NCA and the evolution of the agency model

Adland's golden boys James Murphy and David Golding are back on the scene. But can their latest venture really offer a point of difference?

NCA and the evolution of the agency model

"The natural assumption would be you’d get people ringing us up, saying ‘Give us a John Lewis’, but that’s not what we’re about," David Golding insists.

The co-founder of New Commercial Arts is explaining over Zoom why his new agency, which he launched with his old pal, James Murphy, in May in the depths of the coronavirus slump, is different from their old shop, Adam & Eve/DDB.

"We want to do end-to-end, branded customer experience with comms as important as the rest of the experience," Golding declares, sounding like a late convert to the sales pitch that Accenture Interactive, Wunderman Thompson and Publicis Groupe have been pushing for the past few years.

Murphy and Golding are open about the fact that NCA – with its ambition of "uniting brand and customer creativity to make brands more desirable and easier to buy" – is staking out the same turf as some well-established, global agency giants.

"If I was to look at Publicis as a group, the ‘One Publicis’ idea – if you can fuse Sapient, Epsilon and the best of creativity that perhaps Bartle Bogle Hegarty offers within the Publicis Groupe – then you’ve got what our ambition is," Murphy says.

Wunderman Thompson, which WPP created by merging Wunderman and JWT at the end of 2018, is also "very good" and has "led thinking in this area", he says. "They have the technical understanding and a huge pedigree in terms of understanding and optimising response and so on," Murphy continues, alluding to Wunderman’s history as a direct marketing agency. "But what they don’t have is the emotional fuel that probably people with our background bring."

"The whole idea of the much broader customer experience is where brand ideas and promises have to live now"
— James Murphy, NCA

And it is that "emotional fuel" that Murphy, 53, and Golding, 47, have brought to the UK ad industry during the past 12 years at Adam & Eve/DDB, Campaign’s Agency of the Decade, which means the launch of NCA was always going to command attention after they completed 12 months of gardening leave.

Large parts of the global agency sector have been on the backfoot for the past three years in the wake of the Association of National Advertisers’ investigation into "non-transparent" practices at US media agencies in 2016. 

The big groups have also had to restructure as brands have taken some marketing services in-house and new players have entered the sector – most notably consulting giant Accenture, which has been pushing its "experience agency of record" proposition to manage every aspect of the customer experience.

Then coronavirus struck, sending global ad expenditure and agency revenues plunging. Hence NCA’s debut in the midst of lockdown came as a rare piece of positive news – aided by a quarantine-compliant photo shoot, involving life-size, cut-out figures of Murphy, Golding and their eight co-founders in The Mall Tavern, a pub in Notting Hill.

Murphy (pictured, below) and Golding each made in the region of £27.5m as part of Adam & Eve’s estimated £110m earn-out deal with Omnicom’s DDB yet they want to "go again" because they have confidence in the agency model.

The pair are not setting out to conquer the world. They want to get back to being "practitioners" in a small outfit, according to Golding. Even their choice of office – in Beak Street in Soho, in the traditional heart of London adland – is symbolic.

However, NCA’s new proposition is significant because it points to a wider shift in an agency sector that was anxiously seeking fresh relevance and purpose even before the coronavirus pandemic.

Integration is top of the agenda

Brands, especially big corporates, have been demanding agencies operate in a simpler and more joined-up way. Integration – a buzzword for a decade – has returned to the top of the agenda. 

A third of pitches are now integrated pieces of businesses that combine disciplines such as creative, media, data and customer experience, according to Mark Read, chief executive of WPP, speaking before the coronavirus pandemic and citing Axa, Centrica and VodafoneZiggo as examples.

Brands want "integrated" solutions, as Wendy Clark, incoming chief executive of Dentsu Aegis Network, puts it. "The days of siloed thinking or [internally focused] corporate thinking [by agencies] is just not where the marketplace is. It’s certainly not how the consumer receives all of our work and our messaging," Clark, a former Coca-Cola marketer, says.

WPP and Dentsu Aegis Network are among the agency groups that have embarked on major restructuring in the past 24 months as they have sought to bring different disciplines together and to return to growth.

But it has been difficult to turn around such big organisations, many of which relied on M&A to fuel growth for much of the past decade.

The past few years have been "a time of limited progress in the Western advertising industry from either a product or business model perspective" and big brands "have been moving their business away from large agencies", Scottish Mortgage Investment Trust, a leading investor in technology and digital media companies, warned in May.

No wonder so many newer, disruptive players have been emerging. 

NCA joins a growing band of agile, UK creative start-ups that includes Uncommon Creative Studio and Wonderhood Studios – in addition to the new breed of performance marketing shops such as Jellyfish, Croud and Brainlabs.

Then there are the acquisitive, international operators such as You & Mr Jones, Stagwell Group, S4 Capital and Fimalac, and the consulting and investment giants such as Accenture Interactive, Deloitte Digital and Bain – all of which are converging on similar terrain.

Financial pressure

Now coronavirus has dramatically increased the financial pressure on the big, established agency groups.

WPP disclosed in its annual report that it had modelled a "worst-case" scenario where revenues less pass-through costs would fall 35% from April, although it said it considered that as a "remote" possibility.

The British group and all of its main rivals, including Omnicom, Publicis Groupe and Interpublic, have borrowed extra cash, made redundancies and asked executives to take voluntary salary reductions since March.

Trading conditions remain fluid but the global agency sector looks on course for a 15-20% drop in revenues in the second quarter of 2020.

Many agency chiefs are cautious about the prospect of a recovery later this year. Some talk privately about a possible second wave of job cuts, as both creative and media disciplines have been hurting badly.

Creative was already suffering because of an existing shift from big-brand TV work to faster, digital and data-driven content production, and that has been aggravated by lockdown and social distancing rules that have put a lot of work on hold.

Media is facing its own problems. A near-halving of expenditure in some markets, including the UK, in Q2 has hit fee income and trading deals, which were already under scrutiny because of a Federal Bureau of Investigation probe into US media transparency.

All of this points to how traditional advertising has been under strain. By contrast, customer relationship management and the broader area of data-driven customer experience and marketing technology have been faring better.

CRM is "pretty resilient" because it has a lot of stable, "multi-year" contracts, according to Nick Priday, chief financial officer of Dentsu Aegis Network, as he explained why that global line of business grew nearly 4% while creative and media both suffered declines of about 6% in the first quarter of this year.

The rise of customer experience 

Murphy and Golding (pictured, above) saw the rise of customer experience during their final years at Adam & Eve/DDB, whose clients include Unilever and Volkswagen Group. Once upon a time, "a brand made its promise and its pitch in broadcast communication and then customers had to go some way to experience whether the brand lived up to that promise – by going to a shop or a car showroom or a travel agent", Murphy explains. 

"Now a piece of communication can elicit immediate sampling of the client promise through websites, apps, mobile commerce and so on. Technology has meant that brands have to be able to deliver the promise much more immediately and vividly than ever before. That’s why the whole idea of the much broader customer experience is where brand ideas and promises have to live now."

This shift is already well underway inside brands. "A lot of clients have gone from being chief marketing officers to chief customer officers and we’re positioning ourselves as being a great partner to a chief customer officer," Golding observes.

He believes that there is an opportunity for agencies such as NCA to be "instrumental" in helping to build what he describes as a new "CCO generation of marketing".

"Agencies are going through a difficult time, which is actually speeding up the transformation that, for most of them, they have initiated before Covid"
— Christine Removille, Bain

Murphy and Golding’s two most significant, early hires have reflected their belief in this fusion of brand communications and customer experience.

They recruited Ian Heartfield (pictured, below), chief creative officer of BBH, to be NCA’s creative leader and Rob Curran, chief experience officer of Wunderman Thompson, to head its customer experience practice.

However, integrating media-buying into the mix is not on NCA’s agenda. That’s because programmatic is "becoming commoditised" – it is "optimising itself into a level playing field", Murphy maintains. 

"The real richness lies" in "powerful customer relationships" that go "way beyond communications" into "retail environments, apps and social dialogue", he says.

NCA’s sales pitch has convinced Catherine Kehoe, the top marketer at Lloyds Banking Group, who, significantly, was promoted to chief customer officer earlier this year. She has moved Halifax’s ad account from Adam & Eve/DDB after nine years and awarded NCA a broader brief that includes brand strategy, advertising and customer experience.

"The most successful modern brands are defined by an alchemy between strategy, experience and communications" and NCA "has been set up with this philosophy at its heart", she said, explaining her decision to become the agency’s first client and reunite with Murphy and Golding. Adam & Eve/DDB put a brave face on the loss as it has other Lloyds’ business.

Reshaping the agency sector

A perennial question is whether the disruption in the agency sector will lead to large-scale M&A or a break-up involving one of the big six groups.

John Wren, global chairman and chief executive of Omnicom, let slip during its Q1 earnings call that he has compiled what he described as "a secret book" for his future successor that outlined "what I thought should happen" if there were consolidation. Wren previously considered a big deal in 2013 when he plotted a merger with Publicis Groupe, only for the planned tie-up to collapse the following year.

Omnicom and Interpublic have performed better in terms of organic growth in recent years than WPP and Publicis Groupe, which were both ailing before coronavirus struck, but all of their stock prices have dropped steeply since the end of February.

"I don’t believe there will be consolidation among the holding companies," Arthur Sadoun, global chief executive of Publicis Groupe, insisted in April. "Not for financial reasons, but strategic ones. In a world that will need to be more and more agile every day, the future lies in the convergence of marketing transformation and business transformation, not the accumulation of marketing capabilities."

However, Sir Martin Sorrell, executive chairman of S4 Capital, who was chief executive of WPP until his acrimonious exit in 2018, does not believe all of the agency holding companies can "survive in their current form" on the stock market and has warned of a "Darwinian cull".

One option could be for some of the groups to "go private" and restructure outside the glare of the stock market, according to Sorrell.

An industry source claims private equity investors did cast their eye over WPP, before coronavirus struck, because they thought the parts could be worth more than the whole in a break-up.

Sorrell regularly uses S4 Capital’s stock market announcements to point out how WPP’s stock market value has fallen, but he dismisses the idea that he might be interested in a takeover of his old company.

"I don’t think we’d be tempted to do what you’re suggesting," he told Campaign at the time of S4 Capital’s annual results in March, pointing out his new business is different because it is "purely digital" with a focus on a "holy trinity" of content, programmatic and data.

S4 Capital has performed well during the coronavirus crisis so far and its valuation passed £1bn to hit a record high in May as investors have bought into Sorrell’s thesis that his new venture should be rated like its largest client base – the tech platforms.

Could agencies come out stronger from the current crisis?

The challenge facing the legacy agency groups is to drive faster change inside their organisations as lockdown has sped up shifts in consumer behaviour such as ecommerce and streaming.

"Agencies are going through a difficult time, which is actually speeding up the transformation that, for most of them, they have initiated before Covid," Christine Removille, a partner in the customer and marketing excellence practice at Bain, says. "I see the industry – all agencies – really needing to speed up their transformation."

Julien Roch, a leading media analyst at Barclays, recently posed the question: "Could agencies come out stronger from the current crisis?"

All of the big agency groups said during their results’ calls that "they have never worked so hard and been so close to their clients since confinement started, adding that they felt this led to clients realising the value of their services", Roch said. "While these statements could be seen as self-serving, we do believe there is indeed a strong value to good advice in times of crisis. Whether clients translate this into more revenues when economies are back to a steady state remains to be seen but we are hopeful that this could be the case."

Coronavirus aside, it is clear that clients’ need for integration and to manage the customer experience across the marketing "tech stack" is a powerful dynamic that is driving change in the agency sector.

Murphy is hoping that NCA, as a new insurgent, can be a beneficiary as many players converge on this nexus of brand communications and customer experience: "You look at it and think: it’s forming but everyone has different, strong hands in this game."

Meet the rest of NCA

Nici Hofer, artistic director; Matt Craigie, head of production and operations; Rob Curran, customer experience head; Russie Miessi, creative; Louis Faucher. creative; Loriley Sessions, creative; Charlotte Prince, creative