Advertising: Expense or Investment?

You gotta love AdAge's CMO Strategies column. One week it's Mark Simon spewing about why Twitter is "asinine." And this week it's quite different--a very well-considered piece by Avi Dan (former global executive director-new business development at Euro RSCG) titled "Agencies Must Wake Up to a Different Business Model."First, I like the fact this is Chief Marketing Officer Strategy--as in, Chief Marketing Officers should demand their agencies wake up to a different business model. I like that focus. Because it seems like we've been beating the (half dead) horse of advertising without much success. Maybe it takes the people with the money (the marketers), to truly implement change.Dan posits several fairly common recommendations for evolving one's agency into an "Agency 2.0." But I don't think that's the point. Plenty of agencies (Anamoly, Saatchi LA, CP+B, et al) have already succeeded in these areas. I think the reason we're seeing his recommendations in a CMO Strategy column is to give CMOs a blueprint for demanding change from their agencies--specifically the agency holding companies.More to the point, I suspect the real motivation for Dan's POV is in arming CMOs for the inevitable clash with their CFO and CEO in determining the true value of advertising.It's a Clash of The Titans.

"Unfortunately and unfairly, agencies are facing a head wind as the context of compensation has changed in the past two decades. Up until the 1980s the marketing folks or salespeople, the agencies' natural partners, controlled agency compensation. But as the longest-running bull market in the history of Wall Street began in 1982, the balance of power within corporate America shifted. Quarterly reports, financial guidance and stock options as a form of compensation began to take center stage in many companies, and with it the ascent of the CFO from bureaucratic, bean-counting functionary to corporate policy maker and stalwart. Over time, especially when it became harder to build the company's top line in an ever-more competitive environment, many CFOs applied financial engineering to the bottom line -- including the idea that advertising, and an agency fee, is an expense rather than an investment. And a symptom of this new thinking -- the greater emphasis on policing the financial aspect of the client-agency relationship -- is the emergence of procurement as the third leg of the CMO-agency relationship stool." (Emphasis mine.)

Is what we do, what we create--is advertising itself--an expense or an investment?You can see how the notion that "advertising is an expense" came into being. TV commercials air for limited periods of time. Print ads become outdated within months. And people keep saying consumers hate advertising. Voila! It's an expenditure--worse, a commodity. (Which is what I suspect Dan really meant.) And if advertising, and thus the agency fee and the entire relationship, is just a commodity, then let's head over to Costco because they've got a special on retail ad campaigns in aisle five next to the bulk cereal.Given this condition, it's no wonder the ad industry's prone to frequent "clients hate advertising" sentiments. If advertising is merely a commodity to be written off, then I'd hate spending time on it and paying for it, too. (Fenske's post is worth your time, btw.)At its core, an expense is essentially negative. Expenses require justification. They inspire quibbling and bullying. They lead to a singular determining factor: Cost.An Expense is not an Idea.I think it was David Ogilvy who said, "Clients get the advertising they deserve." Treat the ad industry as an expense, and well, look at what's on air and online right now. Is anyone happy with that?On the other hand, if you're a smart CMO, why wouldn't you prefer to position your advertising budget as an investment--as a positive, forward-thinking outcome?Investments are valued. Just like Ideas.If marketers were to demand their agencies pursue a different business model, one which valued ideas over hours, and put the onus on the power of creativity and the skill of craft over the blunt time keeping--I suspect agency/client relationships would improve overnight. And likely, the overall financial balance would remain largely the same.As Dan points out, "J.K. Rowling, Steven Spielberg, Damien Hirst or Georgio Armani, don't fill time sheets and don't get compensated based on how many hours they toil, but on the basis of the value that their artistry creates."The issue is value.Do marketers value advertising? If they truly did, then many more should be demanding their agencies pursue a different business model.