In the past, creative agencies would identify the production houses they wanted to work with, and the agencies would add a hidden markup of 4-5% to the production cost that was subsequently passed through to their clients. This practice began to change with the rise of production decoupling, where marketers would choose the production houses with which the agencies would work. Production decoupling is applicable for marketers with high spend and strategic relationships with agencies, and the practice has increased in recent years. CPGs have been the leaders in implementing this because spend on production and internal maturity are quite high.
Some of the key challenges faced by marketers are:
- The production house supply landscape is both regional and fragmented, so marketers need to adopt a regional or country specific strategy.
- Though production job roles have industry benchmarked pricing, sourcing departments face challenges in benchmarking production costs that vary with planned creative.
- Demand planning is a major challenge in production decoupling. The number and utilization of production houses and contractual pricing models are dependent on demand.
- Increasing production prices in developed markets where marketers face regulatory challenges in outsourcing production work to certain markets.
Strategies that have been adopted include:
- Establishing production hubs in low cost regions with abundant creative talent and minimal cultural differences. For example, Latin America is treated as an outsourcing destination for North America as is Central Europe for Western Europe. A lot of digital work is outsourced to Asia Pacific markets. As compared to adoption of a country specific strategy, establishing production hubs is especially beneficial for marketers with medium production spend because demand planning and production house utilization can be calculated more effectively.
- Engaging with production consultants on a performance based model to benchmark the quotes provided by production houses. They are remunerated a percentage of cost savings achieved. Major marketers are most likely to benefit from this approach due to volume advantages.
In the coming years, it will be easier for marketers to implement production decoupling as the supply market matures. Many production houses have started serving marketers across regions. On the other hand, both holding companies and agencies have also started to invest in internal production capabilities. The challenge for marketers will be choosing the best fit for a production decoupling partner.