By Mark South, Managing Director, MSQ Partners
Earlier this month European financial regulators began discussions over whether to supervise the creep of big tech firms like Google, Apple and Microsoft into the financial services sector, following the EU’s second Payment Services Directive opening the doors earlier this year.
The big banks seem unconcerned at the prospect of losing share in the short term and are sticking to their guns, continuing to build the relevance of their brand for their huge customer bases. Only time will tell whether this strategy is reflective of strong business leadership or a milestone ‘head in the sand’ moment.
For small and mid-sized financial services companies, and newer entrants alike, the prospect of competing with businesses that have an unparalleled view of consumer behavior and a seemingly bottomless investment pot is daunting. Particularly when the key source of competitive advantage has been their customer experience or innovative ‘digital’ products – the elements most easily replicated or bettered by the tech giants.
The incumbent, big players in the industry will struggle less – able to pay the often-astronomical fees demanded by global network agencies and management consultants alike to help them better understand and communicate with current or potential customers, as well as develop product solutions that meet their changing needs and behaviors. Or, they will do it themselves, by building ‘in house’ agencies – a path being trodden by the giants of the consumer goods industry like Unilever and Coca-Cola. But for everyone else, many of whom are faced with capability and capacity constraints in marketing and tech, there are only really two options – attempt to follow suit by developing an ‘in-house’ agency model, or move to ‘marketing outsourcing’.
When one thinks of outsourcing, perhaps IT, HR, or accounting comes to mind. The practice of handing over responsibilities to a third party is common across most business functions, but to date, not marketing – in the UK at least. According to The CMO Survey, in February 2018, marketing outsourcing is on the rise, most notably in the financial services industry.
“We’ve had enough, and we’re just going to do it ourselves”. That’s the message many large companies like Unilever and Coca-Cola are sending to their agencies by ‘in-housing’; building their own agencies in-house. It really shouldn’t come as a surprise that these giants with the money to go the DIY route are taking it, after decades of complaining about big-agency inefficiencies, ‘black box’ processes and fluctuations in cost and quality. But there are two other questions to be asked and answered. Firstly, how on earth did it come to this? And secondly, is in-housing actually the right solution in the long run, for the giants, or for everyone else in the financial services industry?
How did it come to this?
Whilst there has been a slight regression in digital marketing spend in 2018, the fact is that total spend on digital marketing still grew 9.9% according to the Advertising Association and WARC, versus traditional marketing spend which experienced negative growth. So, the majority of marketing effort continues to tilt toward originating content to provoke engagement, as well as ensuring the design and delivery of a great customer experience.
Pressure on production has consequently increased, and demand is for more, more quickly. Agencies are seeing increased demand from all their clients at once and haven’t been able to scale quickly enough. Overstretched production departments supplemented by external contractors have become less reliable as well as more expensive.
Agencies haven’t kept their knowledge of marketing technologies sufficiently up to date to keep pace with client adoption. Clients expect their agencies to understand how to use the best of the new tech and tools available to place content and advertising, stay on top of measurement data, employ nudge tactics, and steer the ship across multiple media channels for the most effective outcome. Few agencies can do all of this at speeds close to real-time and the agencies that lead in the use of technology tend to be small niche players. Clients therefore have to play the co-ordination role at the centre of a host of providers, all the while paying each of them for account-management. To evolve, the big networks would have needed to better understand their own processes and capabilities, the role they were playing in the wider client marketing ecosystem, invested for the long term and become more disciplined – relying less on personal heroism and becoming more systematic. But they haven’t, so clients have determined that they can develop an agency model better suited to their needs, themselves.
Is ‘In-housing’ the right answer?
In the short term, for the brand giants in consumer goods and financial services at least, it may be. If they can bring in new talent, and keep it happy, in-housing could help these companies win the battle that starts afresh each day. But it will be a very costly exercise, certainly not affordable to mid-tier businesses, and could come with some problems of its own; a lack of deep understanding of market movements and industry trends over time, how to originate the creative insight that usually comes from an independent perspective, how to create sufficient variety of challenge to excite and develop creatives working on just one (very big) brand portfolio, and how to avoid your agency ‘going native’. In time, talent could be lost, or cease to evolve at the pace of the wider industry. The other big issue is that an in-house agency is ‘cost-free’, meaning capacity limits are quickly reached and breached, and cannot easily scale to meet demand. These constraints can quickly become a frustration and prioritising work becomes a political challenge – the net outcome being increased levels of paperwork and declining internal client satisfaction.
For everyone else in the financial services industry, a new marketing agency solution is required to combat the threat from big tech and ensure long term survival and growth; one that supports the development of outstanding CRM capability, enabling a ‘segment of one’ view on their customer base, and prioritises new customer acquisition. They need to be able to meet new prospect customers with propositions better than the competition and communicate their value broadly, simply and clearly. And above all, build a ‘marketing machine’ that is more efficient and more effective than either an in-house or traditional agency/client relationship. The answer may well be outsourcing.
The outsourcing alternative
The idea of outsourcing has never found much purchase in marketing. A couple of factors could explain this; clients have been reluctant to outsource ‘core’ activities and marketing agencies haven’t been able to take a process-led view of what they do, or transform their business model to allow them to provide service in this way.
To offer a marketing outsourcing solution, a would-be-provider must understand both marketing, and outsourcing. Getting outsourcing right is a complex business, usually the domain of management consultants who map out exactly how things happen; how much of each activity is undertaken, the costs, the skills involved and the technology enablers. And then there is the transition plan and contract. They are rational and driven by efficiency goals. They reduce complexity into elegantly simple processes, frameworks and models. It’s unusual to find management consultants in marketing agencies. But not impossible. MSQ Partners, is probably the only agency to include consultants from both McKinsey and PwC in its leadership team. The benefit is the ability to develop outsourcing solutions that take clients on the journey from becoming outsourcing ready, to deep interdependent partnerships, offering skills that map to each step in the marketing process.
Agencies are the opposite. They understand the human aspect of how companies and teams really work. They prize creativity, human insights and are driven by the effectiveness of their work in delivering social change or selling more products. But they can sometimes lack structure and don’t obviously seem to follow a route-map.
When you blend the strengths of both, the weaknesses are cancelled out and the result is an agency with the skills and a culture fit to offer an outsourcing solution built for both efficiency and effectiveness. An outsourcing relationship can feel as close as an in-housing arrangement, without the set-up cost or downsides.
The final piece of the argument comes from the way in which an outsourcer contracts with its clients. Outsourcing contracts and relationships are longer term, anything from 3 to 10 years, and so,both the client and the outsourcer are able to forecast revenues over a longer time-frame, fostering a longer term perspective on the investments to be made – to keep ahead of developments in technology to meet service standards, and in the capabilities of people.
In-housing may be the start of the trend, but outsourcing may be where it ends up.
G20 to show united front on support for global economic recovery, cash for IMF
By Michael Nienaber and Andrea Shalal
BERLIN/WASHINGTON/ROME (Reuters) – The world’s financial leaders are expected on Friday to agree to continue supportive measures for the global economy and look to boost the International Monetary Fund’s resources so it can help poorer countries fight off the effects of the pandemic.
Finance ministers and central bank governors of the world’s top 20 economies, called the G20, held a video-conference on Friday. The global response to the economic havoc wreaked by the coronavirus was at top of the agenda.
In the first comments by a participating policymaker, the European Union’s economics commissioner Paolo Gentiloni said the meeting had been “good”, with consensus on the need for a common effort on global COVID vaccinations.
“Avoid premature withdrawal of supportive fiscal policy” and “progress towards agreement on digital and minimal taxation” he said in a Tweet, signalling other areas of apparent accord.
A news conference by Italy, which holds the annual G20 presidency, is scheduled for 17.15 (1615 GMT)
The meeting comes as the United States is readying $1.9 trillion in fiscal stimulus and the European Union has already put together more than 3 trillion euros ($3.63 trillion) to keep its economies going despite COVID-19 lockdowns.
But despite the large sums, problems with the global rollout of vaccines and the emergence of new variants of the coronavirus mean the future of the recovery remains uncertain.
German Finance Minister Olaf Scholz warned earlier on Friday that recovery was taking longer than expected and it was too early to roll back support.
“Contrary to what had been hoped for, we cannot speak of a full recovery yet. For us in the G20 talks, the central task remains to lead our countries through the severe crisis,” Scholz told reporters ahead of the virtual meeting.
“We must not scale back the support programmes too early and too quickly. That’s what I’m also going to campaign for among my G20 colleagues today,” he said.
Hopes for constructive discussions at the meeting are high among G20 countries because it is the first since Joe Biden, who vowed to rebuild cooperation in international bodies, became U.S. president.
While the IMF sees the U.S. economy returning to pre-crisis levels at the end of this year, it may take Europe until the middle of 2022 to reach that point.
The recovery is fragile elsewhere too – factory activity in China grew at the slowest pace in five months in January, hit by a wave of domestic coronavirus infections, and in Japan fourth quarter growth slowed from the previous quarter with new lockdowns clouding the outlook.
“The initially hoped-for V-shaped recovery is now increasingly looking rather more like a long U-shaped recovery. That is why the stabilization measures in almost all G20 states have to be maintained in order to continue supporting the economy,” a G20 official said.
But while the richest economies can afford to stimulate an economic recovery by borrowing more on the market, poorer ones would benefit from being able to tap credit lines from the IMF — the global lender of last resort.
To give itself more firepower, the Fund proposed last year to increase its war chest by $500 billion in the IMF’s own currency called the Special Drawing Rights (SDR), but the idea was blocked by then U.S. President Donald Trump.
Scholz said the change of administration in Washington on Jan. 20 improved the prospects for more IMF resources. He pointed to a letter sent by U.S. Treasury Secretary Janet Yellen to G20 colleagues on Thursday, which he described as a positive sign also for efforts to reform global tax rules.
Civil society groups, religious leaders and some Democratic lawmakers in the U.S. Congress have called for a much larger allocation of IMF resources, of $3 trillion, but sources familiar with the matter said they viewed such a large move as unlikely for now.
The G20 may also agree to extend a suspension of debt servicing for poorest countries by another six months.
($1 = 0.8254 euros)
(Reporting by Michael Nienaber in Berlin, Jan Strupczewski in Brussels and Gavin Jones in Rome; Andrea Shalal and David Lawder in Washington; Editing by Daniel Wallis, Susan Fenton and Crispian Balmer)
Oil set for steady gains as economies shake off pandemic blues – Reuters poll
By Sumita Layek and Bharat Gautam
(Reuters) – Oil prices will stage a steady recovery this year as vaccines reach more people and speed an economic revival, with further impetus coming from stimulus and output discipline by top crude producers, a Reuters poll showed on Friday.
The survey of 55 participants forecast Brent crude would average $59.07 per barrel in 2021, up from last month’s $54.47 forecast.
Brent has averaged around $58.80 so far this year.
“Travel and leisure activity look set to catch up to buoyant manufacturing activity due to the mix of stimulus, confidence, vaccines, and more targeted pandemic measures,” said Norbert Ruecker of Julius Baer.
“Against these demand dynamics, the supply side is unlikely to catch up on time, leaving the oil market in tightening mode for months to come.”
Of the 41 respondents who participated in both the February and January polls, 32 raised their forecasts.
Most analysts said the Organization of Petroleum Exporting Countries and allies (OPEC+) may ease current output curbs when they meet on March 4, but would still agree to maintain supply discipline.
“With OPEC+ endeavouring to keep global oil production below demand, inventories should continue falling this year and allow prices to rise further,” said UBS analyst Giovanni Staunovo.
Oil demand was seen growing by 5-7 million barrels per day in 2021, as per the poll.
However, experts said any deterioration in the COVID-19 situation and the possible lifting of U.S. sanctions on Iran could hold back oil’s recovery.
The poll forecast U.S. crude to average $55.93 per barrel in 2021 versus January’s $51.42 consensus.
Analysts expect U.S. production to rise moderately this year, although new measures from U.S. President Joe Biden to tame the oil sector could curb output in the long run.
“A structural shift away from fossil fuels” may prevent oil from returning to the highs of previous decades, said Economist Intelligence Unit analyst Cailin Birch.
(Reporting by Sumita Layek and Bharat Govind Gautam in Bengaluru; Editing by Arpan Varghese, Noah Browning and Barbara Lewis)
Japan’s jobless rate seen up in January due to COVID-19 emergency measures – Reuters poll
TOKYO (Reuters) – Japan’s jobless rate is expected to have edged up in January as service industry businesses suffered renewed restrictions on movement to fight spread of the coronavirus in some areas, including Tokyo, a Reuters poll of economists showed on Friday.
While industrial production activity picked up in Japan, emergency curbs rolled out last month such as asking restaurants to close early and suspending the national travel campaign hurt the jobs market, analysts said.
The nation’s unemployment rate likely rose 3.0% in January, up from 2.9% in December, the poll of 15 economists found.
The jobs-to-applicants ratio, a gauge of the availability of jobs, was seen at 1.06 in January, unchanged from December, but stayed near September’s seven-year low of 1.03, the poll showed.
“As the impact from the coronavirus pandemic prolongs, it is hard for firms, especially the service sector, to expect their business profits to improve,” said Yusuke Shimoda, senior economist at Japan Research Institute.
“So, their willingness to hire employees appear to be subdued and it is difficult to see the jobs market recovering soon.”
Some analysts also said the government’s steps to support employment and existing labour shortages will likely prevent the jobless rate from worsening sharply.
The government will announce the labour market data at 8:30 a.m. Japan time on Tuesday (2330 GMT Monday).
Analysts expect the economy to contract in the current quarter due to the emergency measures to counter the spread of the disease.
(Reporting by Kaori Kaneko; Editing by Simon Cameron-Moore)
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