A Brief History of Agency Locations
The first-ever advertising agency was created by William Taylor in 1786 in London. (Source: Mackay, Adrian (2004), The Practice of Advertising). Now if you want to get nit-picky James ‘Jem’ White in the late 1790s started the first agency that also focused on design/creative, and not just selling advertising space within London.
But the origins are clearly based in the UK. Despite the common misconception that the United States housed the first-ever agency. The US didn’t have its first acknowledged agency until 1841 in Philadelphia (Volney B. Palmer. But, New York City was rise to the first explosion of creative agencies shortly thereafter.
Once you hit the early twentieth century, the globilzation of agencies explodes. With it came radio and tv advertising. The industry had to re-create their positions to compete. The Golden or Mad Men Age was born and you needed a Madison Avenue address and full-service capabilities. There were large budgets and even larger than life advertisements that lasted for years and even decades.
Now in comes the rise of the digital age, the internet, and mobile advertising. Again, you see a shift in focus from brands and marketers in priorities of tactics. You also see the rise of the Digital Agency taking precedence over AORs.
This is all despite nuances between the different industries using their services. And it appears that full-service agencies are on their way out. Their on-site presence has started to be filled by in-housing. Even local niche agencies and freelancers have jumped to test the waters.
Therefore, you can see why there are around 500 agencies fighting for business in a developed market. Even agencies under the same holding company are creating a loss of leverage in the market place. The competition to retain attractive accounts is fierce. That’s why it’s all about location, location. location!
Trends Affecting Location
- Spend on digital surpassing that of traditional media
- Lack of creative talent driving the use of Freelancers
- Demands in flexibility to work remotely
- Reduced Budgets and pressure from procurement functions
- The Broken Agency Model
- The creation of Virtual Agency Models
How Location Affects Benchmarks in Agency Pricing
We all know location affects pricing. A classic example is of the New York based agencies that typically command higher rates due to their high overhead and employee cost (regardless of level – because Manhattan isn’t cheap!).
And if a company is based on the West Coast, and you want talent from a NY based agency, you’re going to pay a premium for their travel expenses if they don’t have a nearby branch (or in some cases, they open one specifically for you. How generous!). And that’s also why there’s still a preference to use semi-local or regionally close agencies.
But the digital age and lack of talent are complicating the waters when it comes to pricing. Given the recent talent crunch and move to reliance on freelancers, the talent pool isn’t focused within only major cities and hubs. And digital asset doesn’t need to be managed from any specific location.
We will assume that there will always be marketers who will pay a premium for a NY based agency, with the thought that talent is focused there; supporting the old school era that relied on the reputation and comfort of Madison Avenue. But the trend now is not to rely on these local agencies or NY location. It’s moving to seek out the best talent regardless of location (which might be NYC).
A great example of pushing boundaries is not only the creation of an in-house agency, but a ‘virtual’ in-house agency (Check out PWC strategy : article link). Not only does this reduce costs and pricing, but it creates a culture of finding only the best talent to support their brand.
US cities demanding the highest rates – New York, Boston, San Francisco, LA, and Chicago. In Europe, London and Dublin based agencies can gather a premium.