This post is by Michael Farmer, Chairman of TrinityP3 USA and author of Madison Avenue Manslaughter: an inside view of fee-cutting clients, profit-hungry owners and declining ad agencies, which won the Axiom Gold Business Book Award for the best marketing / advertising book of 2016.
Increased complexity has become the new standard in marketing. Increased complexity has been exploited to justify advertisers’ increased control over marketing and to marginalise ad agency involvement. Yet, brands continue to languish. The complexity trend needs to be reversed.
Increased complexity began when media-based commissions gave way to labour-based fees. Advertisers required agencies to submit new types of data: salary costs, overhead costs and profit margins. The new fee-setting system gave birth to procurement executives and their benchmarking consultants, whose joint objective was to analyse costs and then drive down agency fees.
The fee-setting process secured a permanent role for procurement, increased the amount of total time involved in fee negotiations, increased relationship mistrust and began the fateful power-shift that marks so many client-agency relationships today.
With the advent of digital and social media in 2000-2010, advertisers abandoned the AOR concept and took on a raft of new agencies, following the dubious principle that “marketing effectiveness must go up if we hire 20 best-in-class agencies to replace one integrated agency.”
Learning that no one agency’s advice could be trusted, advertisers shifted the center of gravity to themselves — taking control of Scope of Work (SOW) planning and the allocation of SOWs among agencies. This increased advertiser power and complexity at the expense of their agencies, who became “execution partners.” The increase in power is unlikely to change even though agency rosters are being simplified today.
In increasing roster complexity, procurement executives ignored the major lesson from the supply-chain revolution that saved the U.S. automotive industry from 1970-1990: A fewer number of committed / strategic suppliers creates higher quality / lower costs.
The rush to experiment with digital and social marketing led to a massive increase in unplanned (and unpaid) SOW deliverables for agencies. The number of agency deliverables increased 18x from 2000 to 2018, with the average agency creative now knocking out one low-value, small social/deliverable per day.
Fees continued to decline, though, because fees are not based on agency workloads. The increase in deliverables diluted the strategic content of client SOWs — good neither for brands or for ad agencies. Larger SOWs created logistic complexities without improving the results for brands.
Inevitably, clients began to reason that they could take digital/social creation in-house, calculating that an in-house salary was cheaper than an agency salary at a 2.2 billing multiple. Running an in-house agency while working with outside agencies creates another source of relationship complexity and mistrust.
With little brand value being created, and relationships increasingly evaluated on a cost basis, clients inevitably increased the rate of agency hiring and firing. Reviews and searches became commonplace, with procurement frequently taking the lead in the process, replacing search consultants. The extensive costs and delays of ongoing agency reviews have been a dead loss; this is not a process that routinely adds value.
Other sources of complexity.
Globalisation creates the need for agency global client heads, who clash with agency office heads over fee allocations. In-house programmatic media departments compete with agency media planning departments over brand planning priorities.
Agency finance directors cut headcounts to meet budget targets independent of the workload requirements of individual clients. One part of an organisation competes with another, diluting the energy that could be used to solve client and brand performance problems.
There have been too many people trying to manage and negotiate ambiguity and complexity, and the hidden costs are certainly high. Simplification can begin once Scopes of Work are planned rigorously, measured and used to determine agency resources and fees. That will eliminate the ambiguity that leads to excessive, stressful and ongoing negotiations.
Fewer agencies should be engaged; relationships should be strategic, intimate and long-term. Procurement’s grip and scale over marketing processes should be challenged. Procurement should be simplifying processes, not adding to complexity.
Who has the vision for simplification? Advertisers should know better, but CMOs are under pressure to justify their spend levels and their lack of brand achievement. Agencies, too, should know better, but their CEOs are obsessed with replacing lost clients along with meeting holding company financial targets.
CMOs and agency CEOs need to sit down and draw up simplification manifestos for their relationships so that each can focus on achieving success in the marketplace.
First published in Media Village on April 3, 2019.
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