When Kraft Foods announced in late 2005 that it was flattening its North Amercian marketing structure and in essence eliminating the 49th parallel when it came to its agency relationships, it was feared in ad circles to be the start of a fresh round of “hollowing out” of Canada’s marketing space.
What has happened over the last two and a half years has been less dramatic than many people dreaded, but in many ways the changes are just as far-reaching. While other consumer packaged goods companies have not made the same dramatic moves as Kraft, foreign acquisitions of Canadian companies have continued shifting more decision-making south. In Canada, full-fledged CEOs running major marketers are increasingly being replaced with executives whose main responsibility is to manage sales in Canada. Branding and strategic marketing decisions, meanwhile are being made on a North American or even global basis from U.S. headquarters. And on the agency side, the loonie’s rise has all but wiped out any financial advantage Canadian shops had in winning work from American clients.
But the hollowing out phenomenon is not an easy one to gauge. No industry body tracks the ebb and flow of senior marketing jobs across the border, and it’s impossible to quantify how much of the control over marketing in Canada has been transferred to parent companies in the U.S. But that doesn’t meanthe trend isn’t real.
“Hollowing out is happening,” asserts Daphne Bykerk,a partner at recruitment firm Mandrake who specializes in filling senior marketing roles, and who sees subtle signs of it occurring. Specifically, the dearth of decision-making power on this side of the border has made it harder for Bykerk to fill high-level jobs. “We have always looked at Procter & Gamble as a great place to get well-trained candidates, and there are people who are now less inclined to leave Procter because they realize that they can’t get anything better anywhere else,” she says. “If they go out on an interview, all they want to know is, ‘Can I really get source development work in Canada?’ and the answer is no and they go, ‘I might as well stay with Procter because I’m with the best and the brightest.’ “
Because the trend has been going on for years, the southern migration of decision-making is accepted almost as a fact of life. Certain agency executives even claim their shops are immune to the phenomenon. Some, like Taxi for instance, do a lot of work for Canadian-owned brands, such as Telus, WestJet and Canadian Tire, where the top marketing executive in Vancouver, Calgary or Toronto doesn’t have to answer to someone in New York or Chicago. But those brands are few and far between these days, and to survive most agencies inevitably must work for American-led marketers.
While many industry players say the move to centralization is a process that ebbs and flows, consumer goods companies today are buffeted by a nasty confluence of forces that did not exist in the past, observes Tony Chapman, CEO of Toronto agency Capital C. These include the commoditization of brands, merchants using private labels to differentiate their products, a severe economic slowdown in the U.S. and spiraling commodity costs.
“One of [marketers] responses for cost cutting is to centralize brand strategy and brand creativity,” Chapman says. “So they are going to create the one-size-fits-all campaign and then the [other] countries will be responsible for activating in their local market.” So, where brand strategy, brand creativity and creative platforms were once handled in Canada, more often now the multinationals are pulling it outside of Canada. “The danger is that these [Canadian] offices will eventually be primarily servicing sales forces and customer marketing initiatives.”
But all is not doom and gloom. Ever so slowly, evidence is mounting that a centralized marketing function isn’t as effective as local control. Chapman and others point, for instance, to the difficulty of creating globe-spanning marketing messages that work as well in America as Australia, or Atlantic Canada for that matter. The list of those who consistently do it well is surprisingly short: Apple immediately springs to mind for both its iPod and Mac lines, plus, perhaps Nike and Gap.
Even a global brand icon such as Coca-Cola has found it difficult to succeed with remote-control marketing. “Up until about four or five years ago, virtually all Coca-Cola’s key strategic decisions were made in Atlanta; [now] they have gradually moved decision-making back into not just Canada, but markets globally,” says Alan Middleton, marketing professor at York University. “They found that by over-concentration of global brands, they were missing out on a lot of new product and segment opportunities because of a lack of local knowledge.” At the same time PepsiCo, “which was a localized organization, has been gradually more centralized,” Middleton says.
In Canada, the hollowing out trend has been somewhat masked by still healthy ad spending, which contributes to a feeling of normalcy.”If you look purely at media spend, you would say that Canada is on track with the rest of the world,” notes Brett Channer, chairman and executive creative director of Saatchi & Saatchi Canada. “Our actual expends every year go up, better than inflation, and we probably have a disproportionate amount of dollars going into digital marketing versus the U.S. That’s the good news.”
Channer points to some ominous statistics, however, to make his case that the industry is far less healthy than it may appear. The Gunn Report, which measures creative achievement by country in international award shows, shows Canada in decline for two straight years–coming after five consecutive years of increasing achievement. And while it may be a boon to commuters navigating the streets of Vancouver and Toronto, film production business has declined about 10% annually since 2005, hurt by our strong currency and other factors. “There isn’t a single director from Canada” on the new directors talent showcase in Cannes, observes Channer, who is a jury member. “It’s the first time I can remember in a long time.”
Channer, who recently joined the Institute of Communication Agencies’ board of directors, wants the association to tackle the issue. “Is there a way to create a communications platform from the ICA that actually helps marketers understand that there is a value to original thinking in Canada?” He holds up as proof the 2007 Marketing/Leger corporate reputation survey. “Out of the top 10 most respected brands in Canada, eight of them are brands that are focused–to the majority of the spend anyway–on advertising that is specific to Canada.” But that argument may no longer be true. The 2008 winner, office supplier Staples Business Depot, took top spot largely on the strength of its born-in-the-U.S.A. “Easy Button” campaign, beating out homegrown brand darlings Tim Hortons and Canadian Tire.
One executive who has run agencies on both sides of the border, MacLaren McCann chair and CEO Howard Breen, warns that the worrisome trend is not only a Canadian problem. “The marketing world is hollowing out, it’s not just in Canada…especially with the whole drive to digital and the Internet,” he says.
Breen’s solution? Agencies should create stand-out work that not only serves clients domestically but has international legs. “It’s not about having a world-class agency, it is about focusing on a client-by-client basis of developing creative that clients are able to run outside of Canada. That has got to be one of your goals.” He is starting to see some Canada-based agencies producing such work, with the best example being Ogilvy & Mather’s Dove Evolution online spot.
The Dove ad, which eventually made it to television and film, winning two Grand Prix at Cannes, has elevated the Toronto agency’s status with current and potential clients. “We are constantly giving the Dove case study to all kinds of clients, even clients that aren’t our clients,” says Nancy Vonk, O&M’s co-creative director. “It is inspiring and makes people feel like doing stuff a bit without a net should feel normal, instead of frightening.” Vonk estimates about half the output of the Toronto office is for international markets. One of O&M’s clients is, in fact, Kraft, and Vonk has been busy shuttling back and forth to the company’s New Jersey headquarters (see “Filling the Gap,” p.16).
But Vonk and other Kraft ad suppliers will likely be spending less time waiting around airports in the future. A number of sources say Kraft is now beefing up its Canadian marketing presence, reversing the move that continues to cause ripples more than two years later. While Kraft declined repeated requests for interviews for this article, at press time, Lynn Galia, a spokesperson for Kraft Canada issued a statement saying that “Globally, we’re moving marketing closer to the consumer. Specifically for Kraft Canada, it means having more autonomy and control to market to Canadian consumers… This not only includes advertising, but new products and other forms of communication as well.” Still, Kraft has no plans to increase staffing within its Canadian marketing departments, she said.
But if Kraft is moving some decision-making back to Canada, it would be good news for those who have long argued that when it comes to understanding and reaching consumers, there’s no substitute for boots on the ground. That’s something Glen Hunt, creative catalyst with Dentsu Canada, has found in his agency’s relationship with Toyota Canada. “There is a lot of autonomy for clients like Lexus and Toyota in Canada and the decisions are made here. I get to speak to the top people, they are not making up U.S. advertising,” he says. “They realize that there is a difference.”
