How advertising giants like WPP and IPG are building new kinds of businesses to stay relevant as people shop more online

  • Advertising companies like Dentsu, Omnicom, and WPP are trying to cash in on ad dollars that are flowing to e-commerce as people shop more online.
  • They're launching or boosting new commerce practices or in the past few months.
  • These practices offer predictable profits for ad holding companies, whose clients are cutting spending on marketing services, but they'll have to move fast to capitalize on the opportunity. 
  • Visit Business Insider's homepage for more stories.

Brands and retailers are shoveling money into e-commerce advertising as online shopping skyrockets during the pandemic — and ad holding companies and agencies are swooping in to cash in on the demand. 

Dentsu, Horizon Media, and IPG have launched new commerce practices in the past few months while Omnicom, Publicis, and WPP revamp or put more muscle behind theirs.

"This is definitely a trend for 2020 and 2021: e-commerce, and, more broadly, retail media and marketplace commerce are top client priorities," said Forrester analyst Jay Pattisall. "Clients and agencies are claiming a decade of e-commerce innovation in the last six to eight months due to COVID, so it's no surprise that many agencies and consultancies are pushing further into that capability."

Brands and retailers need help as shopper marketing evolves

Retailers and consumer goods companies have already been evolving to compete with direct-to-consumer startups and online retailers that sell their own products.

"It's e-commerce that's [changed] how we're thinking about marketing now," Brad Hiranaga, General Mills' chief brand officer told Business Insider. "It's no longer, 'I'm going to get tortillas over here, and some beef and cheese over there.' Brands that are smart are providing that whole solution for taco night with one click of a button.'"

Online shopping has accelerated during the pandemic, leading brands like Petco, Hershey and General Mills to prioritize online sales and shift spending from traditional advertising to digital media channels, especially retail media. E-commerce ad spending is set to increase 38.8% this year to represent 12.2% of US digital ad spending, according to Business Insider Intelligence's eMarketer. 

"COVID added a new sense of urgency because consumers were suddenly shifting their buying habits online," said Will Margaritis, SVP and head of e-commerce at IPG's Reprise Commerce. "Brands could no longer assume that e-commerce was covered so long as they were on Amazon." 

Read more: Retailers like Walmart, CVS, and Instacart are starting to chip away at Amazon's advertising dominance

Beyond Amazon, retailers such as Walmart, Target, Instacart, and Walgreens have  started selling advertising on their sites. Shopper marketing used to focus on end-caps and shelves in physical retail stores, but has now evolved as people now have other ways to shop, creating more data for sellers to keep track of.  

"You have to juggle and pay attention to all of these retailers, because that's where your consumers are," said Reprise Commerce's Margaritis. 

Having a commerce strategy today has therefore become about capturing people's attention wherever and however they may shop.

"The consumer journey used to be very predictable, but that's completely changed — we can now see an Instagram ad and go from awareness to conversion in 60 seconds," said Jon Reily, SVP and global chief strategy officer at Dentsu Commerce. "Because of that, anybody who sells things has to be able to talk to consumers at any point in the life cycle."

Commerce is an chance for holding companies to offset losses elsewhere

While some ad giants launch new commerce units to serve brands and retailers, others are evolving their pitches, saying they can serve all clients' commerce needs, from supply chain and logistics to strategy, media, customer acquisition, and loyalty. They also compete with specialist agencies like Flywheel Digital and Teikametrics.

Publicis Commerce launched in 2018 under Publicis Media, and it now has specialists working across all its parent company's agencies, said Amy Lanzi, EVP and North America Lead at Publicis Commerce.

Omnicom created Omnicom Commerce Group in 2019 and just restructured it to work more closely with its media and precision-marketing agencies, said CEO Sophie Daranyi. 

GlaxoSmithKline used Publicis Commerce when increased its media spending with Walmart during the pandemic and needed specialists to make sure it was making the right moves, said Steve Kinsey, director of commerce marketing at the company.

WPP has Wunderman Thompson Commerce, which encompasses various retail-focused agencies including Gorilla Group, 2sales, and Amazon specialist agency Marketplace Ignition.

Wunderman Thompson Commerce helped a home appliance brand set up a DTC fulfillment center during the pandemic. For another client, it helped set up a system to manage in-store traffic, said Frank Kochenash, its president of marketplace services.

Meanwhile, Horizon has e-commerce agency Night Market, which claims its machine learning technology can connect the dots between advertising and sales and predict things like shoppers' lifetime value or basket size.

"CMOs can draw a direct line between what they do and revenue outcomes," said Randy Browning, president at Night Market. "So media goes from being a cost center to a revenue driving center."

Read More: General Mills' online sales are soaring. Its brand chief lays out how the company is overhauling its sites to build on the growth.

This push into providing overarching commerce services comes as ad holding companies' clients are slashing budgets and taking more of their advertising in-house. Despite some improvement in the latest quarter, the pandemic has weighed on IPG, Omnicom, Publicis, and WPP's businesses.

Commerce services provide a source of recurring revenue since retailers and brands have to upgrade their softwares every few years, said Dentsu Commerce's Reily.

The agencies can also charge for consulting services on top, as Night Market has started to do, said Browning.

"It helps holding companies have more predictable profit, and also gives them the opportunity to sell more high-margin items like thought leadership and strategy like a McKinsey or an Accenture, which don't have a cap," said Reily.

It remains to be seen if the holding companies can fully capitalize on the opportunity, though, said Pivotal analyst Michael Levine.

"They might get there and eventually make money, but I'm not sure they're going to move as fast as they need to move," he said. "When their core business is under threat and people are pressuring them on fees, it's kind of hard to lean in as aggressively as they should."

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