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Commentary: Why in-house programmatic will transform how brands communicate

Many of the top brands in the world are bringing digital programmatic advertising buying in-house. This represents a significant shift in media buying, but it’s also part of a larger transformation for chief marketing officers and their organizations. From a macro standpoint, brands are integrating advertising and marketing to have consistent, holistic and informed conversations with consumers and customers alike. Here’s what CMOs need to know about how in-house programmatic capabilities can drive the larger transformation.

How big is this trend?

Numbers are truly hard to come by, in part because the trend of taking programmatic in-house is often conflated with a related trend of brands taking other agency functions in-house. You’ve probably seen the eye-popping ANA headline that says 78% of member brands have an in-house agency.

Let’s look at some more data. According to an Econsultancy report, roughly 30% of brands had taken programmatic digital media buying in-house by the end of 2019. Looking at Forrester’s 2020 agencies' predictions, the trend appears to be growing at a rate of 5% per year. This trend is significant because, while the majority of brands aren’t yet doing programmatic in-house, the trend line suggests we’ll pass a tipping point in the coming years.

Why are brands taking programmatic in-house?

First, marketers are moving programmatic in-house to save money. Programmatic tools are widely available and buying marketplaces with enormous reach into premium inventory are accessible. As technology democratizes media buying, it’s only natural to see a corresponding rise in brands taking a DIY approach. In that sense, in-house programmatic speaks to a clear opportunity to bypass agencies.

Second, the agency-client relationship is in serious trouble. According to a 2018 report, only 10% of advertisers have a “high level” of trust in their agency partners. Meanwhile, the number of advertisers who believe trust is “low” has gone from 29% to 40%; the number of advertisers who believe trust to be “average” has fallen by 12%. In a more recent ANA report, only 13% of marketers feel trust has improved — which continues to suggest trust is a key issue in these partnerships. If widespread trust in the agency model weren’t an issue, a brand would express discontent by looking for a new agency. Instead, many brands are embracing a DIY model because of the lack of trust in agencies as a category is widespread and deteriorating. Agencies are brilliant and contain some of the most incredible creative minds on the planet. So, these trust statistics are appalling and sad.

Finally, we come to the most important factor driving in-house programmatic, at least in terms of accomplishing the larger structural change of unifying marketing and advertising. Simply put, brands are taking programmatic in-house in order to control data integration. After all, integrated data is the key to integrating advertising with marketing — a challenge agencies aren’t currently well built to solve. Why do agencies have trouble solving this?

If you are perceived as a cost center in a company with a billable hours or percent of media spend business model (I’m going to refer to any company with this business model as “consultancies” to distinguish them from software companies), you will always lose internal funding battles with other executives who produce revenues and profits. It is just capitalism taking its effect over time. Companies with a high cost of goods sold, like consultancies (of which advertising agencies are one kind, but so are lawyers, traditional consulting firms like Accenture and Bain and McKinsey), don’t make long term capital investments well. Software companies — often backed by risk-capital like venture capital and private equity — will always beat them over time in building great software. If unit one costs a software company $50M to build, and unit two costs them a penny to deliver (the economics of software), they will always beat companies with a high marginal cost of goods sold. Always. The monetization model has to match the cost mentality.

This brings us back to our question around why agencies struggle with being great at the kinds of advertising, marketing, data, CRM, customer experience, corporate database, loyalty program or market research integration required to deliver marketing and advertising greatness. There are additional issues beyond the inherently wrong monetization model. Agencies struggle to deliver because:

  1. They are often too siloed, and don’t collaborate as well as they need to across silos. 
  2. No matter how hard they try, they are not world-class software and data science companies. Consultancies rarely are, so their ability to integrate data in a strategic way often falls short of client expectations and needs. Look only at the turnover of remarkably skilled chief data officers at big agencies to see how hard this job is to do inside an agency business model.

Consequently, brands are taking programmatic in-house and, increasingly, turning to more traditional IT consultants for their data integration needs.

Know who you’re speaking with, so you know what to say

By integrating marketing and advertising, brands can have relevant conversations with individuals at scale. Those conversations can get very nuanced, especially if the brand leans into the two-way capabilities of digital video. But broadly speaking, every conversation must fall into one of two categories at the outset — one for customers and a different one for potential customers.

Here’s an example of what happens when a brand doesn’t know its audience. Not too long ago, a bank’s telemarketer called my father-in-law to pitch him on becoming a customer. My father-in-law listened, then he gave the telemarketer an earful of colorful language, reflecting the Texas oil roughneck he was, and hung up angry. Was my father-in-law upset by the telemarketer’s interruption? No. If that were the case, he would’ve just hung up the phone without listening to the pitch. My father-in-law was upset because the telemarketer was from his own bank! That bank had kept my father-in-law’s money safe for decades, promising in every interaction — advertising, marketing materials, web and mobile experience — that they knew my father-in-law intimately. Doesn’t that promise ring hollow in light of my father-in-law’s experience?  

The reason brands are working to integrate marketing and advertising (and the overall customer experience) is so those conversations don’t ring hollow. As a recent Forrester Wave report observed, the growing importance of customer experience means that each brand touchpoint needs to feel as though there’s a holistic intelligence behind it — one that meets people precisely where they are … and listens. Put simply, the interaction is the brand, and the brand is each and every interaction. What CMOs need to achieve is “Customer Experience Management” — a practice that incorporates advertising, marketing and other aspects of delivering and measuring the quality of what your customers and prospects experience about your brand.

Here’s where programmatic plays a key role, and why it’s so important for the brand to manage their programmatic data pipeline and execution in-house. Every brand has existing customers and future customers. The first step is to know the difference — but to do that you need to house programmatic media buying right alongside marketing, CRM, e-commerce and loyalty programs. Once the brand knows who it’s talking to, it can engage individual consumers with the right conversation. They might be existing customers, or they might be next year’s customers — your all-important prospective customers. A competing bank might run a programmatic campaign to find prospects like my father-in-law and ask them if their current bank really understands their needs. Meanwhile, my father-in-law’s bank needs to integrate CRM with programmatic and telephone marketing to make certain that it doesn’t treat valued customers like prospects.

Every CMO needs to work toward this larger goal, even if their initial motive for taking programmatic in-house was to save money or end a troubled agency relationship. Regardless of what motivates the CMO’s decision, the brand needs to come out on the other side knowing exactly who its audiences are and what to say to them. And this involves integrating talking and listening in ways that most brands are not yet good at.

 

Tod Loofbourrow is the CEO and chairman of ViralGains. Previously, he served as president of iRobot, founded and served as chairman and CEO of Authoria (Peoplefluent), and served as CEO of Foundation Technologies. Since 2011, Loofbourrow has served as Entrepreneur in Residence at the Center for Digital Business at MIT's Sloan School of Management. He also sits on the board of Jobs for the Future, ViralGains and Mobee. 

 

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