July 09, 2018
2018 Agency 100 overview: firms adapt to stay ahead of nontraditional players
It's been a few years since a series of structural changes wrought wholesale reorganization within the health networks of the five biggest ad holding companies. Behind the rebranding, consolidation, and new sub-holding companies was a bid to grab a larger chunk of the burgeoning wellness market.
But the real test of whether the wisdom of these changes is borne out may be yet to come. Agencies are now embarking on their latest conquest: harnessing the potential of AI, big data, and other tech to keep their pharma clients a step ahead of nontraditional players such as Google and Apple in the race to win over the empowered patient.
Meanwhile, the retooling continues to pay off. Firms responding to this year's A-Z survey, a field which includes MM&M's Top 100 agencies, reported a nearly 14% increase in revenue, from $2.2 billion in 2016 to $2.5 billion in 2017, and a 7.5% increase in the workforce, from 20,700 to 22,250.*
That builds nicely on the 8% revenue increase seen in 2016, although last year's came from a larger base.**
Though the aforementioned changes nudged specialist agencies a little out of the medical comfort zone, this past year's revenue suggests these organizations are firmly back in their element.
What TV Spots?
According to our breakdown, professional digital/web/mobile work accounted for the lion's share of work, topping consumer broadcast, which moved way down the list. That's a soft indicator that pharma clients, which suddenly made DTC last year's number one category, may have just as quickly clawed back budget for those pricey daytime TV spots. According to Kantar Media, in 2017, total pharma ad spending dropped nearly 5% — the first slide since 2008.
Also high on pharma's priority list in 2017 was consumer digital/web/mobile work, which nevertheless dropped a notch to number three, and sales materials, which jumped from the bottom tier up to number four.
Sales materials typically refer to things such as “slim jims,” or brochures drug reps leave behind after calling on doctors. What's that you're thinking, “It's 2005 all over again,” when 102,000 reps roamed the country? (There are now about 70,000.)
Not so fast. Consider that agencies might just be classifying collateral designed to be left behind by MSLs and medical affairs staff, both of whom are playing a larger role in drug launches, as “sales mats.” Meanwhile, the catch-all “other” category claimed the second spot, suggesting agencies are either going outside normal swim lanes, or our long-running survey has overlooked a very popular category.
Meanwhile, the bottom half of the priority list saw a reshuffling, as well. Promotional med ed and direct marketing resumed their mid-tier spots, journal ads fell from fourth to seventh, and PR tumbled from fifth to 11th. Whatever this year's mix happens to be, so far in 2018, the majority — 81% — said their business is looking up, with most estimating growth in the 1% to 10% range versus the same period last year.
While the passage of time seems to have borne out the wisdom of their transformation, the agency world is now facing new questions.
For one, will they be able to harness the potential of AI, big data, and other tech that promises to improve consumer healthcare?
“We'll continue to invest massively in technology, innovation, and health analytics, and address transformational trends including the digitization of health,” stresses Helene Yan, VP, business strategy, Interpublic Group. “As AI starts to play a greater role in diagnosis and monitoring, patients will visit HCPs much less. We'll need to help brands engage physicians and patients effectively.”
The industry appears well situated to capitalize, with 70% now offering OTC capabilities, and health shops starting to include teams devoted to data science (69%) and nurturing health-tech startups (83%) among their menu of offerings.
Time to Simplify?
And in this post-Martin Sorrell (below) era (the dramatic exit of WPP's former CEO being among the year's standout moments), will brands force agencies to continue simplifying offerings? “Holding companies need to reduce complexity and break down siloes that can get in the way of us working for our clients' benefit,” insists Mike Hudnall, CEO, WPP Health & Wellness. One way WPP has backed up that talk is via Ogilvy's recent rebranding and streamlining.
Thirdly, how will agencies handle the rise of “cagencies,” which is Accenture Interactive managing director Anatoly Roytman's term describing consultancy-agency combinations that have doubled down on customer experience? Of the 100 agency-related mergers and acquisitions that took place around the world in Q1 2018, according to a report from R3, only 14% were by agency holding companies.
Consultants led the way, along with private equity, as buyers such as UDG Healthcare (through its Ashfield division) scooped up shops Vynamic, MicroMass, and Cambridge BioMarketing the year before.
Perhaps these questions can best be summed up as an expectation that to succeed, agencies must marry the best of a creative boutique with the analytics mastery of a data scientist and an MBA's business acumen — and do it all with a service-oriented style akin to white glove.
Accomplishing this feat most certainly requires people with the right blend of creative and technology expertise, and talent acquisition again topped the list of agencies' biggest challenges (33% cited this as “significant” or “major”).
Managing growth and shrinking pharma budgets were also among issues agency leaders cited as most often causing them to break out in a cold sweat, and, to a lesser extent, engaging HCPs and pricing-related issues.
Anecdotally, firms have downplayed any fallout from the recent Facebook-Cambridge Analytica crisis on their data business. What's also interesting is reimbursement is no longer viewed with the same measure of fear and trepidation: payer-related challenges ranked quite low on this list.
On the flip side, respondents voted the continued shift to mobile and digital communications as their biggest opportunity, followed by the need to create more and better content and experiences for customers and the increasing personalization of communications.
Where else is opportunity knocking? Vote getters in this department included the emphasis on specialty drugs, along with a heightened focus on analytics, ROI, and measurement.
*These revenue and workplace totals are based on data that companies submitted as part of MM&M's annual agency review and reflect all of the agencies in the top 100. All data here are taken from the annual agency review unless otherwise noted and does not include estimates made by the MM&M data team.
**As part of our coverage, we felt it was necessary to highlight a few of the more aggressive and newer holding companies — Ashfield Healthcare Communications, Precision Value & Health, and Huntsworth Health — in the revenue table and the top 100. Subtracting four of their individual top 100 firms from the revenue table, MM&M estimates revenue totaled $4.8 billion in 2017.