Product development: the holy grail of agency survival?

For the past several years or so, it’s become fashionable for advertising agencies to dedicate a portion of their time to product development. Some do it for clients. Others do it all on their own. The poster child in this space is Nike FuelBand, a fitness product co-created with the brand’s advertising agency RG/A. It was, and is, a runaway success.

Other agencies have dabbled with product creation. Crispin Porter + Bogusky developed a line of premium rum, Papa’s Pilar. Deutsch LA, which has a program dedicated to entrepreneurial pursuits, created a floral delivery service, Bouqs, and an independent film entitled Between Us. Boston-based MMB launched a line of environmentally friendly children’s clothing that donated proceeds to animal shelter charities. And Anomaly worked with outside consultant The Kind Group to create a line of skin-care products, Eos, currently being sold at Target.

All well and good – but why would an agency dedicate resources usually reserved for serving client business to product development? There are many reasons, but chiefly agencies are doing it to foster collaboration and innovation.

Some, such as RedPepper Founder Dave McMullen, think agencies are perfectly suited to product development and innovation. McMullen explains his rationale, saying “What better environment to incubate a new business idea than a place that’s built to conceive a brand, develop a strategy, write a message, design packaging, and lay out a go-to-market strategy?”

McMullen also notes that product innovation and development allows agencies to rely less on the old, time-based agency business model and capitalize on new revenue models, “Like the opportunity for earning revenue while you sleep, which is the overwhelming beauty of non-hourly business models. By making money outside of the client-controlled billable hour, agencies can focus more on passion projects and work that inspires them rather than work that simply pays the bills. Saying no thanks to an unfavorable RFP is a luxury most agencies wouldn’t dare take without a steady flow of income far into the future.”

Fostering collaboration, innovation and bolstering an agency’s culture, however, may be the most important benefit of all. On that note, McMullen adds, “Owning a breakthrough original idea will undoubtedly fan the agency culture flame, too. That’s just what happens when creative people collaborate on a problem with a common goal, especially when that goal is to build their own idea the way they want (in other words, without clients). The result is inspiring, fulfilling work that’s organized around people’s talents and passions instead of client needs.”

It’s a foregone conclusion agencies must make major adjustments to survive within an industry where old models centered on commission-based outbound marketing have given way to more content-focused inbound marketing approaches that are more focused on sales. This is not to say agencies can’t make the necessary adjustments to their business models to mirror the changes in the way people now consume content (pull versus push). But, in addition, it would be wise for agencies to continue to explore new methods of generating revenue using the skill sets they have at hand.

Developing new products and services requires many of the skill sets resident in agencies; market strategy development, product design. package design, brand identity and creativity. What some feel is a trend may, in some ways, be a saving grace of sorts for ad agencies.

Post by Steve Hall

Steve Hall is a marketing professional, publisher, writer, community manager, photographer and all-around lover of advertising. Steve has held management positions in media and account service at Leo Burnett, Starcom/Mediavest and others, working on such accounts as Reebok, Marriott, and Marshmallow Fluff.