Quotes of the Day

The Ila Dusk is a personal alarm for women that's flying off the shelves of leading U.K. retailers and will soon be launched in the U.S. It's an odd device. About the size of an iPod, its sole function is to ward off attackers by emitting the piercing sound of a screaming woman. But what's truly unusual about it is the company that developed it: British ad agency Bartle Bogle Hegarty (BBH).

Ad agencies, after all, are supposed to be in the business of selling products invented by others. But BBH three years ago strayed from the path when it set up a subsidiary called Zag to create and market novel goods like the Ila Dusk. BBH calls Zag its brand-invention business — and it isn't the only ad shop selling its own branded products. New York City agency Anomaly produces Eos, a line of women's cosmetics; Miami-based Crispin Porter + Bogusky is the brains behind Twist cleaning products. And Brooklyn Brothers, with offices in New York City and London, produces a line of organic milk chocolate called Fat Pig.

Zag CEO Neil Munn says the denizens of Madison Avenue and Soho aren't competing with clients, they're creating products that their market research indicated consumers wanted but couldn't buy. For example, Zag started Dogside, a line of high-fashion dog accessories (with Bella, the labradoodle of supermodel Elle MacPherson, enlisted as its face), because it determined there were no dominant brands in that sector. Some agencies began creating brands before the recession, but the trend has picked up steam as a severe ad slump has forced them to explore alternatives to the traditional fee-based business model. "We are all looking to create new revenue streams," says Guy Barnett, a Brooklyn Brothers partner. "We need as many business models as we can get." Adds David Elms, a media-industry partner at consultants KPMG: "I understand the logic behind it, and I can see it continuing to happen."

Agencies aren't necessarily trying to reinvent the wheel. Rather, they see themselves as leveraging their experience at building brands. "That's what our core strength is," says Munn, who spent most of his career working for consumer-products giant Unilever. "We're an idea-generating powerhouse." Munn says agencies can find success developing and promoting "high-concept, low-tech" products "where the role of the brand is a very, very important part of the overall offer." Agencies typically enlist partners to handle manufacturing, distribution and, sometimes, financing. To launch the Ila Dusk, for example, Zag teamed with Locca Tech, a U.K. security-products company. In some cases, agencies work with clients to create new products, eschewing fees in exchange for a piece of the action. London agency Erasmus and Coca-Cola jointly developed an energy drink called Relentless that is being rolled out globally. "It's all about shared risks, shared rewards, shared ownership," says Graeme Dignan, Erasmus co-founder.

Ad agencies argue their efforts give them insights that can benefit their conventional customers. "We do a lot of learning this way," says Barnett of Brooklyn Brothers. "It gives us a greater understanding of clients' businesses." Another potential payoff, says Ruth Mortimer, associate editor at Marketing Week, is that collaboration can inspire greater creativity and risk-taking. For the launch of Relentless, Erasmus created a 30-minute surfing documentary to position the brand for the extreme-sports set. "It's a more sophisticated type of advertising than we're used to seeing with Coke," Mortimer says.

Agencies are taking on a lot more risk than they are used to by launching their own branded products. Results so far have been reasonably positive, according to the agencies. Dignan of Erasmus says Relentless is Coke's most successful new brand in a decade. The potential reward is worth the risk, says Barnett. If the agency's Fat Pig organic-candy line flops, he says, "the worst thing that could happen is there would be a lot of chocolate for us to eat." That's sugarcoating the prospect of a brand going bust, though. If a lot of agency-created products tank, the old model of fat fees could once again look pretty sweet.

• Thomas K. Grose
• To combat recession, ad agencies are starting to develop and sell their own products