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.