More than 60% of client-side marketers choose to work primarily with independent shops on digital initiatives, despite strong M&A activity in 2014 (and thus far in 2015), the role of independent digital shops has a bright future and a commanding position on clients' agency rosters.
The report coincides with today's 'SoDA Cannes: Things That Can Kill You' event, which presents an optimistic future for digital agencies, with more digital shops taking the role of 'lead' marketing agency.
The research surveyed 680 respondents equally divided between digital agencies and their clients. The findings showed that almost half of clients have either increased their digital budgets or moved traditional marketing spend into digital. Yet despite the positive digital outlook, the report highlighted a number of red flags when it comes to agencies understanding their clients' needs.
Digital marketing budgets growing - eight in ten digital agencies saw revenue growth or stability, while 73% reported that profit margins grew. At the same time, almost 80% of agencies feel that the industry is moving in a positive direction with 76% stating that digital agencies are becoming the lead agency in the overall marketing mix.
On the client side, 22% have increased spend in both their traditional and digital budgets while 25% have increased their digital spend at the expense of traditional marketing. Only 9% of clients have decreased their digital marketing budgets.
Client satisfaction pitfalls - almost 70% of agency respondents, including 72% of independents, agree that the client/agency relationship is improving. At the same time, agencies have a good understanding of what clients value. Agencies felt that clients rate expertise in emerging trends, creativity and customer focused marketing the highest when working with an agency - with clients agreeing that these are in fact the three most important things that they look for.
However, less positive was the response when clients were asked whether they would recommend their digital agency to friends or peers. On a scale of 1-10 (with ten being very likely and one not at all likely) the average came in at 4.3. Clients in Asia-Pacific were least likely to recommend their agencies with a rating of 3.8/10. This could be because agencies think they are most likely to lose an account due to "management changes" when according to clients, their changing needs (and arguably the agency's inability to keep up with those needs) is the main factor for switching.
Meanwhile, while agencies understand that clients' value expertise in emerging trends over anything else, almost one-third (32%) take a passive approach, only providing education offerings to clients "when asked." The findings point to the need for agencies to be more proactive in adding value when it comes to providing industry intelligence and expertise.
Innovation Labs a significant new business tool - more agencies are starting to demonstrate expertise and industry leadership is by creating an Innovation Lab or an incubator. The research shows that such moves are a solid investment that pays dividends over time. Ten percent of agencies who had an incubator for a year or less saw significantly increased revenues as a result, compared to 20% who had one for three years or more. In terms of new business, agencies with such tools reap the benefits much faster, with 33% of agencies winning new clients after year one, compared to 70% after year three.
"Clients in 2015 feel tremendous pressure to understand and leverage emerging technology trends in order to innovate their operations as well as the products and services they offer to their customers," says Chris Buettner, SoDA executive director and managing editor of The SoDA Report. "Expertise in emerging trends is now the number one skill clients most value in their agency partners, up from a distant third in 2014.
"Agencies and production companies - particularly those that invested early in innovation labs and product incubators - are reaping the benefit of clients' acute need for emerging tech expertise. They're also increasingly bringing their own IP directly to market."
The full report is available to view at www.sodareport.com.
