Damien Venuto: Does New Zealand have too many ad agencies?

New Zealand's marketers may have too many choices at their disposal. Photo/Getty Images.

During a recent lunch, a Kiwi advertising executive re-told an old joke that will be familiar to many in the industry.

"New Zealand is so small it only has three accounts," he said with a grin.

"But that's okay because we've got four agencies fighting for them."

The tongue-in-cheek observation strikes at the heart of a common view that there are simply far too many ad agencies floating around and that it would probably make sense for a few to be merged or eliminated entirely.

This sentiment hasn't applied just to the small two- or three-piece bands plying their trade across the industry. In the last year we've seen some of the more famous names in the ad scene morph into new entities.

The biggest moves have been led by the WPP Group – a massive international holding company – which last year merged respected creative shops Y&R and Assignment Group under the acronym-heavy VMLY&R banner.

WPP also whipped out the glue to fasten together J.Walter Thompson (JWT) – often dubbed the world's oldest ad agency – and Wunderman to create Wunderman Thompson.

While nostalgia is inevitable whenever industry legends undergo change, there's also a consensus that it no longer makes sense for smaller agencies to clamber over each other for ever-smaller slivers of a pie that's continuously being sliced into new segments.

What are we even fighting for?

Two weeks ago, ad executive Simon Lendrum left the Wunderman Thompson offices, ending a nine-year stint as the boss of JWT.

Looking back at the evolution of the industry over the last decade, he says consolidation is likely to ramp up in the coming years – simply because the entities within holding companies aren't just ad agencies any longer.

Former JWT boss Simon Lendrum. Photo/Supplied.

He says holding companies formed over decades through the acquisition of well-established advertising businesses are all active in the same playing field. While the individual agencies may have been owned by the same organisations, the competition between them ensured clients ended up with the best creative work delivered as cheaply as possible.

But this dynamic hasn't been as clear-cut in the digital age, which has added a range of disciplines and a proliferation of agencies, each specialising in some aspect of what had become the marketing industry.

"Digital is just the grey area in which everyone plays," Lendrum says.

"And it's not just digital advertising. That's a very narrow section of digital. You're talking CRM [customer relationship management], loyalty, remarketing, web development and so much more."

There have long been concerns that New Zealand has too many agencies crammed into a small market. Photo/Getty Images

This has led to an explosion of businesses. Lendrum says the latest statistics suggest there are as many 700 organisations – ranging from bit players to the industry juggernauts – today offering marketing-related services in New Zealand.

The holding companies eager to ensure they were not being left behind have also acquired many of the specialists over the years, but the dogfight between agencies no longer works as well.

"If you're a holding company, you end up with a lot of fingers in a lot of pies and pressure from clients to look for efficiencies," says Lendrum.

In a worst-case scenario, that can lead to the clients becoming weary as they desperately try to manage the agency relationships among a crowd of specialists, all of them promising that their service is the best solution for a given problem. The old lesson still applies: if you talk to a car salesman about what you need, they'll try to sell you the most expensive car on the lot.

"The reality is that if you have complementary skill sets sitting alongside each other in separate agencies, there are obvious efficiencies if you can successfully merge those entities and enable more skills to be provided to clients with fewer overheads and less duplication," says Lendrum.

The point he makes here is that the agencies are no longer competing just to make ads at the best possible price. Along with the ads, they're also competing to ensure websites don't glitch, emails don't look like they've been written by a spam artist and pop-ups don't follow people around the web indefinitely.

Asked whether he thinks 700 is too many marketing-related companies for such a small country, Lendrum says it really depends on whether most of those agencies are happy to be small in size and in their earnings.

As always, the market will eliminate those who serve no purpose.

Just don't call it an ad agency

Ad agencies have come and gone for as long as billboards have hugged roadsides, and Lendrum doesn't think that's going to change any time soon.

What might change, however, is what we call the companies in the business of encouraging people to buy things they may not necessarily need.

"An 'ad agency' by definition sounds somewhat anachronistic," says Lendrum, who is still mulling his options after his long career in the industry.

"Twenty years ago you could create an ad agency with three people: a creative, an account manager and a strategist. That would be your triumvirate that would go on to great success. Now you've got so many roles that need to be at the table to develop and build brands."

An interesting product, an incredible website and 30 incredibly moving seconds of video footage could all form part of what we today call advertising, but you'd be hard-pressed to find a single group of people capable of delivering in all those areas.

"You won't find many companies calling themselves advertising agencies these days," says Lendrum.

"You're far more likely to hear them describe themselves as ideas companies or creative businesses. And that's inevitable because of the span creativity can encompass today."

Which is to say that ad agencies might, in fact, be an endangered species in a changing world. Or maybe it's just the case that the rampant cross-breeding of digital media means that everything has a bit of advertising in its blood these days.