The 'Prosolidate' Push: New Agency Service Mix

Today, disruptions in both healthcare and marketing have created new risks for pharma brand leaders when they consolidate their full suite of advertising services-from media/search engine marketing (SEM), social, and digital execution to insights and strategy, analytics, and digital agency of record (AOR)-with a single network, or worse, a single network agency. To minimize the risks, many brand leaders are embracing a new agency service model called “prosolidation” that adds independent agencies into the mix, breaking the decades-old trend of agency consolidation.

Consolidation vs. prosolidation

The watershed moment for agency consolidation came in 1994 when IBM consolidated $500 million in agency spending. It was the largest such shift in advertising history but, more importantly, it worked. IBM cut costs and revitalized its brands with a cohesive message and strategy. Other companies joined the trend, hunting for leverage and efficiencies through consolidation. In pharma, too, advertising dollars consolidated with a holding company and its network of agencies became the de facto “prescription” in the 1990s and 2000s-a basic calculation of maximizing a benefit-to-risk ratio.

But today, that calculus is changing. Higher risks have emerged in network relationships due to three recent industry forces: the rising cost of procurement, the maturation of digital, and the growing complexity of pharmaceutical products and their marketing needs. To mitigate the risks, pharma marketers are supplementing their network relationships with specialized talent, untethered innovation, and leading-edge capabilities from out-of-network sources. The new trend may not have a watershed moment to point to, as in 1994, but now it has a name: prosolidation.

Prosolidation is the new service model that adds independent agencies back on the roster in order to have them work in concert with network agencies. Not a return to the days of pre-consolidation, prosolidation instead optimizes the consolidation model by replacing the “cons” (risks) with “pros” (benefits). It empowers clients to build greater value around their brand by freeing them from complete dependence on a network for  AOR solutions-whether for strategy, creative, digital, media, or social. Because it has the power to drive large-scale innovation, prosolidation is the new prescription for pharma marketers today.

Looking back at consolidation: Benefits and risks

Consolidation was basically a financially driven idea. Its chief benefits were discounts, standardized rates, and streamlined contracts. Greater efficiencies for both clients and agencies were realized by reducing the number of stakeholders, handoffs, overlaps, and other redundancies encountered with a multiple-agency model. Support services, such as finance or IT, could be centralized, and so could multiple account teams. On the client side, consolidation gave procurement greater leverage in negotiating prices and terms, enabling companies to be more aggressive in increasingly competitive markets. On the network side, consolidation enabled agencies to deliver global scale and more consistent execution. Brand experiences were made more potent and uniform by a single entity than by multiple agencies.

But the financial and executional benefits gained from network contracts came with risks, too. According to Bob Jansen, the founder of Zensights and member of Pharm Exec’s Editorial Advisory Board, “In a world of consolidated holding companies, pharma manufacturers and their sourcing departments are doing everything possible to drive down cost-without a true understanding of how the deliverable that they are negotiating for their internal clients will ultimately look.” The internal clients (the brand leaders), on the other hand, have long understood and contended with the risks:

• Junior staffing. In order to compete at the price point negotiated in the winning contract, network agencies run the day-to-day work on an account with junior staff, who cost less than their senior counterparts. To further save expenses, agencies often stretch their staffing too thin.

• Conventional thinking. With junior staffing, innovation and independent thinking, the very capital of the creative agency, can be lacking or, even worse, missing. Real expertise born from deep experience is increasingly absent on network agency brand teams.

• A culture of managers. The sheer size of a network demands a culture of managers (who keep the machine running) versus leaders (who innovate). It reinforces the status quo.

• Homogenization. In an attempt to be all things to all customers, networks often end up homogenizing their capabilities and service offering. The entire industry of networks has raced itself to the middle ground and, as a result, network agencies tend to deliver virtually indistinguishable products.

•  Reduced competition. When such a large percentage of agencies are controlled by a small handful of people, there are fewer incentives for competition or innovation, and their offerings become mediocre and slow to keep pace with emerging media and other trends.

New risks with consolidation

Although pharma companies and agencies exist in a constant state of adaptation, there are three trends right now in particular that are making the risks of consolidation more serious and the benefits of prosolidation more favorable:

1. The rising cost of procurement. The financial benefits of consolidation are no longer what they used to be. Drew Sigafoos, director of strategic sourcing at Otsuka (US), asks, “Do pharma companies really get the financial benefit of networks when they have to build such large procurement or strategic sourcing groups?” At some of the largest pharma companies, Sigafoos notes, commercial procurement teams have grown to more than 60 employees, and overall procurement groups to more than 300. The financial burden of running such large procurement groups ironically diminishes or even completely negates the discounts they negotiate with networks. Negotiating with an independent agency, on the other hand, is a shorter, more straightforward process. According to Sigafoos, “You get to the line in the sand a lot quicker.”

2. The rise of digital demands greater innovation and novel capabilities. The evolution of digital media means that constant optimization is necessary to maximize value from marketing efforts. The network model of creating a campaign and repurposing it across channels ad nauseam is outdated; advertisers lose out on valuable opportunities for innovation and content marketing. In general, marketing, technology, and healthcare are converging. Digital capabilities transform our ways of working, and today’s digital landscape needs independent agency partners who can keep pace. Network agencies have many pools of talent to tap, but digital expertise is typically not one of them.

3. The growing complexity of marketing pharmaceutical products demands increasingly niche skills and nimble services. As the medical field advances, pharmaceutical products are growing in specificity and complexity. The proliferation of disease subtypes based on biomarkers, new treatment modalities, and their underlying science spell out new areas of expertise. Product promotions increasingly differ across audiences, and company pipelines show a shift to more targeted therapies in lieu of mass-market blockbuster drugs. The proliferation of disruptive trends-wearables, digitally connected health services and devices, patient empowerment, and outcome-driven incentives-all signal a growing need for diverse specialized talent. The management of talent and expertise in a network agency is often subject to misallocation, whereas independent agencies are better able to assemble purpose-built teams with the expertise to understand the implications of these new developments and cater to each brand’s needs.

The new prescription for pharma marketing

Rhetorically, prosolidate is a clever word; conceptually, it’s an idea whose time has come. Prosolidation offers a new service model where pharma marketers can reap the benefits of both independent agencies and network agencies-a considerable advantage over the preceding consolidation model. Independent agencies offer clients greater priority and willingness to collaborate, and current trends allow marketers to build greater value around their brands by capitalizing on these distinct features.

Without an overhead organization, independent agencies maintain ownership of their own set of priorities, which translates into direct responsiveness to client needs with nimble services and specialized skill sets. In comparison, network agencies are required to satisfy the priorities of their holding company first; they must respond to the

pressures of the network contract and the need to “feed the machine” with volume. By their very nature, network agencies are expected to work exclusively within their holding company environment. Their willingness to work with another holding company or independent agency is superseded by their structural need to keep all services (and billings) within the network-regardless of quality. Independent agencies, on the other hand, are more willing to work collaboratively with other agencies-especially when it means higher quality products for their clients.

As marketers look for ways to leave less money on the table, independent agencies have become critical to reducing the capability gaps and innovation blind spots created by consolidation. The benefits of prosolidation not only have the power to transform a brand, but what benefits the brand generally will benefit patients, too. Prosolidation ensures that brands can compete in the current environment and position themselves for good health in the future.

Elizabeth Izard Apelles is CEO of The Greater Than One Group. She can be reached at eapelles@thegtogroup.com.