Game Theory – an answer to agency woes?
Agencies are locked in intense competition, not just with rivals, but often with their own clients and even media partners, leading to a fragmented, inefficient and increasingly less profitable industry.
How do you find a way out of this conundrum? I think one exists in John Nash's Game Theory. Not the fancy math, but the simple truth it holds. Ever heard of the Prisoner's Dilemma? It's simple: two guys, caught. If they both keep their mouths shut, they get off easy.
But if one squeals, he walks free and the other gets hammered. So, they both squeal, because they don't trust the other. And they both lose more than they should have.
For a second, take a deep breath, close your eyes and imagine, if you are able to set standards on fair pricing, pitching processes and more, collectively as an industry.
'Impossible!' you say. But it's not. How do you think the price of gold is set? Influencing factors – think supply, demand, interest rate, inflation etc. – notwithstanding, it's established twice daily by a group of five major international banks, known as the LBMA – The London Bullion Market Association.
That determines the base rate of gold. Jewellers etc, then add their making charges etc. to determine the value of their final product. And make no mistake, the jewellery industry is as fragmented and super competitive as ours.
When I say Game Theory, I'm not talking about some socialist fantasy here. Agencies will still compete. We'll still prove our worth by hitting those client KPIs, using every tool we've got.
Bring on the consultants, bring on the AI – there's always room for good talent and good tools. The question really is, if our ideas are worth their weight in gold, why should their going rate be decided by the cheapest bid?
Let's assume we never come together as an industry. Will the core issues be solved over time?
Will pitches become fair?
Will margins be protected?
Will resource burnout reduce?
And most importantly, are you helping sell your client's products and services the best way you can? Or are we going to keep hiding behind performance metrics that make us all feel happy, but hasn't moved the needle on sales.
As John Nash famously said (or maybe it was the writer in the movie, A Beautiful Mind), 'The only thing greater than the power of the mind is the courage of the heart'. The question is, who's going to be courageous enough to take the first step for the collective good.
By Vinay Mahadevan, Client Services Director, Rain Creative
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Game Theory – an answer to agency woes?
Relentless pitching, constant battle for client retention, pressure to deliver 'more for less'. Sounds familiar? Now add the pressure of AI and consulting firms wanting a piece of advertising action, and what you have is a ticking time bomb. Agencies are locked in intense competition, not just with rivals, but often with their own clients and even media partners, leading to a fragmented, inefficient and increasingly less profitable industry. How do you find a way out of this conundrum? I think one exists in John Nash's Game Theory. Not the fancy math, but the simple truth it holds. Ever heard of the Prisoner's Dilemma? It's simple: two guys, caught. If they both keep their mouths shut, they get off easy. But if one squeals, he walks free and the other gets hammered. So, they both squeal, because they don't trust the other. And they both lose more than they should have. For a second, take a deep breath, close your eyes and imagine, if you are able to set standards on fair pricing, pitching processes and more, collectively as an industry. 'Impossible!' you say. But it's not. How do you think the price of gold is set? Influencing factors – think supply, demand, interest rate, inflation etc. – notwithstanding, it's established twice daily by a group of five major international banks, known as the LBMA – The London Bullion Market Association. That determines the base rate of gold. Jewellers etc, then add their making charges etc. to determine the value of their final product. And make no mistake, the jewellery industry is as fragmented and super competitive as ours. When I say Game Theory, I'm not talking about some socialist fantasy here. Agencies will still compete. We'll still prove our worth by hitting those client KPIs, using every tool we've got. Bring on the consultants, bring on the AI – there's always room for good talent and good tools. The question really is, if our ideas are worth their weight in gold, why should their going rate be decided by the cheapest bid? Let's assume we never come together as an industry. Will the core issues be solved over time? Will pitches become fair? Will margins be protected? Will resource burnout reduce? And most importantly, are you helping sell your client's products and services the best way you can? Or are we going to keep hiding behind performance metrics that make us all feel happy, but hasn't moved the needle on sales. As John Nash famously said (or maybe it was the writer in the movie, A Beautiful Mind), 'The only thing greater than the power of the mind is the courage of the heart'. The question is, who's going to be courageous enough to take the first step for the collective good. By Vinay Mahadevan, Client Services Director, Rain Creative
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