Advertising industry leaders WPP have suggested that the marketing revenues of consultancies entering the sector have been “wildly overestimated” by analysts and the press. Following the major acquisition campaign of professional services industry heavyweights such as Deloitte and Accenture, advertising and design agencies like WPP have seen sales figure growth flat-line.
WPP has dismissed the apparent threat from professional services firms such as Accenture and Deloitte, who have increasingly been encroaching on the advertising market, which WPP have traditionally dominated. The world’s largest agency group have come under mounting pressure from the consulting world, with a growing trend in the industry seeing advisory firms steadily acquiring creative shops, with a view to growing into the advertising and design sectors in order to offer their clients a holistic design service.
Among the companies that are part of WPP are Grey Group, Burson-Marsteller, Hill & Knowlton, Millward Brown, Ogilvy & Mather, Young & Rubicam, Landor Associates, and JWT. The company, which is listed on the London Stock Exchange, is one of the ‘Big Four’ advertising agency companies, alongside Publicis, IPG and Omnicom.
WPP’s net sales fell 1.1% in the third quarter, better than the previous three months, but there was no sign of improvement as it expects annual sales will be “broadly flat” and reduced its profit margin target. WPP said it would review its full-year forecasts in early November but it expects “broadly flat like-for-like revenue and net sales growth” and “headline net sales operating margin improvement” is “now targeted flat”. The group, led by chief executive Sir Martin Sorrell, had said at its half-year results that like-for-like sales growth would be “between zero and 1%”, while operating margins would increase by 0.3%, warning shareholders that it could be facing “a changing industry” because of changing client behaviour and new entrants moving into the space by acquiring “small agencies” and talent.
Deloitte’s creative arm now includes UK-based Market Gravity and award winning creative agency Heat. The Big Four firm’s Digital practice recently expanded to a new Edinburgh office, as it makes a major bid to grow its digital and design client base.
Accenture’s substantial campaign of acquisitions has meanwhile made the firm’s Accenture Interactive label according to some analysts yet debunked by others, the world’s largest digital agency. The agency’s holistic design service provided to publisher Pearson, recently showed the impact the intrusion of consultancies into the advertising and design sphere could have. While the solution provided might have seemed obvious to traditional ad firms, Accenture’s substantial strength and depth of personnel – over 400,000 staff globally – will likely continue to persuade new clients that the company is the right choice to find an innovative and value-adding solution – eating into the market share of smaller ad market incumbents in the process. With many more firms, including Elixirr, BCG and McKinsey, among others, also entering the market, advertisers look set to face a sustained period of disruption resulting from the increased competition.
Despite the challenge seemingly presented by the consulting industry’s expansion into advertising, however, WPP’s report to shareholders stated that only “two or three” such businesses were currently capable of competing. It continued, “Most agencies report, including ourselves, that even when they do compete directly with the consultancies on digital projects, the win/loss records are consistently strong, particularly given the continuing importance of the creative dimension for success.”
The document then continued to question whether consulting companies were capable of buying a culture of creativity, before claiming that the press had “wildly” overestimated their digital marketing revenue, in comparison to other holding companies and agencies. The paper stated, “Where the consultancies may have made some inroads is their focus not so much on the digital area, but more importantly on client concerns about cost. Very few CEOs will resist the suggestion that they may be overspending and the promise of an audit or review that will only cost a proportion of any cost savings generated or a contingency fee… So, it may well be, that consultant activity is having some impact, not so much in the digital area, but more because of an emphasis on cost containment.”