The original article was published in AdAge.
Last month’s closure of Liquid Sunshine, the in-house agency at Keurig Dr Pepper, came as a surprise to some industry insiders. The shuttering occurred mere months after the 5-year-old shop received an industry accolade of 2024 In-House Agency of the Year by trade group In-House Agency Forum, and Liquid Sunshine appeared primed for further success.
Yet the agency’s demise, which occurred six months into the tenure of new Keurig Chief Marketing Officer Drew Panayiotou, highlights the new pressures in-house agencies are facing.
Those in the category are navigating a shifting landscape of new AI technology, financial tension between CMOs and CEOs amid economic uncertainty, and the ever-revolving door of CMO leadership. In particular, the costs of in-house shops are under scrutiny, as company leadership demands proof of return on investment and other key metrics. Experts say those internal shops around for the long haul must have a clear mission—a business reason for existence—and scope, along with the ability to develop strategic partnerships with leadership.
“In-house agencies, most of them are cost centers—those kinds of investments, even if it is seemingly less expensive to have internal resources than external resources—they don’t hit a financial statement in the same way as a cost savings,” said Andrea Ruskin, a partner at Blum Consulting, which advises internal agencies. “They’re really a cost avoidance.”
Along with KDP, PepsiCo has also recently shifted some in-house agency duties to an external partner, tasking VaynerMedia to handle some responsibilities previously overseen by the marketer’s Creators League unit. Suntory Global Spirits shut down its internal agency last year, the liquor marketer confirmed to Ad Age. HP is also rumored to have downsized its internal shop, but did not return a request for confirmation.
In-house agency savings are hard to show over time
Traditionally, in-house agencies were created to save a brand money by not having to outsource certain or all creative work. Initially, those savings are clear on a balance sheet but then become harder to prove over time, said Greg Wright, senior VP of brand and media at the Association of National Advertisers.
“Because now you’re not comparing yourself to an external agency that maybe had its role reduced, you’re comparing yourself to yourself,” he said, noting that the value comes down to “intangible” things like brand knowledge. “It’s a challenge that our members continually work on … how in-house agencies can help show the value they’ve brought year over year.”
Of course, some internal shops seem to have figured out the right formula. Earlier this year, Kraft Heinz’s The Kitchen widened its brand scope to include Kool-Aid, Jell-O and Crystal Light and sought to hire 14 additional staffers to handle the new work. The agency has seen success by tapping into pop culture moments on social media and reacting in real time, as it did last fall amid the rumor that its Capri Sun pouches would disappear. The Kitchen has a clear remit between “always-on social” and campaign product work for certain brands, Tom Evans, head of The Kitchen, recently told Ad Age.
Despite the recent pullbacks by KDP, PepsiCo and Suntory, the category overall remains strong, according to Wright. When the ANA published its regular report on in-house agencies in 2023, for example, 82% of the organization’s members said they had an in-house agency, up from 78% in 2018. Now, Wright estimates that figure is closer to 90%, though the trade group’s report on the category won’t be published again until 2028.
Wright also said ANA’s annual in-house conference, which will take place next week in Nashville, has ballooned to more than twice its 350-attendee count when it debuted six years ago. The number of entries in the conference’s accompanying In-House Excellence Awards has also grown, proof of the category’s industry status.
Membership in the In-House Agency Forum, a 20-year-old trade group founded by the consultancy Pile & Co., is also on the rise, according to Meghan McDonnell, president of Pile & Co. “For every Liquid Sunshine that is being disbanded, you have other companies that are investing in their in-house agencies,” McDonnell said.
How AI is affecting in-house agencies
As in-house agencies face industrywide pressures from the growing incorporation of AI into both processes and creativity, experts say they are challenged by figuring out how to implement the new technologies.
Newell Brands, which owns Rubbermaid, has added AI to the testing and idea generation at its in-house agency, which is helping reduce research costs. Melanie Huet, who this week was promoted to co-CEO of the home and commercial segment from CMO, is slated to speak about the tool at ANA’s conference. Yet Newell may be an early outlier. As most holding companies such as Publicis and WPP invest heavily in AI, the majority of in-house agencies are already behind in terms of deploying such innovation, observers say.
“At what point, if you’re a CMO, are you going to say, this [AI] is a lot of work, it could be easier to just outsource?” said Ruskin. She noted that her consultancy helps brands audit what makes sense to keep internal and what makes sense to send to an external agency.
The goal is “helping CMOs define where the value is instead of just blowing it up,” she said.
Jay Pattisall, VP and principal analyst at Forrester, agreed, saying in-house teams may need time and additional competence to stand up their own AI systems. “When you start to look at the ability for agentic systems, like the big holding companies are building, or the bespoke versions that the agencies are building, suddenly you can deliver content faster and more affordably than before.”
To keep in-house agencies alive, brands and their partners must change the way they are perceived and invest in them as they would an external partner, said Fred Schuster, CEO of InnerGroup, a marketing operations company for in-house agencies. In his view, in-house agencies are too often perceived as an expensive appendage to a company and not a cost-efficient problem-solver.
“The moment you build something internally, it inevitably sits as a cost,” Schuster said. “When you have the enterprise consultancies coming in, they look at the internal agency the same way they look at a copy machine or the catering.”
Having a line into the C-suite is crucial to an internal agency’s survival, Ruskin said, noting this means “understanding the business priorities, connecting to senior leadership that drives the objectives and goals, and then developing creative that supports those goals.”
At Airbnb, the in-house agency always has a seat at the table, even from the early stages of product development, according to Global Head of Marketing Hiroki Asai. For its recently relaunched Experiences product, the company’s internal team was heavily involved early on so that any changes or tweaks to the platform was already understood by marketing.
“This is the best example of how one brief informed supply, product team and marketing—they’re all working concurrently and not in a serial way,” Asai said in a recent interview, adding that “it all feels like it’s coming from the same person and it’s unbelievably efficient too.”
What happened to Keurig Dr Pepper’s in-house agency
Darren Moran founded Liquid Sunshine for Keurig Dr Pepper in 2020, and served as its chief creative officer until October 2023. In Moran’s view, the agency was successful because it aligned with the company on a vision to bring creativity closer to the brand. In-house agencies that can do this—and make cost savings a secondary goal—will be successful, he said.
“If we do it right, [saving money] will be a byproduct of doing this,” Moran said. “But when you create an agency just to save money at the macro level, then every individual decision you make comes down to controlling expenses.”
In Moran’s view, Liquid Sunshine’s greatest contributions to KDP were “hidden briefs” that used creativity to solve day-to-day packaging, pricing or distribution problems that the company would not think to present to outside agencies.
KDP has since reconsidered its view, stating last month that the “infrastructure and efficiencies of our external agency partners are better suited to help us to unlock world-class personalized creative at scale.”
Sources who spoke to Ad Age were careful not to draw conclusions about the direction of the industry from the Keurig Dr Pepper situation.
Both internal and external agencies are facing economic challenges today, noted the executive with internal and external agency experience, with brands watching what they spend on external help, and in-house agencies vulnerable to SG&A cuts.
“External agencies would be pretty naive to think they had the upper hand right now, but the internal agency is facing additional challenges,” the executive said. “They’re sitting on somebody else’s balance sheet.”
