Ever since the venerable ad agency first moved into its midtown Toronto office location in the mid-80s, its name had been emblazoned in big, bold lettering atop the building.

But after recent successive years of plummeting revenues and staff cutbacks, the agency no longer qualified as the building’s anchor tenant. So, one Saturday last year, its iconic sign was ignominiously hauled down and replaced with that of an insurance company.

At one time, this agency was one of the largest and most prestigious in the country. Its sharp decline had nothing to do with the quality of its creative work—in fact, it continues to produce award-winning ads—rather, it was due more to the deplorable state of the business. All traditional agencies are suffering—some more so than others, particularly if they’ve been slow to recognize that the industry is at a crossroads.

Ad spending is in the doldrums, with no sign of a revival anytime soon. According to Ad Age, the industry barely showed a pulse in 2002 after negative growth the previous year.

Marketing budgets everywhere are being slashed. And, unlike the past, when ad spending could be counted on to rebound with the economy, the cuts this time are permanent. More than at anytime, ad expenditures are under grave scrutiny by skeptical senior management. In a recent Ad Age poll, 70% of marketers admitted that ROI accountability “represents a long-term change in how they do business.”

Under threat of further budget cuts, marketers are crying out for help. How can they do more with less? What mix of channels will deliver the highest return? How can they prove the effectiveness of multimedia campaigns?

Faced with an almost unrecognizable consumer environment rapidly mutating before their eyes, they now realize the answers lie outside the customary 4Ps. Unsure of themselves, marketers are more open to experimentation with contemporary formulas suited to a digital age.

The problem is, they can’t rely on their general agencies to serve up much more than the usual bromides—or even to offer impartial advice. As much as agencies like to depict themselves as being media neutral, their natural bias is toward TV, where they have historically reeled in the biggest dollars.At a recent forum on the crisis in advertising, Jay Bertram, President of TBWA/Toronto, tartly observed, “Agencies are incredibly ignorant and disrespectful of other disciplines,” hurriedly adding, “We are no longer an advertising agency.”

End of the Analog Era

Even the biggest ad spenders are disenchanted with the state of advertising. Last June, General Motors Executive Director of Advertising C.J. Fraleigh—who controls a profligate $3 billion budget—publicly scolded agencies for not providing solutions that sell product, calling them “soft and flabby.”

He warned, “If you’re not in that camp—and I would say, most agencies and most media companies are not—then you have to get there. You have to get there because that’s where the dollars are going…lots of dollars at GM, and we are just one client.”His scalding observations were endorsed by GM Vice Chairman Robert Lutz, who went so far as to muse about the effectiveness of TV auto ads.

Despite the dire implications of those remarks, the large agencies remain stubbornly reluctant to give up on commercial TV, even as other major advertisers, such as P&G and Unilever, join GM in pulling back from the medium, no longer seeing the automatic impact on sales they once took for granted.

That’s because audiences appear to be “deserting television in droves,” according to the New York Times (October 22, 2003). The Nielsen ratings for this year’s prime-time television season have shown a shocking drop from the past—as much as 20% in the all-important 18-24 male demographic group—leaving network executives baffled. One is quoted as saying the situation “strains credulity.” Another confesses, “No one knows what’s going on.”

What’s going on is that consumers, fed up with free TV, have found other digital distractions to inform or amuse them (e.g., pay-per-view, video games, DVDs, the Internet). Even among TV watchers, only about one-third still pay attention to commercials anymore (according to a Forrester media and marketing survey).

And a fast-growing population of PVR owners are gleefully “ad-skipping” when they watch their recorded programs—a trend that puts TV’s future in doubt as a mass medium. As Wired magazine points out (October 2003), “the revolution that started in analog is now exploding in digital, and suddenly everything about television is up for grabs—the way we watch it and the ads that pay for it, the kinds of programs we get and the future of the networks that carry them.”

Just as the balance of power in the marketplace has passed from producers to consumers, control over the direction and content of TV is shifting from broadcasters to viewers. These parallel trends account for all of the turmoil in marketing today and are the reason why TV broadcasters and agencies fear for their continued existence.Over the next five years, Forrester predicts, TV viewing of ads will drop by almost 20%, forcing national advertisers to follow GM’s lead in transferring ad budgets to alternative media. When that happens, it will truly mark the end of the analog era—alucrative period during which broadcast networks and agencies resembled conjoined twins, their mutual wellbeing dependent on unconditional TV spending.

The Internet will likely soak up a large part of the freed-up spending. Distrustful of brand messaging, more than half of online consumers prefer the Net to research their product purchases (according to Forrester), and when they do succeed in forming a trusting relationship with a retailer or manufacturer, over half are now agreeing to be added to their email lists.Even online advertising is making a comeback, up 11% in the first quarter of this year, the second consecutive quarterly increase. A Cap Gemini Ernst &Young market study has found that in the automotive sector, to cite just one example, ads onInternet search engines actually have a greater influence on car buyers today thanTV spots (which explains GM’s disillusionment with TV).

Postcard View

So marketers today are facing two crucial and exasperating challenges: gaining the attention of consumers at a time when ad avoidance and permission marketing are on the rise, and juggling communications across multiple channels.

That’s why marketers usually have their hands full just managing integrated campaigns—diverting their energies from long-range strategic planning. Their ad agencies don’t make it any easier for them, forcing them to make tradeoffs between media integration and channel expertise.Most general agencies are still wedded to an organizational model that dates back to black and white TV, patched over to give the impression of a “full-service” offering. They operate with a postcard view of the world where a marketing campaign is stripped down to the bare essentials: What are we selling? Who are we talking to? And what’s the brand character?

Ruled by creative elitists with a disdain for other forms of communication, their first recommendation is usually to “roll out the 30s.” Their idea of key metrics: ad recall and brand awareness. Success: a march to the podium at Cannes.

That model is no longer relevant or sustainable. Marketers deserve more from their agencies. Clearly, they need immediate support proving to CFOs they’re making the best use of their funds.

Even more importantly, they need a new marketing model, one which acknowledges that sales transactions are not discrete events but form a chain of continuous engagement where a long-term “relationship” is formed between buyer and seller based on a fair value exchange (what customers get in return for what they give).

To deploy this model, marketers need help mapping out multi-channel “what-if” scenarios around key customer segments. They need innovative ideas for responding to “moments of truth” across different touchpoints. They need suggestions for increasing customer value (tempered by how much they can afford to invest in each relationship over time). They need more exacting methods to track and measure theimpact of different media elements—and to convert real-time consumer feedback into marketing insight. And they need to know how to make the best use of information technology.

If ad agencies are to serve these increasingly complex needs, they must purge themselves of their obsession with TV. They must offer more visionary thought leadership (a role they abdicated long ago to the management consultants). They must distance themselves from their own self-serving brand dogma, used mainly to rationalize mass media expenditures.

They must upgrade their talent pool, inviting back seasoned marketers with real-world interdisciplinary know-how. They must reengineer their workflow methods,wrapping strategy around the customer lifecycle instead of the brand. And, above all, they must become the hub for all customer management activities, deftly orchestrating all of the moving parts.

For agencies to truly transform themselves, they must give more than lip service to the idea of integrated marketing. In his book The Future of Advertising, long-time industry observer Joe Cappo declares, “I firmly believe that the notion of the advertising agency will have to go through a dramatic redefinition and reinvention in order to survive and prosper in the coming years.”

The old ad game, long played by one set of rules, is just about over. A new rulebook is needed, one that agencies can take a lead role in shaping—provided they changethe way they operate.

• First, agencies must completely dismantle the caste system that now exists, ensuring that all of the different disciplines have equal sway. That should lead to more balanced media recommendations (mediated by a senior strategist) in which all channels are given due consideration.

• New planning processes should be introduced that take into account the customer experience beyond the point of sale. Client solutions should emerge out of a discovery process that roams far beyond the media perimeter to determine the best ways of acquiring, pleasing and retaining customers.

Finally, the media message should be grounded in a clear understanding of the factors that drive both brand awareness and customer loyalty.