It’s been the best of times for healthcare marketing agencies — and, some might say, one of the most challenging. Firms have whipsawed of late between two competing narratives: absorbing independents in a play for scale and being forced to consolidate agency brands as their clients struggle with slowing revenue growth and other headwinds.
If 2018 taught us anything, it’s that expansion and contraction are the new norm and that no single approach to the agency business model is sufficient for long. Yet despite that volatility, or perhaps because of it, marketing services remains a lucrative sector.
Revenue for North American healthcare agencies increased 16% last year to $3.3 billion, from $2.9 billion the year prior, according to data shared by the agencies that responded to MM&M’s Agency A-Z survey.* Workforce growth presented far lower, at just 2% year-on-year (from 21,003 to 21,373), likely because staff fluctuations had not caught up with revenue estimates.
The sector’s strong performance follows the 14% and 7.5% revenue and workforce increases seen in 2017, respectively, although that year’s boost came off a smaller revenue base.
Tracking the main sources of that revenue, consumer/digital/web/mobile work took the lead spot in the 2018 billings breakdown, rising from fourth place to first. Consumer broadcast spiked from seventh to fourth, while consumer print ads rose from ninth to seventh.
Are these signs of the much ballyhooed pivot to the patient? We’re not talking about DTC media spend by a few well-heeled brands, but rather an industrywide multichannel manifestation. Given the Trump administration’s meddling in DTC promotion this year, it may be a prescient pivot, too.
As for areas where work is declining, the sector’s previous No. 1 source of revenue, professional/digital/web mobile work, dropped one spot. Promotional med-ed dropped from second to No. 9, sales materials fell from No. 3 to No. 5 and PR fell from No. 5 to No. 10.
However, against the aforementioned backdrop, yesterday’s revenue source is less important than tomorrow’s RFP. To that end, jockeying for best-in-class capabilities was the name of the game last year. When asked about services offered, most agencies checked all 11 boxes.
Enhancing their breadth
What’s more, all of the capabilities listed in the A-to-Z survey registered increases, from the typical service lines like digital and consumer Rx (which rose from 95% to 98% and from 83% to 89%, respectively) to the more specialized capabilities. Of the latter, those areas reflecting an increase included OTC/wellness (to 73% from 69%), media planning & buying (to 56.5% from 55%) and on-label medical education (to 56% from 51%).
One of the reasons agencies are beefing up capabilities is the increasing difficulty of differentiating pharma brands. Another is the rise of in-housing. A 2018 Association of National Advertisers survey showed 80% of members have some form of in-house agency.
This trend isn’t new, says Helene Yan, VP business strategy for IPG, and the pendulum in some cases is swinging back. “But what we’re seeing more of is the decoupling of production from creative strategy and ideation,” she says. That has prompted her organization to enhance its strategic consulting, marketing analytics and technology practice areas, as well as production.
The desire for agencies to expand their breadth of services is spurring a wave of M&A. Networks both large and small are seeking to bring on firms that have a core niche. Doing so means these organizations no longer have to refer out work on that part of the patient journey or hire part-timers to do it.
Combine this with the election cycle, and it’s become a hot market for agency buyouts. With healthcare sure to be among the top issues in the 2020 presidential campaign, some would-be buyers see 2019 as a good year to capitalize on tax incentives to become acquirers, brokers say. What’s more, the glut of private equity capital, not to mention the encroachment of consultancies such as Accenture and Deloitte into marketing services, means new buyers are coming into the market.
They’re often looking to fill gaps in their offerings or staff. A full 52% of respondents said they added brand-new roles in areas such as analytics, experience and technology, up from 49% last year.
Threats and opportunities
Talent acquisition/retention continues to keep agencies up at night, with more than 30% of respondents rating this as either a significant or a major challenge. “We know our biggest [talent] challenge is competition from the technology industry,” Yan says.
That was followed by managing growth at 12.3% and shrinking pharma budgets at 11.5%. Those two were locked in a tie for the second-biggest challenge last year, with 20% of respondents rating these either a significant or a major challenge in 2017.
Getting an audience with HCPs, which ranked as the third-biggest challenge last year, slipped to fourth this time. Pricing-related issues, which ranked fourth in 2017, ended up in a three-way tie for sixth, along with keeping up with the pace of innovation and replenishing the new-business pipeline.
As for opportunities, the continued shift toward mobile/digital again ranked as the most highly anticipated trend in the months ahead, followed by the need to create better content experiences and more personalization of communications. Rounding out the top five were intensified focus on ROI/measurement and more digital experimentation.
Looking ahead, volatility in the healthcare marketplace is a prime concern. While pharma’s pricing power is not what it once was in the U.S., the price of treatments remains a hot-button national issue. The administration’s interference in DTC promotion might just be a first step. Companies could see legislative-driven drug price reform, possibly resulting in cuts to marketing budgets.
That means agencies need to focus on providing value and look toward new areas for growth, such as medical cannabis and cell and gene therapy. All eyes are still fixed on Amazon, both from a talent perspective and as a force to be reckoned with in healthcare.
When we asked them after 2017 to project their 2018 growth, most agencies gave an estimate of their performance that proved conservative. This time around, respondents answered more boldly, with 42% predicting 2019 revenue growth of 11%-25%. We’ll see a year from now whether they can navigate the heady mix of challenges to repeat, or even best, the strong 2018.
*These revenue and workplace totals are based on data that companies submitted as part of MM&M’s annual agency review and reflect the agencies in the top 100. All data is taken from the annual agency review unless otherwise noted and does not include estimates made by the MM&M data team. Revenue and employee numbers for parent companies and certain network-owned firms were accounted for to prevent double-counting in these totals. Certain numbers from Havas and WPP firms are unavailable.