respondents rated this factor as being important to extremely important
IG
which indicates a strong perception of traditional agency ineffectiveness within the industry.
Comments made by the traditional players were as follows:
R
-“Clients need to relook at the value an agency actually provides.”
PY
-“Agencies need to do a better job of building value into their recommendations. For too
long clients have under valued excellent agency recommendations and thus placed a
O
disproportionate value to them.”
C
Comments made by the specialist players included the following:
-“Others, for example management consultants, offer a far more focused service.”
-“Clients now realise that “creative” is a means to an end, a component of an overall process
and not just and end in itself.”
-“Clients are aware of the need for new ways, new people, new things and new thinking.”
Initially it was a surprise to the authors that this rating was given by the traditional players.
However, on further examination it was noted that the traditional players feel that they are in
fact incorrectly perceived as being ineffective.
43
b) High cost of agency services
extremely important
not important
5
3
2
1
4
1
2
Traditional agencies
1
Specialist agencies
3
4
4
N/A
1
Once again it was interesting to note the disparity between the ratings given by traditional
T
agencies and those given by the specialists. All eight of the specialist players consider the
C
high costs of traditional agency fees as being of moderate importance to extremely important
U
as a driver for using substitute service providers. However, seven of the traditional
H
T
respondents rated this factor as being of moderate to no importance.
All the specialist agencies stated that their majority of clients had made numerous comments
IG
regarding the high fees and lack of value for money that they had experienced in dealing with
traditional advertising agencies. As a result of the research done, the authors believed this to
R
be particularly true of smaller budget clients but on further investigation found this to be
PY
appropriate to certain large spending client organisations.
C
O
c) Desire for customer ownership by clients
Extremely important
5
not important
4
3
2
Traditional agencies
2
3
2
Specialist agencies
7
1
1
N/A
1
The specialist respondents considered this to be important to very important whereas the
traditional agencies offered a more moderate rating overall.
The specialists generally believed that the client is beginning to realise the importance of
owning their customer and are therefore increasingly making use of numerous specialist
44
players who, unlike the traditional agencies who through their broad offerings are able to own
the customer under one umbrella, are unable to split ownership of the customer. Thus
ownership remains with the client.
d) Availability of “agency services” by free agents.
Extremely important
5
4
3
Traditional agencies
2
4
1
Specialist agencies
3
4
not important
2
1
N/A
1
C
T
1
U
Fourteen out of the sixteen respondents believed this factor to be important to extremely
H
T
important.
It was interesting to note that the traditional agencies placed the specialist players within this
IG
category of service providers whereas the specialists identified freelance agents as different to
R
themselves.
PY
The two respondents that rated this factor as being not important and not applicable both
O
commented that free agents had always been around and were not of sudden significance.
C
e) Increased credibility of other suppliers
Extremely important
5
4
Traditional agencies
3
4
Specialist agencies
4
4
3
not important
2
1
N/A
1
Fifteen out of sixteen respondents rated increased credibility of other service providers as
being very important to extremely important as the driver for using alternative suppliers.
45
This high rating given by traditional players was of interest to the authors as it contradicted
what these agencies intimated in discussion with them, that is, the specialist players are not
seen as major competitors to them. Yet again this may be a result of the credibility given to
management consultants in their delivery of brand strategies.
f) Other- please specify
Extremely important
5
4
3
2
1
T
Traditional agencies
not important
8
8
U
C
Specialist agencies
N/A
There was a nil response to this question and no comments were made by any of the sixteen
H
T
respondents.
IG
Conclusion
It must be noted that although the ratings do not clearly indicate this, the eight traditional
R
agencies interviewed, did not identify the specialist players as being competitors to them
O
the client.
PY
although they recognized the fact that they were providing alternative methods of service to
The specialists however, believe strongly that as substitute service providers, offering
C
superior quality, they are certainly a threat to the traditional agencies.
46
5.1.6. Rivalry between industry players
How do you rate the following factors as influences on the rivalry between industry players?
a) “Head hunting” culture within the industry
Extremely important
3
Traditional agencies
4
1
3
Specialist agencies
1
3
4
2
1
N/A
T
4
U
C
5
not important
All sixteen respondents identified this factor as significant in driving the rivalry between
H
T
players within the industry. It is common knowledge that head hunting occurs at an
extremely high rate. One traditional respondent stated, “The maximum average time spent by
IG
any individual in one agency is eighteen months to two years”.
R
It is important to note that all the specialist players rated this question according to their
PY
perception of the bigger agencies and not in relation to themselves. One of these respondents
commented “There is much rivalry and head hunting amongst the bigger players but amongst
O
the specialists there is a far greater respect and ethos that exists.”
C
b) The development of global alliances
extremely important
not important
5
4
3
2
Traditional agencies
2
2
2
2
Specialist agencies
2
2
2
2
1
N/A
The ratings to this question were widely spread, ranging from being not important to
extremely important. The authors therefore refrained from making any conclusions but noted
during their research that alliances with international players did not currently provide any
47
major competitive advantages for the local players. Not one of the specialist players
interviewed has international affiliates.
c) Low switching costs for clients
extremely important
not important
5
2
Traditional agencies
4
3
7
3
4
N/A
1
1
T
Specialist agencies
1
C
Seven traditional agencies rated low switching cost as a very important factor in increasing
U
rivalry between players and seven of the specialist respondents rated this factor as very to
H
T
extremely important.
Switching costs for the clients are extremely low within this industry. A specialist player
IG
stated “Clients can move freely and as more players enter the market, the traditionals will
have to gear up to be more focused.”
R
“Clients move from one agency to the next without incurring any cost to themselves.
PY
Unfortunately agencies occur huge losses because of this, with some agencies even having to
undertake large scale retrenchments,” stated one traditional respondent. Specialist players
O
however, intimated that this would not occur within their agencies because like the clients
C
that use them, they do not “place their eggs in one basket.”
Said one of the specialist players “It is up to us as industry players to increase switching
costs. The quality of service we offer must be so great that the client will lose much through
moving elsewhere.”
48
d) Competition based on price
extremely important
not important
5
3
2
1
N/A
5
1
1
1
2
1
4
Traditional agencies
Specialist agencies
4
1
It was interesting to note that four of the eight specialist agencies rated this factor as being
T
extremely important and one as very important whereas five of the traditional players rated
C
this factor as being of moderate importance. The remaining respondents rated this as being
U
somewhat or of no importance with one stating “It’s really not about cost. It’s about.
cleverness and having a knowledge culture.” and the other saying “It’s not directly about
H
T
cost; today it’s more about measurable effectiveness.”
IG
The traditional agencies costings are primarily still commission based although they are
slowly becoming more flexible in offering a fee structured costing, suggesting that there
R
remains to be a lack of competitive pricing within the industry. The specialists however, are
PY
largely fee structure based and have lower overheads than the traditional agencies, thus
encouraging greater competition in pricing.
O
One specialist player commented, “Price has allowed people like ourselves to enter the
C
market. Clients see the cost of advertising as a major issue.”
e) Other –please specify
Traditional agencies
extremely important
not important
5
2
1
Specialist agencies
4
3
1
N/A
7
8
49
One of the traditional agencies stated that the winning of awards was significant in
stimulating competition between players and rated this as being extremely important.
Conclusion
This subsection on rivalry within the industry does not appear to be a significant driver in
bringing about overall industry change. However this subsection did highlight the large
degree of headhunting that exists within this industry. In addition to this, the respondents
recognise that switching costs are minimal for their clients. The specialists recognized the
fact that these costs need to be increased which they largely believe occur through enhancing
C
T
their service offering, value adding and being focused.
U
Conclusions
The bargaining power of the buyers would appear to have been the most significant factor
H
T
driving change within this industry. Respondents suggest that clients have increasingly
reduced their marketing budgets yet have increased their expectations of what the agencies
IG
are required to produce. In addition to this, clients have an increased awareness of their
required returns on time invested, that is, there is a much smaller budget and thus time frame
PY
R
to get your message across to the consumer and yet receive the same expected returns.
Coupled with reduced budgets and greater expectations, it would also appear that there is an
increased need for personalised service. This latter factor would appear to be of particular
O
significance to the specialist agencies who are of the conviction that they pay more attention
C
to the client needs. It is suggested that they perceive the traditional agencies to be “sausage
machines”, that is, mass production houses, where the clients needs come in at one end for
processing and out the other, offering limited personal attention. Their attempts to be all
things to all people would appear to have standardised their processes to the point where they
have lost the personal touch. This has allowed the specialist agencies to promote themselves
by offering greater personalised services and appearing to be more sensitive to clients needs.
The low barriers to entry into the industry also appear to be a critical factor influencing
change within. The availability of technology, low overhead costs of specialist agencies, and
50
their increased credibility in the eyes of the client have encouraged more and more players to
enter the market.
The availability of substitute service providers for key roles, once only carried out by the
traditional agencies, also appears to have been of some significance in driving change. It
would seem that the change in the demands of clients, the perceived ineffectiveness of the
traditional agency and the need for innovative solutions, has led to the appearance of
substitutes. Some of the services offered by traditional agencies are therefore under threat
T
from for example, management consultants and specialist players.
C
Industry rivalry and the power of suppliers would appear to be the least significant of the
U
factors considered. Rivalry does not appear to be destructive, for example there are no price
wars amongst the players. One of the respondents noted that it was a healthy type of rivalry
H
T
that forced them to be innovative. This could be due to the fact that agencies are remunerated
based on a standard commission. However a recent move to change the structure of their
IG
income from being commission based to more fees based has the potential to lead to price
R
wars in the future.
PY
Having established what appears to be the key drivers for change within the industry, the
authors will, in the next section, focus on the strategies adopted by the players and the
C
O
sustainability thereof.
51
5.2.
Section B – Agency Strategies
This section of the questionnaire relates to the strategies adopted by the agencies in the light
of the challenges facing them.
5.2.1. Traditional Agencies
Six out of the eight traditional agencies included in the sample of sixteen responded to this
Current agency strategy?
C
1.
T
section of the questionnaire.
differentiation
low cost leadership
quality of service
1
nil
range of services
4
nil
nil
other-please specify
1
nil
nil
focus
nil
IG
H
T
U
Agency strategy
Four of the respondents claim to differentiate themselves by way of the range of services
R
offered. That is their ability to offer the full range of services to their clients, for example
PY
creative, media planning, brand strategy, website development and promotion.
The fifth respondent claimed that their agency differentiated themselves by way of the quality
O
of client service offered.
The last respondent felt that they differentiated themselves differently to other industry
C
players. “We offer upstream strategic input, brand custodianship, and focus on the
management of consumer perceptions.”
All six respondents appear to follow a similar generic strategy of differentiation and
differentiate themselves according to what they perceive as being their core competence.
Although not one of the respondents commented on their range of focus, it appears that all
eight traditional agencies interviewed, follow a broad focus and offer a similar broad range of
services.
52
2.
Uniqueness of current strategy?
All six of the respondents stated that they did not believe that their strategy was unique but
felt that they were “doing things” better.
Five of the six respondents suggested that the number of awards achieved was obviously a
reflection of their success.
All responses followed the same vein as the following responses made by two of the
respondents:
x “Not unique but certainly better.”
C
T
x “No, but certainly better. Just look at the number of awards.”
U
Not one of the traditional agencies have a unique strategy of their own that differentiates them
from the rest. It was apparent to the authors that the traditional agencies depend on the
H
T
management of strong customer relationships with existing and new clients and their
3.
IG
reputation within the marketplace in order to grow and sustain themselves.
Change of strategy in the future?
R
All of the six respondents claimed that change is prevalent within the industry.
PY
As stated by one respondent “ Agencies recognise that the only thing that is constant in the
O
industry right now is change.”
It was therefore suprising to note that only one of the respondents stated “Our strategy will
C
change radically” whereas the other respondents gave similar responses in that no changes
were imminent in the near future but their agencies must remain flexible and be able to adapt
to changes within the marketplace.
It appears that traditional agencies will largely maintain their strategies of being broad-based
differentiators since this “one stop shop’ is what they all consider to be their strength. A
common view held by four of the respondents was that “Most clients don’t want the
administrative hassle of having their work spread over several agencies.”
53
4.
Agencies Competitive Advantage and Sustainability?
Five of the six respondents believed that their prestigious reputations and excellent
client/agency relationships were factors that they leveraged and were able to capitalise on to
keep existing clients and to attract more business from competitors.
Four out of the six respondents believed that their international alliances enabled them to
offer a superior service as they had the opportunity to interact with global players, were
exposed to global strategies and able to keep abreast with the leading edge of the global
C
T
advertising industry.
U
Although the traditional agencies largely believe in their own abilities and reputation, the
authors do not believe this to be a sustainable competitive advantage. Seven of the eight
H
T
traditional agencies that were interviewed, have international alliances with major global
firm. However although this may have previously offered an opportunity of acquiring global
IG
knowledge networking and experience, this is now counterbalanced with the availability of
Strategy development within the Agency?
PY
5.
R
access to information using the World Wide Web.
Without exception, all six of the respondents appeared to concur on the fact that strategy
C
strategies.
O
development within their agency, occurs through a combination of both planned and emergent
It was apparent that planned strategies are largely developed annually, and where necessary,
are “tweaked” throughout the year in order to adapt to market trends.
One of the respondents claimed, “Strategic planning conferences are held every year, where
we also discuss the effectiveness of our strategies to date and also the effect of emergent
trends.”
54
6.
Competitors’ strategies?
It was interesting to note that all the traditional agencies interviewed, do not consider the
specialist agencies as their competitors. They only referred to other traditional agencies as
competitors, and identified what they considered to be their competitors core competence as
the differentiating factor between them.
One of the respondents stated “ Our competitors are developing their competencies in the
area of new media, Internet advertising. This is a threat because their range of services will
be more complete and hence could attract more clients, especially those that are Internet
driven”.
T
Another of the respondents claimed that they believed that some agencies were attempting to
C
become “low cost leaders” by agreeing to take a commission that was lower than the industry
U
average. The same respondent also stated “the move from a commission based income to one
that was more fees based was another attempt by some agencies to lower the cost of their
H
T
services.”
IG
According to the responses from the sample, the authors believe that competitors, as in
traditional agencies, are in fact following similar strategies. Although there is a perception
R
that some agencies are attempting to become “low cost leaders” through lowering commission
PY
rates or moving towards a fee structure, it is not in fact a generic strategy that is being
adopted by agencies but rather a move towards following a global trend within the advertising
Distinguishing features: “traditional” versus “specialist” agency?
C
7.
O
industry.
x Traditional:
All six respondents defined the traditional agency as one that offers a broad range of
marketing communication services.
x Specialist:
The traditional agencies interviewed defined the specialist agency as a focused agent,
offering usually only one of the numerous services that are offered by the traditional
agency.
55
Some of the responses made by traditional agencies included comments such as
“Specialists make use of cutting edge skill.” “ They are certainly more flexible,” and
“Specialists encourage the honing of individual skills.”
8.
Core competencies of the Agency?
All six of the respondents stated that their agency focused on one of the internal operations as
their core competence and typically structure the rest of the agency around this. Their core
competencies include for example, strategic planning, media planning, creative talent,
C
T
customer relationship marketing and client service.
U
Out of the sample interviewed the following replies were noted:
Core competence of the Agency
creative
3
strategy
1
public relations
H
T
media planning
1
production
other
1
IG
The agency with a core competence in strategy claimed that they have developed in-house
tools that allowed them to be “strategy focused” when dealing with their clients brands.
R
One of the respondents that believed that their core competence lay with their creative talent
PY
made the comment that “We have already proved ourselves in the creative field and strongly
feel that our clients over emphasise its importance. This creates a bias when pitching for non
O
creative jobs, for example in strategic planning, which is often more lucrative. The reason we
are good in creative is because we have great strategic planning. You cannot have one
C
without the other!”
9.
Linkage between core competencies and current strategy?
Without exception all six of the respondents claimed that a “tight fit” existed between their
core competencies and the strategy that their agency has adopted.
The authors believe this to be correct as the traditional agencies largely stated that they
adopted a differentiation strategy according to what they perceived to be their core
competence.
56
10.
Availability of resources to sustain core competencies?
All respondents lamented that there is a shortage of good creative talent within South Africa
due to the opportunities that are afforded to top talent by players abroad.
“We are in constant need of new blood in the industry,” declared one respondent.
In addition to this, three of the six respondents maintain that advertising is not “sold” to
school leavers as a lifetime career. One of the respondents noted that there was a perception
among young people, most notably those in the black community, that “advertising is not
T
really a job”, and “it does not have as much respect as other professions, for example,
C
investment banking.” Other comments regarding this included “Most good talent also did not
U
stay employed too long. They go out and set up their own little agencies.” “The Advertising
schools are not turning out enough talent to cover the industry.”
H
T
Although the shortage of creative talent was emphasised, all six respondents believe that this
IG
is not a threat to the sustainability of their core competency.
It was however, noted by the authors that eleven of the sixteen respondents, the total sample,
R
during the interviews, at some stage mentioned that they believed advertising was still
PY
creatively driven. The authors therefore question if there can be a sustainability of world
class, creative advertising created in the agencies of the Western Cape if there is a shortage of
Agency strategic vision, mission, goals and objectives?
C
11.
O
these skills.
All six of the respondents were not willing to discuss this question in detail but gave the
following comments:
a) Short term (6 mths-1 yr.):
Four of the respondents declared that they needed to improve their cash flow in the shortterm. “The economy is currently tight and we need to make money in order to survive.”
stated one respondent.
57
It was noted by the authors that traditional agencies appear to be burdened with high
overheads and running the agencies was becoming difficult.
b) Medium term (1 yr-3 yr.):
Only one respondent answered this question and stated “To secure more local business.”
c) Long term (3 yr. +):
There was a nil response to this question.
Due to the lack of response to this question the authors believe that it may be an indication
T
that the traditional agencies are aware of the current similarity of strategies adopted by the
C
traditional players. It would suggest that these agencies might be attempting to adopt new
U
strategies that will give way to greater differentiation amongst them.
Importance of organisational change in achieving long term strategy?
H
T
12.
Of the six traditional agencies that responded to this section, five stated that they have had to
IG
embrace change in order to survive. All six respondents stated that they are prepared to
undergo further organisational change in order to be sustainable in the long term.
R
One of the respondents stated, “The agency has set up a department that deals with Internet
have to follow”
PY
advertising and we intend to grow it as fast as possible. If this is where the future is then we
O
Although all six of the respondents were not willing to divulge their long-term strategy it was
C
made apparent to the authors that this would necessitate strategic change that will involve
organisational transformation.
13.
Organisational culture advocating change?
All six of the respondents claimed that their agency advocated a culture of change.
In spite of advocating a culture of change, the authors believe that the traditional agencies
struggle to change. This appears to be directly related to the hierarchical organisational
structures that exist. To make a small change in the way that operations occur requires
approval from numerous levels within the organisation.
58
14.
Role of the parent company?
Out of the eight traditional agencies interviewed, only one did not have international
affiliation. The international affiliate companies do not have a controlling share holding in
any of these local agencies and thus, the local companies, to a large extent, determine their
own strategies. All of these agencies have an arrangement with their affiliate company that
they receive assistance when required which includes funding to a certain degree. All locally
T
based international assignments are passed on to the local companies. However, most of this
C
work is predetermined/run from abroad and the local company is often merely expected to
U
adapt it to the local markets.
H
T
It is apparent that the international affiliated companies have no or little intervention in the
determining of the local traditional agencies strategies. These affiliations appear to be largely
IG
used as a selling tool by the agencies in local markets and for the players abroad, these local
With reference to the table below, what impact has your strategy had on the
following?
PY
15.
R
agencies offer an opportunity of representation within South Africa.
O
Table 1: impact of current agency strategy on past billings, number of employees and number of clients
C
total billings
No of employees
% change No. of clients
1995
2000 % change
1995
2000
1995
respondent R millions
R millions
A
B*
C**
D
E
F
G
H
% change
2000
no response
8
300
no response
no response
no response
no response
no response
45
1200
463%
300%
6
300
25
800
317%
3
167% very many
12
nb:
* this agency was not in existence in 1995: this figure relates to 1998
** these figures include those of diversified companies in the group
There were very few responses received from the interviewees, hence the authors refrained
from trying to make any conclusions.
59
300%
60
H
T
IG
R
PY
O
C
T
C
U
16.
With reference to the table below, how do you foresee the impact of your current
strategy on the following?
Table 2: impact of current agency strategy on future billings, employee numbers and number of clients.
total billings
No of employees
% change No. of clients
% change
2001
2003 % change
2001
2003
2001
2003
R millions
respondentR millions
no response
25%
30
50% no response
35
17%
12
no response
15
25%
T
69
1800
C
55
1200
no response
no response
no response
no response
no response
U
A
B
C
D
E
F
G
H
The industry – 5 years into the future?
IG
17.
H
T
Because of the few responses the authors refrained from making any conclusions.
Five of the six respondents stated they envisaged an industry that would be largely polarised,
R
with all the traditional agencies having strategic alliances with international players and many
PY
specialists targeting niche markets. These organisations all expect the industry to have a few
very big players and many small players and a general comment that was made was, “The
medium sized organisations will either merge with the big ones or disintegrate and split up
O
into smaller ones.”
C
The sixth respondent stated that “with much venture capital and investment into the country,
small players will grow rapidly and the demand for marketing communication is bound to
grow.”
It appears that the traditional agencies largely envisage an industry that will be extremely
polarized. In addition to this, the authors perceived that the traditional agencies manner of
response indicates that they do not believe that the specialist players will develop into being
major competitors in the future.
61
18.
Success factors for the future?
Three of the six respondents replied that the key to future success was in an agency’s ability
to add value. To be able to do this they have to be able to satisfy all their clients needs and be
able to identify creative solutions to their clients problems.
Flexibility was also quoted by three of the respondents as being very important for success in
the future, given the expected changes in the industry.
One of the respondents stated “To succeed, agencies will need to have the right personnel.
An investment in its people in order to accomplish the strategies of the future and meet client
C
T
expectations.”
U
It is apparent that there is a belief that in order for agencies to succeed they will need to
interpret market trends and develop innovative methods of overcoming threats initiated by
H
T
change within the marketplace. The more flexible agencies and those that truly advocate a
C
O
PY
R
IG
culture of change will no doubt find it easier to adjust to the changes required.
62
5.2.2. Specialist Agencies
Seven out of the eight specialist agencies included in the sample of sixteen, responded to this
section.
1.
Current agency strategy?
focus
quality of service: nil
1
6
range of services: nil
nil
nil
Other- specify: nil
nil
nil
C
low cost leadership
U
differentiation
T
AGENCY STRATEGIES
H
T
Six of the respondents said that the strategy that they had adopted was one of differentiated
focus based on high quality of service, offering a narrow range of services. All seven of the
IG
respondents mentioned within their interviews that believed that it was impossible for any one
agency to be good at all things and hence they only competed in what they were good at and
R
thus they could guarantee absolute quality of service.
PY
One of the respondents stated, “We began by adopting, what we thought to be a radically
different strategy, that of being a focused low cost leader. We have since changed and now
2.
C
premium!”
O
differentiate ourselves according to turn around times. This in fact allows us to charge a
Uniqueness of current strategy?
According to the responses of all the specialist agencies, not one of the differentiated focus
strategies followed by these specialist agencies is unique to the market place. However they
all firmly believe that because of their narrow focus they are able to excel at their given
discipline which is indicated in their rapid growth rates.
It appears that the respondent that initially focused on a low cost leadership strategy, later
adopting a unique differentiated strategy is the only specialist agency that appears to have
really adopted a strategy that is unique within the industry although all seven respondents
63
appear to have unique business models of their own. Enquiries made by the authors to
industry experts and all other respondents of the questionnaire, would seem to support this
claim within the South African context.
3.
Change of strategy in the future?
Like the traditional agencies, the specialist players recognise the fact that the industry is
experiencing much change. All seven of the specialist agency respondents stated that they
saw themselves as relatively new players in the industry and that the current successes of their
strategies indicate that they do not foresee any short or medium term reasons for change
T
although they all strongly advocated a culture of change.
C
One of the respondents commented “We will not be changing our current strategy since it
U
offers us more flexibility and will allow us to adapt to the changing marketplace a lot
H
T
quicker.”
The authors believe that because the specialist agencies interviewed are currently proving to
IG
be successful within the marketplace, they therefore do not foresee a reason for change.
However the authors believe that these players must be prevented from becoming complacent
R
by their current success and continually be aware of and respond accordingly, to change in
4.
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market trends.
Agencies Competitive advantage and sustainability?
O
Five of the agencies felt that their competitive advantage lay in their ability to be at the
C
forefront of their chosen disciplines and thus continually deliver new and innovative ways of
solving their clients business problems. This they felt was a sustainable advantage since their
clients were motivated by way of their innovation.
One respondent stated the following: “We have had to work really hard in building up our
reputation and to win the trust of clients in providing them with positive solutions. This
respondent saw this as the biggest problem facing them. “We need to focus more on being
brand builders and not just doing disjointed pieces of work for our clients. Only then can our
business model be sustained”.
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Another respondent claimed “The barriers to entry within the industry are possibly too low
and this puts pressure on the sustainability of our competitive advantage.”
A third respondent stated “As it stands we have the fastest turnaround time in the industry
and we intend to keep it that way”.
The authors believe that all these strategies are sustainable as long as the players remain in the
forefront of their given disciplines and remain recognised for doing so within the industry.
5.
Strategy development within the Agency?
T
All seven respondents made claim that their initial strategies emerged but as they grow, their
U
C
strategy development is a combination of both planned and emergent strategies.
Although all seven respondents claimed to make use of a combination of emergent and
H
T
planned strategies, the authors believe that these younger players to the industry appear to
6.
Competitors’ strategies?
IG
have largely emergent strategies that are often as a result of trial and error.
R
Six out of the seven specialist agencies, identified their competition as being other similar
PY
specialist agencies and the traditional agencies. The seventh respondent claimed “There is
currently no one else in the country who offers our services and hence we have no
O
competition as such.”
C
The general consensus amongst the specialist players interviewed, was that competitors are
rapidly increasing in number, particularly specialist players that are entering the marketplace
with new and innovative ways of doing business. Many of these players appear to be
attempting to enhance their competitive advantage by way of their unique business models.
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7.
Distinguishing features: “traditional” versus “specialist” agency?
x Traditional:
All seven of the respondents defined the traditional agency as one that offers a broad
range of services.
x Specialist
All seven respondents claimed that specialist agencies offered only one service and where
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-“Specialists tend to focus on cutting edge stuff”
C
Some of the responses included the following comments:
T
needed, other services are outsourced to other specialist players.
-“Specialists are generally fee based.”
Core competencies of the Agency?
IG
8.
H
T
-“Specialists players have uncomplicated organizational structures.”
All seven respondents declared that the specialist service that they provide is their core
PY
R
competence. The following is a list of the core competencies that the respondents gave:
C
O
Agency
A
B
C
D
E
F
G
core competence
Advertising brokerage
Website design & Internet advertising
Creative
Brand building
Media planning
Strategic planning
Turnaround time
Because these agencies specialise within a specific area of advertising, they tend to work
closely with other specialists skilled in other disciplines.
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9.
Linkage between core competencies and current strategy?
Without exception all seven agencies claimed strong links between their current strategies and
their core competencies.
10.
Availability of resources to sustain core competencies?
It would appear that all seven of the specialist agencies are battling with this issue. This may
be because they have not developed long term plans for their organisations. .
C
this is a problem and we do not have a solution just yet”.
T
One of the respondents commented as follows: “ We have not thought that far yet…but, yes,
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Another respondent claimed that it was difficult to recruit the right people “Those with the
best skills set up their own specialist agencies and want to work for themselves.”
H
T
It must be assumed that there is a shortage of skills within their areas of competence.
IG
The authors however believe that the sustainability of these agencies core competencies
largely depend on the entrepreneur (s) who founded it. The skills which the entrepreneurs
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possess are specialist skills and passing them on to others, thus ensuring sustainability, is a
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difficult endeavor. It was noted that five of the seven respondents are currently developing
the skills of their staff members to enable them to bring about sustainability of their agencies
core competencies. Their biggest challenge in this respect is the recruitment of employees
O
who have not been “tainted” by traditional agency thinking. “This is a major stumbling
C
block, we do not want employees who think like the traditional agencies, that is precisely
what we are trying to avoid becoming”said one respondent.
11.
Agency strategic vision, mission, goals and objectives?
x Short term (6 mths-1 yr.):
Four of the agencies stated that they were finding it difficult to cope with the workload
Their intention is to overcome this together with maintaining high standards in order to
continue building their name within the industry. One of these respondents commented
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that “We have to build our name by continuing to deliver innovative solutions to our
clients problems, otherwise we are not going to survive!”
Two of the respondents stated that their shortterm goal was to try and win an award so
that they can enhance their reputation within the industry.
One respondent stated that they wanted to open other offices as soon as possible however,
issues such as location and staffing were holding them back.
It was interesting to note that not one of the respondents made reference to a “slow”
economy or a shortage of business. This could be associated to their lean structures and
C
T
low overheads.
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x Medium term (1 yr-3 yr.):
Three of the agencies indicated that they intended to grow but they admitted that they
H
T
were having a problem with what form this growth was going to take.
One of the respondents stated that it will however be difficult to replicate their agency
IG
culture and skills without diluting this and thus becoming like the traditional agencies.
Another respondent declared “It will be by keeping our eyes open and listening to what
R
the market tells us that will determine our future strategy and goals. In this industry, this
PY
time period can see many changes.”
O
x Long term (3 yr. +):
This was seen by all the respondents as being as too far in the future to begin strategising.
C
“The industry is far too volatile to make any predictions.”
It would appear that all the respondents wish to sustain their current business models in
the foreseeable future but the are struggling with growth.
12.
Organisational change and achievement of long term strategy?
One respondent stated “We will only survive by listening to the market and adapting
accordingly.”
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Other respondents stated
-“Although we currently do not have a clear long term plan we are aware that it will involve
change.”
-“That (change) is constant.”
-“We will only be able to change if we remain flexible.”
The specialist agencies were born out of change and thus they, more than any one, know that
Organisational culture advocating change?
C
13.
T
without embracing change, they will not survive.
U
All seven of the respondents made claim to having an agency that advocates a culture of
H
T
change.
The specialist agencies interviewed had all experienced rapid growth and this in itself would
Role of the parent company?
R
14.
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reflect an ability to adapt with speed.
PY
This question was not applicable to any of the specialist agencies.
One of them commented that “We are independent and we like it that way. When you start
15.
C
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selling shares you lose control over what you want to do and how you want to do it!”
With reference to the table below, what impact has your strategy had on the
following?
Table 3: impact of current strategy on past billings, number of employees, and number of clients.
total billings
No of employees
%change No. of clients
%change
1999
2000 % change
1999
2000
1999
2000
respondent R millions R millions
A
B
C
D
E
F
G
H
11
20
1
no response
2.5
no response
no response
no response
21
40
3.5
91%
100%
250%
4
9
3
5
21
12
25%
133%
300%
10
20
2
15
40
20
50%
100%
900%
6
140%
2
4
100%
3
6
100%
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None of the specialist agencies was in existence in 1995, so they were not able to complete
the data for the above table in its original format. However they were able to supply the 1999
figures which are shown above. It would appear that these agencies are experiencing
phenomenal growth in their billings, number of employees and number of clients. Although
the numbers all come off a small base they actual double and even treble. This would seem to
confirm the view that specialist agencies are becoming acceptable to clients as alternative
providers of services, and thus giving them more business.
16.
With reference to the table below, how do you foresee the impact of your current
T
strategy on the following?
U
C
Table 4: impact of current strategy on future billings, number of employees, and number of clients.
12
200%
67%
100%
5
60
13
IG
63
100
10
60%
5
8
80
20
60%
33%
54%
15
40
21
20
60
50
33%
50%
138%
8
60%
7
11
57%
R
21
60
5
no response
7.5
no response
no response
no response
% change
2003
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A
B
C
D
E
F
G
H
H
T
total billings
No of employees
% change No. of clients
2001
2003 % change
2001
2003
2001
respondent R millions R millions
The above table shows their expectations for the future. Although not fantastic they seem to
17.
C
O
indicate the optimism of the specialist agencies with their future out look on the industry.
Future industry trends?
The outlook for the industry as presented by the specialist players was varied.
One of respondents stated that they envisaged the disintegration of the traditional players as it
increasingly becomes more and more difficult for these big players to justify their large sizes
and high overheads. “They cannot keep this up…the market is becoming tighter and the
margins smaller”.
Three of the respondents noted there would always be space for the big agencies and the
smaller ones to co-exist.
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Another, saw the appearance of a completely new business model that they believe is already
starting to take shape: “ A loose affiliation among the smaller agencies already exists: they
recognise each other as professions and they will pass on the work to each other”. This
respondent also envisaged the traditional agencies attempting to buy shares in the smaller
agencies. “This is already happening since they realise that they do not have the necessary
skills in-house and clients will go where ever they can find them.”
One of the respondents saw the industry as being cost led and therefore the big agencies
having to shed their employees and thus giving rise to more specialist agencies who will
eventually dominate the market.
T
The in ability and or sluggishness of the traditional agencies to adapt to the market trends was
C
also sited as a reason for their demise. “ Innovation, innovation, innovation, that is the key!”
U
One other agency stated that they saw the clients becoming more and more demanding and
this would push the agencies to become more accountable for their clients business
H
T
performances. “Only those able to adapt to these demands will be able to survive.”
IG
Regarding the issue of polarisation, they all concurred that this would be a likely scenario
Success factors for the future?
PY
18.
R
being an extension of the current polarisation within the industry.
The key success factor most quoted by all the specialist agencies, was the need to continue
offering innovative solutions to their clients needs. One respondent noted that consumers
O
were becoming more aware of advertising as well as becoming more resistant to it. “ The
C
trick is to come up with ways of advertising that the consumer is not aware of…and if
possible even when they are aware to make sure that they do not mind because it is
innovative!”
Another respondent noted that the agency of the future had to be lean in terms of costs
because of the increased pressure on income.
One other agency noted that they needed to be more flexible enough to adapt to the changing
client needs to the point where they could anticipate their needs. This would involve being
close to the client and being recognised as a solution expert.
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6.
CONCLUSIONS
The authors conclude that the fragmentation within the advertising industry is a result of
underlying industry characteristics that are extremely difficult to overcome. These are
identified as being low overall barriers to entry, an absence of economies of scale and a lack
of advantage of size when dealing with either buyers or suppliers. A further important reason
for this would appear to be the heavy creative content required for each advert, combined
T
with the high need for product differentiation particularly based on image.
C
Marginal profitability results from this and hence strategic positioning is of crucial
importance to the players within the industry. The dominant strategies emerging from the
U
players, are firstly one of broad based differentiation by those offering a full range of services,
H
T
namely the traditional agencies, and secondly, a strategy of narrow focus as that adopted by
the so called specialist players. These two extreme choices of strategies have given rise to an
industry termed as being polarised. The different strategies can be seen as an attempt by the
R
above average profitability.
IG
industry players to cope with fragmentation through consolidation in order to achieve an
PY
The authors identified several methods of consolidation being adopted by the players in their
O
attempts to cope with the fragmentation and these include the following:
C
x Tightly managed decentralization
Four of the traditional agencies seem to be following this strategy. Rather than
increasing the scale of their operations at one or a few locations these firms are
deliberately keeping individual operations small and as autonomous as possible. They
are doing this by acquiring smaller firms and allowing them to keep their individual
names and core competencies. In this way they manage to avoid homogenisation of
the individual units and the resulting insensitivity to local conditions and customer
expectations. This approach is supported by tight central control and performance
oriented compensation for the individual unit managers. The essential notion of this
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strategy is to recognise and cater to the causes of fragmentation but to add a degree of
professionalism to the manner in which local managers operate.
x Increasing the value added in the advertising process
It would appear that all the players are attempting to do this. They are increasing the
value added by attempting to manage their clients expectations as well as attempting
to offer more than what their clients expect from a typical advertising assignment.
Although this is an unconscious decision of the players, this will in fact increase the
switching costs for the client and lock in them in. The specialist agencies are claiming
T
to offer innovative solutions to the customers needs. Enhanced product
U
service may be achievable through such activities.
C
differentiation, and hence higher margins, not achievable from the basic product or
H
T
x Specialisation by service type or service segmentation
This is the strategy that appears to be being pursued by the specialist agencies. The
IG
presence of numerous items on the product line causes fragmentation and therefore
specialisation on a tightly constrained group of services could lead to the achievement
R
of above average results. It leads to the enhancement of the service differentiation
PY
with the customer as a result of the specialist’s perceived expertise and image in the
particular service area. This is a variation of the currently adopted focus strategy.
O
This allows the firm to be better informed about the service area and potentially to
invest in its ability to educate their clients and to provide services relating to the
C
particular area. However, the difficulties in replicating their models because of the
particular specialist skills required and the personalities of the owners may prove to a
some limitation in the growth prospects for these firms.
x Bare bones/ no frills
Joe public’s attempt to adopt this strategy appears to be unique to the industry. Their
market offering of “rare”, “medium” or “well done” advertising gives the client the
option of choosing the advertising type that works for them. They also have low
overheads, low skilled employees (recent graduates), tight cost controls and attention
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to detail. They have also gone a step further by providing the quickest turnaround time
in the industry. This policy places the firm in a good position to compete on price and
still make an above average return.
x Specialisation by customer type
This strategy is being pursued by one of the large traditional agencies interviewed.
They specialise in the customers who are least price sensitive and who need the value
added services that the firm claims to provide along with the basic service. They
describe their typical customer as one interested in “brave marketing”. Like product
T
specialisation this could limit the growth prospects for the firm in return for offering
C
O
PY
R
IG
H
T
U
C
higher profitability.
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7.
RECOMMENDATIONS
Attempting to offer a solution to all generally maximises vulnerability to the competitive
forces in a fragmented industry where there is no cost advantages to volume production and
other economies of scale. Seeking dominance by a particular player is therefore a futile
exercise due to the underlying structure of the industry, unless it is accompanied by a
fundamental change in the structure for example, a change in the commission basis of
remuneration of the agency as opposed to the fees structure. Companies trying to do this are
T
doomed to failure. The underlying economics of the industry ensure that the firm exposes
C
itself to inefficiencies. This can be seen within traditional agencies where turn around times
U
for producing advertisements is lengthy thus often giving rise to criticism from the client.
Specialist players have thus identified this as an area in which they are able to endear
H
T
themselves to the client.
IG
The authors wish to highlight the fact that the implementation of a particular strategy may
well require the ability to turn business away, as well as to go against the conventional
R
wisdom of how things are done in the business. An undisciplined or opportunistic strategy
PY
may work in the short run, but in the long term, usually maximises the exposure of the firm to
the intense competitive forces common in fragmented industries. An example of an agency
attempting this was Joe Publics attempt to offer “sit down dining” as opposed to their idea of
C
O
“take away” advertising (Refer to mini case study, section 8).
It is apparent within this industry that major competitive factors are those of personalised
service, close control of operations and flexibility coupled with an ability to react to change.
A centralised organisation structure is counterproductive in many cases because it slows turn
around time, lowers the incentives of those at entrepreneurial level and can drive away
talented individuals. It is therefore recommended that agencies strive towards a structure of
decentralisation and consciously create a culture that responds quickly to change.
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8.
MINI CASE STUDY: JOE PUBLIC
T
JOE PUBLIC: CHANGING THE RULES OF THE GAME
TAKE – AWAY ADVERTISING
C
IN RECOGNITION OF SUCCESS
Decked out in Chefs clothing, applause echoed in the ears of Gareth, Pepe and Noel. Beneath
U
the stage stood nearly one thousand people clapping in acknowledgement and praise of their
H
T
creativity and the success achieved within the short period of two years.
The three shareholders of Joe Public, were up on stage to receive their third Loerie2 award for
IG
the night. This night was a culmination of what they had achieved and an indication of what
R
was yet to come. They had already received a Spada Plinth, two Ads of the Month awards, a
PY
D&AD award and were the winner of the Emerging Agency of the Year(2000).
THE BIRTH OF TAKE – AWAY ADVERTISING
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The Partners
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Gareth Leck, aged 29, after completing a bachelor of commerce degree at UCT, received a
postgraduate diploma in advertising from the AAA School of advertising in Cape Town. He
began work at Jupiter Drawing room in 1993 as a junior in the client service department.
Over a period of five years, he gained invaluable experience in working on accounts such as
Sissy Boy, Musica, UCT Graduate School of Business and Unifruco.
Noel Cottrell, aged 33, received a Bachelor of Arts degree followed by a masters degree in
English in the USA. After completing his tertiary education he traveled to Europe where he
was employed as a junior copywriter at Saatchi & Saatchi, London. Here he worked on
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accounts such as The Royal Army and British Rail. On his return to South Africa he was
employed as a senior copywriter at Tholet Sievers and worked on accounts that included
JMB, Smirnoff, Goodyear and Engen. He left Tholets to join Jupiter Drawing Room where
he met Gareth and worked on the same accounts.
Pepe Marais, aged 32, after completing his army training and giving up the idea of doing an
engineering degree, received an art diploma from Ruth Prowse College of Art. He began his
career at Tholet Sievers in their creative department, where together with Noel worked on
JMB, Smirnoff, Goodyear and Engen and rose to the ranks of creative director. He left
T
Tholets and joined Network Johannesburg, working on accounts such as Nissan and Virgin
U
C
Atlantic.
Identifying the Market Gap
H
T
It was over a few drinks and a quiet chat, after the completion of a frustrating campaign of
one of Jupiter Drawing Rooms smaller clients, that Noel and Gareth realised that their was a
IG
gap in the market for an agency to service clients that had budgets of R 1 million or less.
These clients were neglected by the traditional agencies, and thus they realised that they could
R
offer a service of quick turnaround time, great creative and all this at a low price! By the end
PY
of the evening Gareth and Noel had sold the idea to each other and all it took to convince
Pepe to join them, was a one-hour phone call to him in Johannesburg. Together with the
C
born!
O
notion of “we’ll do work for any Joe Public” the concept of “take away” advertising was
The partners’ vision was converted into a mission statement and captured on paper:
“We will provide cost effective advertising and design for the man on the street and promise
to provide creative solutions within 24 hours.”
Within two days the three had resigned. They had no financial backing and no clients. “In
retrospect, we were incredibly naïve,” says Gareth. However, what they did have was a clear
vision, confidence in each other’s diverse abilities and Noel’s lounge from where to work.
2
The Loerie Awards are South Africa’s most prestigious annual advertising awards.
77
They officially declared themselves “available for business” at the beginning of July 1998. In
order to bring in some income, Pepe and Noel began doing freelance creative work for bigger
agencies, while Gareth spent his days trying to sell his concept to others in the industry and
potential clients.
At the end of August 1998, they had enough funds in their bank account to put down a rent
deposit for a loft apartment, from where to work. With much persuasion, Hirt and Carter, a
large reproduction house, lent them an Apple Mac with which to get started, on the premise
T
that all future equipment would be leased through them.
C
“A far more professional environment was needed to meet clients and media
U
representatives,” recalls Gareth.
H
T
The three partners had much kudos within the industry and thus the bigger agencies started
referring smaller income clients to them. Over the period September to December 1998
IG
bigger and more permanent clients began rolling in. Their big break came with the referral of
the University of Western Cape who budgeted for R1 million print adspend in those first six
R
months. This money was largely utilised in marketing their postgraduate programs.
PY
Shoeworld, whose billings initially amounted to R3 million and gradually increased to R7
million within their first year, soon followed the acquisition of UWC, their first relatively
O
large account. Independent On Line, South Africa’s third largest portal, shortly followed suit.
C
By December 1998, they had accumulated R100 000 in their bank account, employed a
designer and moved to their current premises, although only occupying the ground floor at
that stage.
To begin the new year of 1999, an entire creative team was employed closely followed by two
client service executives, a traffic co coordinator, a production supervisor, more creative
personnel, a receptionist and some admin staff. A fully-fledged mainstream agency was
beginning to emerge.
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UNDERSTANDING THE CONCEPT
On entering the premises of Joe Public one would assume that a waitress would be shortly
upon you to offer you a menu and take your order of French fries and chocolate milkshakes.
However the menu displayed above the chrome and glass counter provides the first clue that
this is not what it appears. “Rare, Medium and Well Done” stand out in bold followed by the
price of advertisements – radio, print, poster, concept, copy and production. The “length of
cooking time” determining the end cost to the client.
T
Turnaround time
C
“Our promises are the highest quality and the fastest turnaround times in the
U
industry.”(Appendix 1)
H
T
One of the biggest complaints within the industry is that of turnaround time. In traditional
agencies when the client has accepted a job, it can take up to six weeks in the queue before
IG
any brand strategy or creative thought begins to take place. However, Joe Public can offer a
complete package of strategy, media and creative in two weeks and… this is “Well Done”.
R
On entering the doors of Joe Public, clients are shown to a dining booth where Joe Public’s
PY
menu is presented to them by at least two of the shareholders. Depending on cooking time
and the clients needs, concepts are often determined at this initial meeting and then followed
O
through with brand strategic planning, creative work and media planning.
C
Brand Strategy
Although the shareholders initially believed that producing quick, “cool” creative adds was
all that was required, they have long since realised the importance of strategy and the
necessity of building brand equity for their clients.
This realisation however, did not alter their differentiator of fast turnaround time. The
concept of out sourcing has proved to be a useful tool in adhering to fast times and offering
strategies that have been conceptualised by some of the greatest brand strategists and media
planners in the industry. “Through outsourcing critical areas of advertising, we have been
able to stick to our core competency of great creative in quick time,” states Pepe.
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Sit down Dining
By early 2000, Joe Publics client base had increased to almost thirty. In addition to the
greater workload, clients were making greater demands on the need for greater brand strategic
planning and thus the concept of sit down dining emerged. What was previously deemed to
be the boardroom, gave way to a twelve-seater table and seating arrangement that allowed for
more in depth and lengthier meetings to take place. The concept of cooking time was
abandoned for bigger clients and the notion of longer turn around times appeared to be
T
becoming acceptable.
C
This was certainly a novel and dramatic method of selling advertising but it was no doubt a
U
move towards becoming set in the ways of a traditional advertising agency. As talk in the
industry increased as to whether Joe Public where in fact able to sustain their competitive
H
T
advantage of fast turnaround times, the concept of sit down dining was quietly dismissed.
The shareholders realised that in order to be true to their vision and mission and to maintain
R
COMPANY STRUCTURE
IG
their competitive advantage, they had to stick to the concept of “great creative in quick time.”
PY
Currently, being November 2000, Joe Public operates from a corner double storey shop in the
heart of Cape Town’s central business district. Chalk boards on the pavements display their
C
passer by.
O
“take away specials” for the day and purple flashing neon lights are eye catching to any
All creative work occurs within the agency under the guidance of Noel and Pepe. Brand
strategy and media planning are outsourced and reproduction occurs at the large “repro
houses” in Cape Town. From the beginning Gareth has assumed the role of managing
director. Joe Public is 100% owned by the three partners, namely Gareth, Noel and Pepe.
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Core Competencies
Gareth Leck, is largely conservative by nature and thus proves most suitable in taking
financial control and general management of the agency. On the other end of the spectrum is
Noel Cottrell, whose tremendous charisma, entrepreneurial abilities and vision often gives
rise to impulsivity and thoughtless action. “He dives in head first and then asks the
questions” say Gareth and Pepe in unison.
Pepe Marais, although most alternative in dress code, is the balance between the other two
C
role of facilitator in Joe Publics final decision-making.
T
polarised personalities. His thoughts are objective and sound and thus he often assumes the
U
Although vastly different in personalities, the three partners work in synergy, constantly
H
T
generating new ideas and energy, and so keeping Joe Public ahead of other industry players.
Values
IG
The philosophy of the shareholders is to create an environment that is energetic, proactive and
easily adaptable to change. Bearing this in mind, they recruit creative staff directly out of
R
AAA Advertising School or the likes, and thus are able to school their staff in the “Joe Public
PY
way of thinking”.
Because staff are young and inexperienced, Joe Public encourages an environment of learning
O
and free thought. Staff are empowered to promote their own ideas and abilities.
C
States Gareth, “In the beginning we were a bit nervous as to whether recruiting such
inexperienced staff would be a wise decision but although we’ve had a few mishaps along the
way, it has proven to be to our advantage. It never ceases to amaze us how such young
people are able to rise to the occasion and accept so much responsibility. Our staff do us
proud and have been rewarded this year with 100% salary increases across the board.”
To date, staff turnover is virtually non-existent. The only resignation that has occurred was
from the only individual that was recruited from another agency.
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Because Joe public advocates a policy of empowerment and growth, staff are encouraged to
grow to their fullest potential. Their original receptionist has become their traffic coordinator
and an assistant has become the production supervisor. The first creative team is now the
senior team, making final decisions on work and interacting with the client.
The aim of the shareholders is to groom their key staff towards being able to run their own
Joe Public agencies in which they, the shareholders, will have a small percentage share.
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T
“For Joe Public to be sustainable, it cannot just be about Cottrell, Leck and Marais.”
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Potential Burnout
A greater work load and yet sticking to the concept of quick turnaround time has demanded
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that Joe Publics staff complement work excessive hours. In the last few months, the
shareholders have made a number of decisions to prevent burnout and demotivation of their
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staff.
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Although very little conflict exists between the three shareholders, this is an area of much
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debate between Noel and Gareth. Noel believes that they must hire more staff whereas
Gareth is wary of employing more staff and then possibly having to retrench them in quieter
months ahead. Gareth believes this will potentially cause feelings of insecurity and distrust
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amongst their staff and thus be a disadvantage to their current status.
The first step towards eliminating the factor of burnout, was to employ students from the
advertising schools on Tuesday and Thursday evenings. In addition to this, Pepe has
motivated for all creative staff to have a paid day off once a month.
If the workload increases at the steady rate at which it has grown within the last year and to
maintain their competitive advantage of fast turnaround time, the shareholders will initiate a
new concept to the industry, namely a night shift, at the beginning of 2001.
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GROWTH
During the period March to July 2000, billings grew by almost 100 percent, from R18 million
to R35 million (Appendix 2). The notion of expansion played heavily on the minds of the
three shareholders. “Maybe expansion into other regions? Maybe another agency in the
Cape?” These were just some of the questions they asked each other.
All three shareholders however, came to the same conclusion. Their staff still lacked the
capabilities to succeed in maintaining a new venture. It was one of Noel’s typically
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entrepreneurial ideas that shed some light.
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Diversification and the Greatest Lesson Learnt
Following through with the concept of take away and food, the team decided to invest in a
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restaurant. Noel initiated the idea of an American Barbecue type restaurant, decked out in
similar décor to that of Joe Public. In July 2000, Sloppy Joes, under the management of
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Noels father, came into being.
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Consultants were brought in to advise them on location, costing and the running of such a
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business. Initially much time and money was invested but this soon stopped when the
demands of Joe Public intensified. Under estimating the running costs and the time required
to invest in such a venture, the restaurant quickly ran into financial difficulties. All in all the
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threesome lost a quarter of a million rand in five months.
“We lost a great deal of money but we’ve learnt our biggest lesson. From now on we will
stick to our core competencies and to what we know best. We’ll work harder at refining our
concept so that it grows and sustainable roll out can occur both locally and internationally,”
states Gareth philosophically.
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What the Future Holds?
At the beginning of November 2000 Joe Public’s mission statement was revised in order to
align it with the emergent differentiation strategy that they have adopted. “This being the
agency with the fastest turn around time in the business,” states Gareth.
Situated proudly above the menu is Joe Publics new revised mission statement and promise to
their clients: “Joe Public promises to provide World Class creative and strategic
advertising……FAST!”
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Joe Public’s greatest challenge is to expand and maintain their core concept of fast turnaround
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time and great creative work. In the last few months’ clients such as Investec and MWeb
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have approached them to produce once off print adds that their traditional agencies were
unable to produce within required timeframes. The delivery of excellent creative work in
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short periods of time has consequently led to further work and referrals.
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Growth appears to be inevitable although the three shareholders are reserved in placing their
bets. They do however; have a joint vision and plans for their future. Their short-term goal is
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to expand to Gauteng. In the beginning, it will entail employing a client service executive in
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Gauteng to sell the concept and bring in the work. Initially all work will be executed within
the Cape office until the volume demands the opening up of another regional office.
A more medium term goal is to develop the capabilities of their staff to the point that they are
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able to establish other Joe Publics around town, in which all three partners will be minor
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shareholders.
“Our philosophy is that to remain true to ourselves and our concept, this agency cannot grow
bigger than to about forty people.” states Gareth with absolute conviction. “We foresee a
chain of Joe Publics owned largely by the people that we have trained in The Joe Public way!
In order to keep the best people in the industry, staff must be incentivised to staying with us.
This is a wonderful opportunity for them, riding on our reputation and yet exposing them to
minimal risk.”
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Long-term goals of the three shareholders include introducing the global advertising industry
to the concept of “take away” advertising. The partners envision Joe Public agencies existing
in all major cities of the world, including London, New York and Hong Kong.
Pepe concludes: “If for nothing else, we want to be remembered for having made a difference
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to the advertising industry.”
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8.1.
Appendices to Mini Case Study
Appendix 1
Example of quick turn around:
In mid October 2000, Joe Public was approached early one morning by Khalari.com, South
Africa’s equivalent to Amazon.com. Khalari required a radio ad to be aired as soon as
possible…that evening! They had already been told by their agency that this would take at
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least a week to produce. However, Joe Public rose to the challenge and within six hours of
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being briefed by the client, Khalari.com were able to air a professionally made radio ad.
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Appendix 2
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Billings to date:
Year ending February 2000
9 mths ending November 2000
6 Million
18 Million
45 Million
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Year ending February 1999
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9.
FURTHER AREAS FOR STUDY
The rapid changes in all aspects of the environment, particularly those brought on by the
changes in technology, have affected all industries. As a result of this, many traditional styled
organisations are struggling to adapt, the advertising industry being no different. This has led
to a variety of strategic responses from the existing players, and also allowed new players
with radical new business models to enter the field. The authors’ examination of the
emerging strategies is not in any way exhaustive but should rather be viewed as a step along
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the road to a greater understanding of them.
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With this in mind the authors would like to recommend the following areas for further study:
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x The first area of recommendation is to enlarge the sample size for further study. The
authors focused their study on the players within the Western Cape and thus feel that a
larger sample, extended to agencies throughout South Africa, will provide more
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credence to the conclusions drawn.
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x The specialist agencies interviewed, appeared to be struggling with the issue of
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growth: Although recognising that they did not want to prevent growth, these agencies
feared following in the footsteps of traditional agencies, who they saw as rigid and
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inflexible. We feel that a more detailed study into the possible growth strategies that
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could be adopted will bring out interesting findings as well as assisting these rapidly
growing specialist players.
x The authors believe that the success of the unique business model considered in the
mini-case study warrants a more detailed case study. This would be developed
according to theory based on “changing the rules of the game.”
x Whilst not directly related to this particular area of study, the authors came across the
concept of Brand Valuations for balance sheet purposes. Brand values have always
been considered as intangible assets and their inclusion on the balance sheet would
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suggest a dramatic shift in this thinking. This is a very new area of study within the
general topic of finance and marketing and the issues behind its development would
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make for an interesting research topic.
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10.
LIMITATIONS PERTAINING TO THE REPORT
The report was limited by the following factors:
x The sample used was not representative of the South African advertising industry in
its entirety as research was limited to the boundaries of the Western Cape. However,
the authors believe that the Western Cape can, with reservation, be considered as
aligned agencies are represented within these boundaries.
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representative of the South African advertising industry since all notable and globally
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x The information gathered in Section B of the questionnaire regarding the long term
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vision and strategies of the agencies in question, received a sixty five percent response
rate compared to a one hundred percent response rate to the rest of the questionnaire.
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The fact that confidentiality agreements were signed, indicates the insecurity and
intense rivalry of the industry players. Unfortunately, the lack of response does affect
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the final results to some extent.
x An objective of this report is to increase the understanding of the authors and future
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readers, of the advertising industry. It is also to be made available in the library as a
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research document. However, the shareholders of Joe Public (Pty) Ltd, expressed
concern regarding confidential information being readily available to competitors and
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the general public. It was therefore agreed by the authors to limit sensitive
information and allow the shareholders the opportunity to discuss objections to the
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inclusion of any data with the authors. The authors believed this to be a fair request
and provided the opportunity to avoid classifying this report as confidential.
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11.
REFERENCES
1. Andrews, K. 1980. The Concept of Corporate Strategy: Irwin
2. Dru, J. 1998 Disruption: John Wiley and Sons
3. Griffith S.B. 1963. Sun Tzu The Art Of War, translated: Oxford University Press
4. Hamer,G and Prahalad,CK. 1996. Competing for the Future: HBS Publishing
5. Harvard Business Review. 1991. Book Strategy; Seeking And Securing Competitive
Advantage: HBS Publishing
6. Horn, S.1998. The Strategy Reader: Blackwell Publishers Inc.
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7. Kotler, P.1999 Marketing Management Millennium Edition: New Jersey: Prentice Hall
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Inc.
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8. Lewis, Morkel, Hubbard, Davenport, Stockport,1999. Strategic Management: Australia:
Prentice Hall
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9. Mayle, P. 1995. Up the Agency :St Martins Press
10. Mintzberg, H. Ahlstrand, B. Lampel, J,1998 Strategy Safari : Simon and Schuster
IG
11. Peppers, D. and Rogers, M.1999. Enterprise One to One : Doubleday
12. Pettigrew, A. 1987. The Management Of Strategic Change : Oxford: Blackwell
R
13. Trout, J.1999. The Power Of Simplicity : McGraw-Hill, Inc
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14. van der Walt, Strydom, Marx & Jooste, 1996. Marketing Management: Juta & Co.
15. Vaughan, J. and Bull, W. 1996. The Phantom Overhead : Principals (Pty) Ltd
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16. Whittington,R. 1993. What Is Strategy-And Does It Matter? : International Thompson,
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Business Press
Professional Journals and Daily Publications
17. Marketing Mix Journal
18. AD vantage
19. AD focus
20. Intelligence magazines
21. International Marketing Journal
22. The Cape Weekend Argus
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Web Sites
23. www.mediafinder.com/adver.cfm/
24. www.adweek.com/
25. http/advertising.utexas.edu/world/
26. www.fm.co.za/report
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27. www.jup.com/index.shtml/
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APPENDICES
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12.
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Appendix 2
THE
GENERIC
MATRIX
STRATEGIES
competitive advantage
broad
target
low cost
differentiation
cost leadership
differentiation
XXXXXXXX
differentiated
cost focus
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narrow
target
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competitive
scope
focus
XXXXX
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Traditional agencies
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Joe Public
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. .
.
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specialist agencies
.
.
.....
INDUSTRY CHANGE – THE LAST FIVE YEARS
GENERAL INSTRUCTIONS AND CONTEXT
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This questionnaire has a number of questions referring to change within the advertising industry in the last five
years. The context of industry change includes change in organizational strategies and the impact on individual
players within the industry. It does not refer to small, incremental changes in systems that occur within
organizations day-to-day operational activities.
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Please reflect on the change that has occurred within the advertising industry in the last five years and consider
each statement in relation to this change effort.
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There are two sections in this questionnaire. Each section requires you to consider the above mentioned
industry change through exploring your views/ perceptions on various statements.
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SECTION A -- KEY DRIVERS FOR CHANGE
“An Industry analysis is the building block of understanding the organisation.”
Please reflect on the change that has occurred within the advertising industry in the last five years. With reference to this
change please rate the statements below as follows:
a)
Where applicable, indicate yes/no according to your perception and agreement or disagreement of the statement
made.
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b) Please indicate your perception of the degree of the statements in terms of their potential importance, in being
drivers for change within the industry, by circling the appropriate number on the scale (1-5) in each question.
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The scale of numbers indicate the following:
5 – Extremely important
4 – Very important
3 – Important
2 – Somewhat important
1 – Not important
Industry Overview
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1.Rate the following factors according to what you perceive to be the most significant driver for current
change within the advertising industry
5 4 3 2 1
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Increased bargaining power of the client
5 4 3 2 1
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Increased ease of entry into the industry
5 4 3 2 1
New channels for communicating the marketing message and building
the brand (web sites developers, management consultants)
5 4 3 2 1
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Innovative ways of doing business adopted by new players
Rapid technological change
5 4 3 2 1
2.Please state your reasons for rating particular factors more highly than others.
………………………………………………………………………………………………………
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Buyers
3.Do you think the changes in client demands are driven by the following and rate the importance thereof:
The need to develop global brands
Yes
No
5 4 3 2 1
Client exposure to international competitors
Yes
No
5 4 3 2 1
2
Yes
No
5 4 3 2 1
Retention versus acquisition costs
Yes
No
5 4 3 2 1
Decreases in marketing budgets
Yes
No
5 4 3 2 1
Increased awareness of “return on time invested”
Yes
No
5 4 3 2 1
Attitudes towards historic agency effectiveness
Yes
No
5 4 3 2 1
Increased need for personalised services
Yes
No
5 4 3 2 1
Other – Please specify
Yes
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Changes in their customer profile – euro centric versus afro
centric
5 4 3 2 1
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No
4.Please state your reasons for rating particular factors more highly than others.
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Barriers to Market Entry
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5(a).Has ease of entry into the industry increased within the last 5 years?
No
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Yes
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5(b). Please give reasons for your above answer
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………………………………………………………………………………………………………
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6.Rate the following factors according to their contribution in lowering entry barriers into the industry:
Acceptance of specialist service providers
5 4 3 2 1
Foreign investment in start-ups and international alliances
5 4 3 2 1
Low fixed cost requirements
5 4 3 2 1
Increased entrepreneurial drive within South Africa
5 4 3 2 1
Advantage of size in dealing with the client
5 4 3 2 1
Advantage of size in dealing with suppliers
5 4 3 2 1
3
Wider range of service offerings
5 4 3 2 1
Government legislation – black empowerment
5 4 3 2 1
Other – Please specify
5 4 3 2 1
7.Please state your reasons for rating particular factors more highly than others.
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Suppliers
No
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Yes
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8.Do you perceive suppliers e.g. media planners, production houses, photographic studios, to be a major
influence on current change within the advertising industry?
9.If so, why?
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10.Rate the following factors according to what you perceive as being the major influence on the industry
by suppliers.
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Continuous change in the usage of new technology
5 4 3 2 1
Media segmentation by way of targeting niche
markets versus mass markets
5 4 3 2 1
Media changes e.g. global television
5 4 3 2 1
Other – please specify
5 4 3 2 1
11.Please state your reasons for rating particular factors more highly than others.
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
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Substitutes
12.Do you perceive the development of substitutes e.g. strategic management consultants, as a major
influence to the industry change?
Yes
No
13.If so, why?
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5 4 3 2 1
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Perceived ineffectiveness of current agencies
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14.Please rate the importance of the following factors as drivers for the use of alternative service providers
5 4 3 2 1
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High cost of agency services
5 4 3 2 1
Availability of “agency services” by free agents
5 4 3 2 1
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Desire for customer ownership by clients
5 4 3 2 1
Other- please specify
5 4 3 2 1
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Increased credibility of other suppliers
15.Please state your reasons for rating particular factors more highly than others.
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Rivals
16.Do you perceive the rivalry between industry players as a major factor to industry change?
Yes
No
17.If so, why?
………………………………………………………………………………………………………
………………………………………………………………………………………………………
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………………………………………………………………………………………………………
………………………………………………………………………………………………………
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18.How do you rate the following factors as influences on the rivalry between
industry players
5 4 3 2 1
The development of global alliances
5 4 3 2 1
Low switching costs for clients
5 4 3 2 1
Competition based on price
5 4 3 2 1
Other –please specify
5 4 3 2 1
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“Head hunting” culture within the industry
19.Please state your reasons for rating particular factors more highly than others.
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SECTION B – AGENCY STRATEGIES
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Historically advertising agencies followed a similar generic strategy of differentiation by way of their creative, strategic,
media and (or) creative skills i.e. the full service/traditional agency structured themselves according to their core
competencies.
1. With reference to the type of strategy followed by your agency, would you regard it as one of:
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Differentiation according to – Range of service(s) offered
Quality of service
Other – please specify
b) Cost leadership
c) Broad or narrow focus on your target market
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a)
2. Do you consider your strategy as unique to the industry and if so why?
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…………………………………………………………………………………………………………………………………
3. To what extent do you see your strategy changing in the future?
…………………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………………
4. With reference to the above question and your vision of the future, does your agency currently have a competitive
advantage and if so, is it sustainable?
…………………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………………
6. In general, how does your strategy develop in practice e.g. annually planned/or in response to prevailing market
conditions?
…………………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………………
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7. Was your current strategy planned or as a response to changing market conditions?
…………………………………………………………………………………………………………………………………
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………………………………………………………………………………………………………………………………..
8. What strategies are your competitors currently following?
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9. What do you consider to be the distinguishing strategies between a “traditional” and a “specialist” agency?
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a) Traditional
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Specialist
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10. What do you consider to be your agencies core competencies e.g.continually recognised/awarded for your creative
talent?
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11. To what extent are your core competencies linked to the strategy followed by your agency?
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12. Are required resources (e.g. top creative talent at affordable prices), readily available to develop and/or sustain your
core competencies?
…………………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………………
13. Please discuss your agency’s strategic vision, mission, goals and objectives in terms of the following:
a)
Short term (6 mths-1 yr)
…………………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………………
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b) Medium term (1 yr-3 yrs)
…………………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………………
b) Long term (3 yrs+)
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14. To what extent is organisational change (e.g. culture and management structure) critical with regard to achieving your
long-term strategy?
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15. Does your agency advocate a culture of change?
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16. If applicable, what is the role of the parent company in the development of your strategies?
…………………………………………………………………………………………………………………………………
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17.With reference to the table below, what impact has your strategy had on the following?
Total Billings
%
No of Employees
Change
1995
2000
%
No of Clients
Change
1995
2000
8
1995
2000
18. With reference to the table below, how do you foresee the impact of your current strategy
on the following?
Total Billings
%
No of Employees
%
Change
2001
No of Clients
Change
2003
2001
2003
2001
2003
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18. Briefly discuss how you think the industry will look like in the next five years with reference to key stakeholders,
major players etc.
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19. What will be the key success factors to an agency in the future?
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20. Any other comments?
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