Generative AI tools promise enormous economies of scale for small creative agency teams. Good news for independent agencies struggling to find some breathing room on the ever-squeezed bottom line \u2014 until clients begin expecting those savings to be passed along to them, that is.<\/p>\n
Digiday spoke with seven indie agency execs in the U.S. and U.K. about how they\u2019re navigating that problem.<\/p>\n
In recent weeks, we\u2019ve seen how major advertisers like Unilever<\/a>, Kimberly-Clark and Yum! Brands have overhauled creative production workflows<\/a> to take advantage of generative AI\u2019s potential. Naturally, it\u2019s been music to the ears of shareholders hungry for signs that CEOs are using AI to drive down costs.<\/p>\n But leaving the white heat of technology behind for a moment, consider the implications for indie agencies \u2014 the creative and production shops that until recently, would have been the first ports of call for advertisers big and small looking to launch a new campaign or refresh their e-commerce shopfront.<\/p>\n Generative AI\u2019s implications for their pricing models, and the longer-term threat of clients progressively taking more and more of their creative work in-house, puts them in a pickle. According to Observatory International pitch consultant Lucinda Peniston-Baines, not all indie agencies are awake to client demand for efficiencies to show up on their receipt, despite the fact that AI capabilities have become table stakes in creative pitches.<\/p>\n \u201cThey see it as an internal efficiency tool for them to \u2026 regain some of that margin erosion they\u2019ve suffered over so many years,\u201d she said. Clients, by contrast, \u201care expecting [savings] now.\u201d<\/p>\n How are indie creative agencies affected?<\/strong><\/p>\n Unilever and Kimberly-Clark are, for the moment, well ahead of the crowd. The former is using generative AI tool Pencil Pro to pump out hundreds of assets across its top brands in 14 markets, a setup that took the best part of a year to put in place. Few advertisers have the cash, time and operational muscle to match systems like theirs and for now, the small and mid-sized enterprises that provide many indies with their bread and butter aren\u2019t likely to in-house creative strategy or production en masse.<\/p>\n But it would hardly be surprising to see brands farther down the S&P 500 pecking order trying to follow a similar path. In the meantime, brand procurement teams increasingly expect agencies to pass along AI-enabled cost savings in the form of lower retainer or project fees, Peniston-Baines said.<\/p>\n \u201cThere is definitely pressure from clients to provide more for the money they\u2019re spending,\u201d said Jonathan Healey, group tech director at British indie IDHL.\u00a0\u201cClients will always look for value, and rightfully so. With all the headlines about AI, there\u2019s a clear expectation that we\u2019re using these tools to help grow their business,\u201d added Swapnil Patel, co-president, Attention Arc.<\/p>\n This isn\u2019t just about advertisers acting miserly. CMOs are well aware of what AI can do for their brand on a creative and commercial level.<\/p>\n \u201cI\u2019ve been in meetings where clients will go: \u2018ChatGPT just spit out this line.\u2019 They\u2019ll actually do it in the meeting. That makes it more challenging to justify your value,\u201d said Mike Hayward, chief creative officer at indie shop Copacino Fujikado.<\/p>\n Adoption of AI creative tools has allowed the company to streamline budgets previously set aside for voiceover work and live shoots, and pursue creative solutions that would previously have been cost-prohibitive. According to Hayward, it\u2019s begun relying less on other production companies and freelance talent, though the exact cost saving is unclear.<\/p>\n On one recent campaign for an unnamed client, the agency was required to produce video and still assets featuring 26 different models across several locations. AI tools were used instead, enabling it to produce the campaign for 26% of the cost that live shoots would have incurred.<\/p>\n \u201cThose are things that we\u2019re able to take out of the budget \u2026 that would go outside and contribute to a longer delivery time. If you get the same quality now, you\u2019re not sacrificing,\u201d said Hayward.<\/p>\n Other agencies are still restricting the use of generative AI to behind-the-scenes functions, like storyboarding and creative strategy work. \u201cWe can do it far quicker if we do it using AI, but that means you\u2019re going to have an AI-generated product at the end of it. If the client\u2019s comfortable with that, then obviously we\u2019re good to proceed,\u201d added Healey.<\/p>\n How could agency pricing change?<\/p>\n Though legal and reputational concerns still loom large, more clients are shedding their reluctance to use AI-generated final assets in campaigns \u2014 bringing queries over how an agency tots up the value of an asset that it took only a few minutes to knock out.<\/p>\n Hayward said Copacino Fujikado had stuck to an hourly-based billing model, but worked to pass on production savings to clients. Budgets have held steady, he said, but the agency is now providing more assets to clients without increasing its billing hours. \u201cWe now build in the efficiencies that AI provides. That means faster turnaround and lower costs, especially when we handle everything in-house. And because we always bill to actuals, clients directly benefit from those savings,\u201d he said.<\/p>\n Other companies are looking to output based pricing, or a \u201cproductized\u201d approach, as a potential solution. Indie agency Uncharted, for example, launched last year operating with a mix of output-based and performance-based pricing. The agency gets paid for the work it makes, but it gets paid more if that work contributed to a client hitting a pre-approved business goal.<\/p>\n \u201cWe\u2019re not there to deliver things,\u201d said co-founder and CEO Hattie Matthews. \u201dWe\u2019re there to create value and impact.\u201d<\/p>\n Pricing pressure and in-housing are threats that indie shops have been dealing with for much of the last decade, and it\u2019s worth remembering that output-based pricing systems emerged as a solution before ChatGPT\u2019s big bang moment. Luquire, for example, began using a productized approach back in 2019 in a bid to become more competitive.<\/p>\n \u201cWe\u2019ve tried to productize as much as we can,\u201d said agency president Stephanie Spicer. Like Uncharted, it often uses a mix of performance-based and product-based arrangements with clients.\u00a0<\/p>\n The output model\u2019s downsides are also established, however \u2014 and some agencies remain wary. \u201cThe concern there is that you start to focus on things that are measurable, not things that are meaningful,\u201d said Healey, who told Digiday that IDHL had considered output-based pricing, but has not used it to date.<\/p>\n And performance pricing might prove inferior to hours-based billings for longer-term client relationships, suggested Munir Haddad, co-founder of agency Kiosk. \u201cWe like it in concept. In execution, I have seen that clients actually end up preferring a number that is known,\u201d he said.<\/p>\n Elite Media, for example, charges clients using both hourly and output-based models, depending on the length and depth of a client relationship. \u201cIt\u2019s been case by case. The majority is still based on hourly pricing,\u201d said Gati Curtis, president of Elite Media.\u00a0<\/p>\n Despite softening attitudes, most of the agency execs said the off-the-shelf AI tools available to indie shops weren\u2019t good enough to routinely create campaign assets.<\/p>\n \u201cI\u2019ll be really honest with you, the AI tools are not that good yet,\u201d said Matthews. She pointed to a recent Uncharted film using footage made with generative AI, but edited by the agency\u2019s staff. \u201cEveryone\u2019s losing their shit over them, but you have to patch together the bits that are good. It\u2019s still a very human process.\u201d<\/p>\n That likely won\u2019t last long. We\u2019re already a long way on from the ChatGPT of 2022, after all. Before long, indie shops are going to have to find a way to charge for their work in a way that recognizes the new costs of production, as well as the value of good judgement.<\/p>\n \u201cThe value isn\u2019t just being able to do it quicker or cheaper. It\u2019s the quality of what comes out,\u201d said Observatory International managing partner Christine Downton.<\/p>\n","protected":false},"excerpt":{"rendered":"Generative AI tools promise enormous economies of scale for small creative agency teams. Good news for independent agencies…\n","protected":false},"author":3,"featured_media":128327,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[21],"tags":[691,738,4360,158,67,132,68],"class_list":{"0":"post-128326","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-artificial-intelligence","8":"tag-ai","9":"tag-artificial-intelligence","10":"tag-preview","11":"tag-technology","12":"tag-united-states","13":"tag-unitedstates","14":"tag-us"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@us\/114991646800006168","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/128326","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/comments?post=128326"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/128326\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media\/128327"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media?parent=128326"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/categories?post=128326"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/tags?post=128326"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}