“Data-Driven Thinking” is written by members of the media community and contains fresh ideas on the digital revolution in media.
Today’s column is written by John Snyder, CEO at Grapeshot.
The upcoming General Data Protection Regulation (GDPR) provides impetus for brands to take a stronger hand in the stewardship of the data that will be left to them.
As a result, the power dynamic between agencies and brands will further evolve: The growing importance of first-party data and diminished availability of third-party data mean agencies may have lessened ability to serve as data brokers. By some estimates, GDPR will remove access to up to 75% of third-party data, and what is left will be more expensive.
The good news is that advertisers can still do a lot of targeted marketing without third-party data. The GDPR offers both financial and functional incentives to unlock customer insights with the data they already possess. The only reason most brands haven’t already done this is because it’s a pain; their data is often split among silos, giving them a fragmented view of the customer.
Many agencies will also lose ownership of their clients’ data to a new trend: brands taking back control of their data assets, in part to have better oversight of GDPR compliance activities.
For agencies, this means the potential loss of two significant revenue streams.
The first and most far-reaching change to the agency business model will be its forced evolution away from the “tonnage” school of thinking, in which agencies are rewarded for high-quantity marketing efforts, such as sending as many prospecting emails or serving as many impressions as they can. In its place, agencies will need to maintain their revenue levels while soliciting fewer, more highly qualified prospects.
The second change involves programmatic ad buying. When brands take control of their customer data and learn the basics of digital ad buying, they will be better positioned than they are now to use these ad exchanges. GDPR will force brands to mine their first-party data to pre-qualify audiences. Agencies, understandably, do not love this change: Augmenting audience identification and targeting efforts with third-party data is a revenue-generating tool that will cease to exist in their arsenal.
To survive the loss of these revenue streams, agencies will have to adjust how they work with their clients. Ad agencies will maintain what should be their bread-and-butter function: generating the best possible creative efforts for their clients. They will design strategies, such as rewards, loyalty programs or more relevant offerings that make consumers feel comfortable volunteering information to brands. And once a brand has collected a critical mass of this type of information, the agency can take the lead in designing marketing plans that best use it.
Digital agencies still play a role in data – just not a hands-on role. Their competence in interpreting and strategizing against data makes them valuable to brands as they determine the right types of data and insights for their efforts. Agencies also inevitably will be critical to devising campaigns that aid in capturing that data.
Granted, these methods are harder than tacking on a few thousand more names to targeting efforts. The amount of manpower and effort they require will also eat into agencies’ margins.
Agencies may argue they should be left in charge of brands’ data because they have deep insight into data systems, interpretation and programmatic ad buying. Brand executives are capable of learning basic data services, but introducing the proper infrastructure is a different story.
The associated financial, operational and talent resources required to bring programmatic and data strategy in-house are likely unfeasible for many brands, and some will want their agencies to continue managing these functions.
Forcing brands to take greater stewardship of their data may be a blessing, as they are more likely to consider how data can enhance operations across all consumer-facing touch points and operational functions. Agencies can assist here, as they already provide a lot of work around strategy and data. They will continue to play a key strategic role even if they’re not directly sourcing the data on their clients’ behalf.
In truth, even if agencies become compliant with GDPR, brands may not want them to supply data. While most agencies are on the up-and-up regarding their data sources, there is always a chance of inappropriately sourced names or other personally identifiable information getting into a file. That’s not good considering the steep GDPR fines for offenders. Brands will be hard-pressed to explain how they are not culpable when it’s their messages and revenue attached to those IDs.
The upside is that agencies that have already positioned themselves as trusted partners will be able to further those relationships by casting themselves as partners in data stewardship.
Whether agencies reimagine their approach to targeting or move to a creative and consulting model, these activities are the evolutionary survival steps for agencies – and they offer adaptations that will allow agencies to flourish.