How clients are de-skilling the UK advertising industry – Guardian

An article on the Guardian website today addresses a topic that's probably familiar to many of our readers – advertising agencies losing skilled, experienced staff due to financial pressures.

I met up with a former boss of mine recently, from back in the day when I first started working in advertising. He was suggesting to me that clients (meaning marketing people) are now "getting the agencies they deserve". And not in a good way. 

His thesis was that marketing organisations have spent the last decade squeezing creative agency fee income and margins, a trend accelerated by the rise in influence of procurement departments in such negotiations. This had achieved an undesirable and unwanted outcome; over time agencies had become de-skilled, and consequently less useful.

The article, by Shaun Varga (Chairman & Creative Director of business development consultancy Ingenuity), suggests that at least part of the problem may be down to how agencies have sold themselves, and charged for their services:

How did this happen? 

It happened because agencies failed to convince clients of their true worth, and thus lost the opportunity to charge accordingly. Agencies have historically been poor at charging for the "right" things. They used to mark up the areas where they do not add value, like production, and "throw in" the value they really do add – the creativity and thinking – seemingly for free. And they all used to charge pretty much the same mark up: 15%. That was always far easier than trying to figure out what "value" can actually be ascribed to the ultimate product, the creative idea. 

This model simply encouraged clients to believe that agency creative output was a commodity, a mere consumable, and not something with an intrinsic value. After all, it was the one line item that never appeared on the invoice.

Is he right? And if he is, what are the solutions? How do you charge for intangibles like creativity and experience?