Please read the report below, and craft a summary including the following information:

1. Why is this report relevant to Nike?

2. How Nike may be able to use this report to save money, make a better marketing investment, or seize a relevant market opportunity?

Report:

Executive Summary

The relationship between brands and agencies is ever changing. Throw in a pandemic, seismic disruptions in marketing strategy, plus urgent digital transformation plans, and that partnership becomes even more complex, adding both stress and opportunities for agencies as they prioritize their own success while still meeting and exceeding client demands.

How has the pandemic affected marketing and advertising agencies?

In 2020, agencies saw declines in revenues and struggled to close new business deals, while many in the US received Paycheck Protection Program (PPP) funding. Still, some agencies saw the tumultuous nature of pandemic as an opportunity to guide clients through a crisis. Furthermore, the pandemic has accelerated digital transformation for major brands, and agencies were and remain ready and waiting to assist in that journey.

Why do brands regularly audit their agency roster?

A big brand putting its agency business out for review is standard practice. It ensures the brand is getting the best work from its partners and keeps the ecosystem competitive. It also allows the brand to design a model that reflects the current state of marketing and advertising and its business priorities.

What is the state of in-housing?

The initial threat of brands in-housing isnt as strong to agencies as it once was. Still, there are brands that bring commoditized capabilities in-house, and some even build their own shops if its a core differentiator or value proposition. Agencies are not threatened and see it as another way to guide and support clients as they build their team, skills, and operating model.

How can agencies best serve their clients in 2021 and beyond?

Agencies should focus on updating and evaluating their offerings to bring fresh and innovative ideas to the table, especially as clients change their needs. They should also understand their role when engaged in multi-agency brand ecosystem and be clear on how to deliver success. Lastly, agencies should be evaluating their operating model for a balance of depth and breadth with agility and scale.

WHATS IN THIS REPORT? This report covers the pandemics impact on the agency landscape, reviews other challenges agencies face like roster audits and in-housing, and highlights priority areas for future growth.

Agencies Reflect on a Tumultuous Period

The collaborative partnership between brands and agencies is an evolving paradigm. Every year, marketing and advertising practices become more complex, while marketing leaders have been growing more important in the C-Suite, contributing toand sometimes owningbusiness strategy, growth goals, and digital transformation plans. These factors put strain on the agency relationship but also provide opportunities. The core of the brand-agency relationship has stayed the same over the years. Our clients should generally know their business better than we do. They've grown up in it. They know their customers and the competitive points, said Keith Schwartz, co-founder and CEO of digital transformation agency Bounteous. It's really about forming a partnership where you can leverage the best of both organizations. Mature business leaders understand that having a partner that has knowledge capital about their industry and innovative trends creates a lot of value. An Ascend2 survey conducted in pre-pandemic February 2020 found that 56% of marketing professionals worldwide said they would increase their budget for agency work in 2020, while 35% said their budget would stay the same.

Agencies Struggle During the Pandemic

At the start of the pandemic, agencies braced for negative impact. Research from March 2020 found that agency executives worldwide felt the strain immediately, citing delayed and canceled projects, shrinking sales pipeline, longer sales cycles, delayed and canceled requests for proposal (RFPs), and reduced project budgets, according to the Society of Digital Agencies (SoDA) and Forrester Research. But that same survey found respondents also felt confident in their preparedness for disruption in areas like decision-making, tech and infrastructure, team culture, cash reserves, policies and procedures, and process and workflow. Despite this preparedness, an April 2020 survey from digital outsourcing services firm Uplers of digital agencies worldwide found that revenues were significantly affected at the start of the pandemic. Two in three respondents noted their revenues were negatively impacted, and almost 10% of all respondents said revenues reduced by more than 50%. Meanwhile, 19% cited no impact, and just a small portion of respondents (16%) cited revenue growth. A different poll showed agencies were still feeling some of this strain during the second half of the year. The Drum surveyed agency professionals worldwide from September 2020 to October 2020 and found that 69% cited reduced revenues, 14% said it was flat, and 17% noted an increase.

The Brand Take: How Pandemic-Related Marketing Strategy Shifts Changed Agency Requirements

Before the pandemic, Honeywell centralized its agency model working with one big holding company to support enterprise-level brand work that funneled down to key verticals. In 20182019, this helped connect all of the businesses together as we built our brand storyline. But when the pandemic hit, Honeywell revamped its media mix. We found ourselves doing a different type of marketing when COVID-19 started. Traditional mass marketing wasnt necessarily the right fit for us, and we werent doing broadcast. Instead, we started to segment and focus on account-based marketing [ABM]. This shift impacted the agency relationship, as well, as Honeywell moved away from the centralized approach it implemented when broad marketing was the primary objective. Instead, there was a big need for specialty B2B shops with an ABM expertise. As we focused on ABM work, we really needed to make sure we had the right partners to help us because some parts of our business never did an ABM program before. We shifted away from our traditional vendors, both for paid media and the big agencies. Of course, we still continue to do some good work with them, but it just was less. Aside from losing existing business, bringing in new clients was a challenge in 2020. An August 2020 survey from agency business development firm RSW/US found that 67% of US agency executives believed it was harder to obtain new business in 2020 than in 2019. The pandemic is decidedly the culprit for these challenges. When that same polling asked why getting new business was more difficult, 80% cited COVID-19the most common response by a large margin. As a result of these pandemic-related challenges, agency executives worldwide have cut discretionary spending (69% in Q2 2020 and 67% in Q4 2020) and received PPP funding (77% in Q2 2020 and 83% in Q4 2020), according to research from SoDA and Deltek, an ERP software provider, published in January 2021. Throughout 2020, some agencies also pursued work they normally wouldnt, cut contractors and freelance staff, expanded service offerings, and imposed temporary salary cuts.

Agencies Discover Opportunity During the Pandemic

Despite hardship, with clients in crisis, there was also an opportunity for agencies to provide strategic guidance. Nearly two in three US agency professionals said their work helped the majority of their top clients adapt to doing business during the pandemic, according to January 2021 research from the American Association of Advertising Agencies (4As). Pre-2020 most of our clients were just theorizing about digital transformation, but now there is a real sense of urgency because digital is the most meaningful brand channel in a pandemic world. Our clients have taken their 2023 goals and made them their 2021 goals.

Below are some examples of how our agency sources added value for their clients and shored up their existing partnerships:

• Early in the pandemic there was a very strong reliance on the agency for thought leadership and direction on how to react to the rapidly changing world. Our clients leaned on us more heavily in those months.Stephanie Russell, Chief Client Officer, Carat USA
• COVID-19 has put a lot more pressure around big companies to transform because it has made the physical part of brands really difficult to interact with. Pre-2020 most of our clients were just theorizing about digital transformation, but now there is a real sense of urgency because digital is the most meaningful brand channel in a pandemic world. Our clients have taken their 2023 goals and made them their 2021 goals.Wesley ter Haar, Founder, MediaMonks; Executive Director, S4 Capital Group
• Our clients needs have changed almost every month, every quarter over the last year. It has been a cycle. As a result, we have become enormously flexible. This has given us the opportunity to rethink our agility. When I think about what clients have needed, it's flexibility more than anything else.Al Reid, Managing Director, Saatchi & Saatchi
• Our clients experienced budget cuts, but they were not just spending cuts. In most cases, they were staff cuts. The brands we serve still had needs to get things out the door, but they no longer had the internal staff that used to manage them. We became the pseudo backfill on an as needed basis for that process.Matt Naeger, Executive Vice President, Chief Strategy Officer, Americas, Merkle
• After the initial shock of COVID-19, we saw our clients want to move fast on additional or incremental projects that would have once been out of their core scope with us. There was a focus on fixing the customer experience, ecommerce, data management and CRM. What would have taken them five years to vet and decide on they were now willing to do in five weeks.Neil Dawson, Global Chief Strategy Officer, Wunderman Thompson

The next step forward for brands and their agencies is to determine how to come out of this crisis and develop a plan for what a post-pandemic engagement looks like. Brands are currently working on their marketing, advertising, and product priorities in a world returned to normal. In many cases, agencies are also supporting this work. Our clients are starting to ask us what they need to do when the world starts coming out of this thing, said Michael McLaren, global CEO of Merkles B2B Group.

Key Takeaways

• Agencies, in a supporting role to brands and marketers, felt the pressure in 2020. While many saw declines in revenues and had to make hard decisions in regard to cost-savings and strategy pivots, agencies also stepped up to the plate in a big way, guiding their clients through a tumultuous year.
• Looking ahead, agencies are optimistic about recovery. Digital transformation momentum has picked up greatly because of the pandemic, and brands are ready to move forward on big projects to keep themselves competitive while readying for the new normal. Agencies know this is their sweet spot and are prepared to get to work.
• With or without a pandemic, agencies face pressures every day as they balance the needs of their clients with their own business priorities. Agencies regularly face performance evaluations where they must prove their value with clear metrics and stellar deliverables. Even when satisfied with their agency partners, brands frequently audit their agency roster, keeping agencies on their toes.
• In-housing is still a trend for brands looking to own a competitive advantage or build capability or capacity of specialized function. But rather than seeing in-housing as a threat, agencies have learned to support their clients as they decide whether this approach is right for them and build the muscle and strategy for their in-house journey. The pandemics long-lasting impact on in-housing is still undetermined but early research shows it may be less relevant in a distributed work model.
• Looking to the future, agencies are focused on becoming more productive, efficient, and profitable. They are also dedicated to attracting and retaining the right talent while evolving and maintaining a competitive offering.
• There is discussion in the industry on how to move away from siloed and complex P&L structures that make holding companies compete within their own family for business. Disruption is ahead in years to come as agencies evaluate the best operating model for the future that balances depth and breadth with agility and scale.