This post is by Darren Woolley, Founder of TrinityP3. With his background as analytical scientist and creative problem solver, Darren brings unique insights and learnings to the marketing process. He is considered a global thought leader on agency remuneration, search and selection and relationship optimisation.
With all the reports coming out of the Cannes Lion Awards earlier this year, you would not be alone in thinking it was a Hollywood Film and Music Festival with appearances by Kanye West, Sarah Jessica Parker, Jared Leto, Jeffery Kratzenberg, instead of an advertising festival of creativity. Though creativity does feed on a diversity of inputs.
But of all of the sessions I saw reported, there was one that I think was particularly insightful from a Marketing Management and Procurement perspective and that was The Naked Truth by RPA and USA Today.
Here is a teaser they provided on YouTube to get Cannes Festival attendees to come to the session. I think it is hugely insightful as a mirror on the industry.
The survey that they commissioned with more than 140 marketers and agencies provided some invaluable insights which you can find summarised in this fabulous infographic here.
But the one question not answered is why is it so?
The importance of trust
The best marketer / agency relationships are based on the concept and process of co-creation. The interaction between the two represents collaboration with each party contributing to the final outcome and the result.
The Economist Intelligence Unit has written about the importance of trust in collaborative relationships and that the absence of trust is a barrier to effective collaboration.
It is clear that where advertisers trust their agencies, it gives the agency permission to stretch and outperform expectations. But likewise the agency must trust the advertiser that they will be supported in the process.
So what has caused the erosion of the trust between advertisers and their agencies? In my experience it appears to be money.
The impact of money
Don’t get me wrong, advertising as the world’s second oldest profession, has always been a commercial transaction, much like the oldest profession. Advertisers pay agencies to help them promote their brands and services.
For the first 150 years of advertising the agency was simply paid a percentage of the media spend (plus service fees and the like to top up the commission revenue). But since the demise of the media commission in most markets globally, the agencies are now getting paid fees, much the same way as accountants and lawyers. The difference with lawyers and accountants, is they are providing a service, while advertising is seen by many advertisers as a deeper relationship, and not just because agencies have been invited to their Christmas parties.
Advertisers and marketers often develop friendships with their agencies, unlike friendships with their accountants and lawyers. It often goes beyond a professional relationship to a more emotional connection.
Today the agency relationship has become all about the money. When you watch Mad Men there is very little discussion about agency fees beyond the vague discussion on the size of the television production budget (actually perhaps some things have not changed). But there is no-one sitting there counting the number of hours it took the creative to crack the latest ad campaign. In fact the agency would work on it again and again and again until the idea was approved.
Today, the conversation is burdened with discussions on rates, hours, rebates, kick-backs, margins and billable hours. It is no longer about the work, as much as it is about, how much it will cost.
Now, advertisers and their procurement and finance directors are paying particular attention to advertising costs.
The behavioral economics of money
Behavioral economics Professor Dan Ariely has demonstrated that financial (money based agreements) and social (relationship based agreements) operate very differently.
To demonstrate he uses practical observations, like imagine you invite a friend to come and help you move some furniture on a Saturday morning. They help you for an hour of so and you hand them $50. Suddenly they are considering how much you think they are worth. But hand them a $50 bottle of wine and they will happily accept it. (Unless they are a non-drinker, but even then they would most likely leave happy).
It is just one of the many ways he demonstrates how human beings are irrational, but they are predictable in their irrationality in his book Predictably Irrational.
The problem is a social transaction has suddenly become a financial transaction, and in the process the social rules are breached and the discussion becomes more about the perceived value.
Imagine in an agency / advertiser relationship where you can largely forget about agency fees, because the agency simply takes a cut of the media spend and a service fee and they will do whatever you ask, without coming back and asking for more money? Sounds like a more social relationship than a financial one, right?
The money of advertising holding companies
This breach of the advertiser / agency social relationship is further impacted by the corporatization of the agencies themselves. Holding companies are reporting quarterly profit results that get splashed across the media.
Independently owned or privately owned agencies never have to report their profit results and never would for fear of raising the curiosity of their clients. After all, while advertisers say they are happy for their agencies to make a profit, no one feels comfortable when their suppliers make a better profit than they do.
I remember a discussion with an advertiser who after reading about the record profit growth for his agency holding company then started to look at the cars the agency drives to their weekly WIP. Suddenly the appearance of the prestige and luxury European motor vehicles in their office car park had become an anathema. The relationship was already deteriorating and this was not helpful.
But it is more then just the holding company profits, the announcement of the Publicis Omnicom (POG) merger, and the associated media and industry frenzy had most advertisers scratching their heads as to what was in this for them, other than the agency holding company fat-cats building their empires?
How to bring trust back to the relationship
Of course trust can and does exist between individuals. But the fundamentals of the relationship have changed with the effective end of the media commission. Now the relationship is all about the money and the profits. Of course advertising is a business and the agencies have to make profits to survive. But it is also a collaborative relationship, rather than just a service provider.
Sorting out the money and minimizing the discussion on money is a great way to minimize the impact money has on the relationship. Of course I am not suggesting a return to the media commission, although I know a few agencies that would love this. But instead, it is about putting money and finance and remuneration in its place and allowing the agency and advertiser to get on with what they do best, which is a co-creation of the advertising strategy and program.
So how do you minimize the money issue? You sort it out up front, benchmarked and designed to provide a stable and sustainable relationship. You set frameworks and guidelines to assist in managing spend and expectations. And you incentivise the agency to align their success with the advertiser’s success.
Ultimately this was the success of the media commission, because usually the more successful the advertiser the more they would spend and the more the agency would make.
Today it often feels that the agency remuneration model is designed to pay the agency less no matter how successful the advertiser and that does not reflect a relationship of mutual trust.
What do you think?