There Is No Value In Advertising

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I recently bumped into someone the media likes to describe as a “serial entrepreneur”. I shared my thoughts on why the PR industry is, at worst, sleepwalking into oblivion and, at best, condemned to become a cottage industry within a decade. My arguments are well trodden: the failure to embrace data; the failure to understand outcomes; the failure to scale ideas; the failure to deepen talent; the failure of large agency networks to focus on intelligence and mastery rather than endlessly merchandising bureaucracy and bullshit. “Your analysis is of course correct”, said the famed entrepreneur. “But your prognosis is of course wrong”.

“Where there is a buyer, there is a market”, he continued. “As long as clients are prepared to buy, then firms will continue to sell, whatever the relevance of their thinking. The market will not disappear overnight”.

I found Luke’s logic compelling if somewhat inconvenient. I loathe market fundamentalism, not least because “markets” are too often used as a lazy excuse for those who should do better than hide behind blunt instruments of economic imperialism.

Applying market thinking to the advertising industry, however, provokes some interesting thoughts. Despite its flash offices and fancy cars, here is an industry that, in market terms, neither values nor sells its intelligence or indeed its more senior people. The planners – the deep thinkers, unencumbered by management process and celebrated for their powerful insights – are rarely charged to clients on a fee basis. Nor are the creatives – the legendary agency rock stars, whose apparent brilliance often compels us to buy stuff that we don’t really need, or to gift to those who don’t really want.

I chatted about this with the CEOs of two of the UK’s largest ad agencies this week; both confirmed this to be the case (and were in turn complimentary and envious of our own, Chambers model for Jericho). A third agency head, an award-winning founder of an eponymous firm, confirmed the conundrum: “we simply do not charge for our time. It has no apparent value to clients. We give away our best thinking and our best people for free, up front. We only make money on the delivery”.

Anxious for client business and fuelled by desperations of scale, big ad agencies spend tens of thousands of pounds at a time pitching for business – effectively gifting all their thinking and intellectual capital in a play-the-percentages game of chance return if they win. Thus their human or intellectual capital has no immediate, attributable value. In raw market terms, it effectively has no value at all. No charge to the client means no value in the marketplace. The buyer gets the service without paying a cent in return.

In practice, of course, this equation is not quite true. As Diogenes the Cynic famously observed, “the marketplace is where men go to deceive one another”. There is, as we know, no such thing as a free lunch, especially in the ad world. The deception is clear: if no fees are charged for planning or creative, then where is the money made? Perversely, money flows through the bureaucracies of account management and the hidden costs of post-pitch production and sometimes media. It is as unhealthy as it is opaque. It also carries shades of the great banking myth – that there is such a thing as “free banking”. Of course, there is not. Charges are simply secreted elsewhere, much to the frustration of customers who see in this a fundamental and cultural lack of honesty and transparency. Like banking, the world of advertising needs to come clean. It needs to change its revenue model.

It may be surprising to some that the ad industry has consistently failed to challenge these structural failings and think its way out of the muddle. The market traps it. As long as there are those willing to buy (the clients), then there are those willing to sell (the agencies) – and often for less money. This may be an argument for lower costs, but it is most certainly not one for improved quality or for valuing either talent or thought. In this sense, the market gives us all the advertising we deserve.

Robert Phillips is co-founder and Head of Chambers at Jericho Chambers.

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