The worlds of advertising and disruptive technologies are inextricably linked. From programmatic media buying and SEO to mobile marketing, the advertising industry has always been at the forefront of digital innovation. Now, in 2024, a new wave of disruption is sweeping through the industry: generative artificial intelligence. As brands and consumers demand that agencies stay ahead of the curve, the question is no longer if AI will transform advertising, but how agencies can harness its potential while adapting their business models to remain relevant.
The AI Imperative: Adapt or Become Irrelevant
Agencies find themselves in a challenging position. On one hand, there are concerns that AI will fundamentally alter the agency landscape. On the other, agencies are investing heavily to provide AI-enabled marketing solutions to clients who expect nothing less. The stakes are high: according to GroupM, AI-enabled marketing currently accounts for nearly half of all global advertising, and by 2032, AI is projected to influence 90% of ad revenue—over $1.3 trillion.
As Marla Kaplowitz, president and CEO of the 4As, succinctly put it, “Gen AI is here to stay, leaving the advertising industry with a stark choice: adapt or become irrelevant.” In this context, agencies must embrace the opportunity to transform their revenue models, and one promising option is value-based pricing.
Value-Based Pricing: Aligning Compensation with Impact
At its core, value-based pricing determines costs based on the value of services provided to the advertiser. While the need for agencies to revamp their compensation structures has been percolating for years, generative AI is likely to accelerate this shift.
Moving to value-based pricing will require professionals to sharpen their creativity, strategic thinking, emotional intelligence, and cultural understanding—skills that machines cannot replicate. Agencies will also need to offer reskilling and upskilling initiatives to help professionals reinvent themselves in a rapidly evolving landscape.
Experimenting and Testing to Demonstrate Value
To advance value-based pricing driven by AI, agencies and advertisers must embrace experimentation. Start with smaller projects to test and learn, being prepared for setbacks that can yield valuable insights. Ensure that both parties actively participate in the discovery process, investing time and resources to identify the most relevant use cases that drive the most value for the brand.
Regular experimentation and testing are crucial to avoid missing potential use cases. Begin by constructing a proof of concept that balances driving efficiencies with maximum impact. Once established, the value proposition for advertisers becomes clearer.
You can also invest in team training to help your group leaders and team members at every level understand how to use AI ethically to automate tasks and enhance campaign performance.
With a solid understanding of these usage scenarios, agencies can calibrate the appropriate level of investment and frame implications for pricing and business models. Align products and services with what clients value and need, keeping in mind that competitors will be doing the same.
Tying Value-Based Pricing to Realistic Factors, Not Hype
Assigning value to a technology still largely in its hype phase is a challenge for both agencies and brands. Generative AI is opening doors for both groups to integrate the technology into existing tools, products, and services. It’s not about reinventing the wheel but figuring out how to be more efficient and effective with it.
While ROI is important for growth, it’s equally crucial to ensure that teams are set up for long-term success. Generative AI is here to stay, and leaders must prioritize testing and experimenting with the right pricing models rather than introducing products, services, or pricing models that aren’t viable for clients or the wider business.
Looking Ahead: AI as a Complement, Not a Substitute
While the future is uncertain, new opportunities will undoubtedly emerge alongside technological advancements, creating jobs, tools, and products that don’t yet exist. A recent Goldman Sachs study suggests that over the next decade, most jobs will be complemented by AI, not substituted by it. If we get it right, generative AI can help us tell more compelling stories, connect with audiences on a deeper level, and usher in a new era of advertising that is both effective and meaningful.
The path forward is clear: agencies must embrace the AI revolution, adapt their business models, and harness the power of generative AI to drive value for their clients. By experimenting, testing, and tying value-based pricing to realistic factors, agencies can navigate this new landscape and emerge stronger, more innovative, and better equipped to meet the challenges and opportunities of the future.
If you need assistance understanding how to leverage Generative AI in your marketing, advertising, or public relations campaigns, contact us today. Custom training workshops are available. Or, schedule a session for a comprehensive AI Transformation strategic roadmap to ensure your marketing team utilizes the right GAI tech stack for your needs.
Read more: AI Is Transforming Advertising: Embracing the Revolution
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