On Monday, holding company Dentsu Aegis announced that it acquired a majority stake in Merkle, which is known for its CRM, data, and digital marketing capabilities. Logistically, this acquisition allows Merkle to increase its international presence, while beefing up Dentsu’s US coverage and allowing it to diversify outside of Japan. This acquisition is also important because Merkle was one of the last large independent agencies, which leaves slim pickings for marketers hoping to work with an agency not subject to holding-company rule (read: less autonomy, less entrepreneurial).
Dentsu Aegis is not unique in its acquisition of a data/CRM agency. All of the other holding companies have them too (WPP has Wunderman, Publicis has Rosetta [now Razorfish Global], IPG has The Hacker Agency, Omnicom has Rapp and Targetbase). This is because “customer relationship management” has broadened beyond direct mail and email marketing to include loyalty initiatives, ownership experiences, data strategy/modeling and technology integration — critical data and insights solutions for holding companies to provide to their clients.
With reported 2015 revenue at $436 million, Merkle will be Dentsu’s fourth-largest agency, behind Dentsu (the agency), Carat, and Isobar. With this move, we think that Dentsu’s should make CRM and data-driven marketing the centerpiece of its agency strategy — not just an additional services offering.
This is a smart move, given that:
- Insights-driven businesses represent significant opportunity. Forrester predicts that insights-driven businesses will grow eight times faster than global GDP. Companies like Netflix, Amazon, and Tesla use data and analytics at every point to differentiate products and customer experience. Any company that hopes to remain competitive over the next five years will need to do the same…this goes for Dentsu, as well as its clients.
- First-party customer data unlocks untapped customer understanding. In the post-digital world, marketers must understand who their customers are and how to motivate them to interact with a brand. First-party data is critical to developing this understanding and powering the experiences across the customer life cycle —particularly after the buy phase, when brands need to know more about their customers to drive loyalty and advocacy.
- Data makes creative and media smarter. Building a media strategy or a creative campaign that has data at its core has a better chance at increasing effectiveness and allows for more robust measurement. This means that agencies that can integrate customer insights into their creative and media services — practices that still drive the bulk of agency revenue — will have a leg up over competitors.
- Most agencies aren’t seen as strategic data partners. When I ask marketers about the role agencies play in developing strategy to help them leverage massive amounts of data, the answer is usually “none.” This isn’t a knock on agencies. For most agencies, data is usually coming from and powering media buying — not nurturing relationships, informing creative ideas or post-purchase experiences. Many marketers also haven’t figured it out themselves. But, they will (because they have to) and right now, their agency will not be their first stop.
Acquiring a data-driven agency does not a data-driven holding company make (see WPP, Omnicom, Publicis). We wrote about the Customer Engagement Agency in 2012, and in follow up research, we confirmed that the promise of a CEA was valid. In the past four years, many agencies even built out CEA offerings but weren’t equipped to staff database and tech implementation projects — something Merkle can do.
The question is: what will Dentsu do differently with Merkle to make good on this vision? So far, none of the other holding companies (which have a similar vision) have been able to put it into practice and sell it. Dentsu, however, operates differently. Dentsu lets its acquired agencies run pretty independently. If it takes that approach, it will need to invest in Merkle’s technology and people. And it will need to incentivize its agencies to put forth integrated solutions that leverage Merkle’s data and technology assets. If Dentsu decides to dissolve Merkle into the broader entity or keep it separate without a focus on integration, it will dilute its competitive advantage quickly.