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.
Have advertisers (and their creative agencies) run out of ideas for improving their relationships? Over the past 30 years, we’ve seen chronic reductions in agency fees, the growth of scopes of work (SOW), the elimination of agencies-of-record (AOR), the rise of in-house agencies, an increase in agency reviews and, recently, the introduction of “serial project assignments,” likened to dating arrangements with boyfriends who never commit. What’s going on, here?
What we’ve seen, I think, is a series of relationship initiatives that each made sense, one after another, for conditions that existed at different points in time — but taken together, today, make no sense whatsoever. It’s time for fresh insights about what’s needed for healthy client-agency relationships.
- Fee cutting: It made sense to change from media commissions to labour-based fees in the 1980s, and to cut excessive fees in the years thereafter. But fee-cutting practices have continued now for more than 30 years despite massive digital/social SOW workload increases. Fees are imposed without any regard for SOW workloads.
My analysis from my consulting assignments shows that agencies have stretched their relatively underpaid people significantly, compromising creativity and marketing effectiveness at the same time. Does this make sense? Fees, workloads, and agency resources need to be realigned. Brand performance will benefit.
- AOR eliminations: It made sense to eliminate AOR relationships in the early 2000s, when very few traditional creative agencies seemed interested in diversifying their capabilities into digital and social media. Clients needed to go shopping for “best-in-class agencies” across the media landscape. This had the effect, though, of significantly increasing the complexity of client marketing and oversight responsibilities.
That was nearly 20 years ago. Is the increased complexity still worth it, given the fact that creative agencies have since made significant progress in developing integrated capabilities? Don’t the times call for complexity reductions?
- In-house agencies: Inevitably, an increase in the number of low-value creative deliverables, such as email marketing, social posts, and banner ads tempted clients to take these SOW deliverables in-house, reasoning that they could do them cheaper and faster than their full-cost agencies. Why pay $200,000 per year for a fully loaded agency FTE when an in-house person might do the same work for $60,000 (as long as overhead costs and productivity issues are completely ignored)? Sure, that made sense, but in-house agencies rarely limit their ambitions — particularly if they’re led by former agency executives.
Before long, in-house agencies tried their luck at brand strategic thinking, market research, media planning, and high-value executions, leaving lower-value activities for their more-experienced outside agencies. “We’ll do the thinking,” some clients have argued. “You do the execution.” Somehow, the cart is replacing the horse. Does this make sense? Shouldn’t there be clarity about what can be done effectively inside versus outside?
- Frequent agency reviews and serial project assignments. Finally, out of dissatisfaction with “results” — brands are still struggling in the marketplace — clients have increased the pace of agency change and the auctioning of project assignments. It’s akin to believing that one’s overall sexual satisfaction will rise with an increase in the number of partners one engages with. (At my age, I claim, through fault of memory, no expertise in this philosophy.) Isn’t commitment a better, more time-tested route to achieve satisfaction? What would Dr. Ruth say?
In 2001, Toyota articulated “The Toyota Way” as its management philosophy. One key principle is “the right process will produce the right results.” Among major corporations, Toyota is a sterling example of a company that has sought to continuously improve its manufacturing, supply chain, and marketing/agency relationships to achieve leadership in its industry. It has weathered product recalls, a tsunami, recessions, technological changes, and global competition to achieve an ever-strengthening leadership position. It has remained faithful to its original agency, Saatchi & Saatchi, working together to achieve continuous improvements in processes and results.
Too many other advertisers have instead gone down the dysfunctional pathways described above and failed to achieve Toyota’s notable strategic and commercial success.
Shouldn’t clients and their agencies begin to review their underlying relationships in 2020 and set new pathways for themselves? It’s time to glean new insights and shelve outdated practices. New thinking will lead to the necessary breakthroughs that will increase marketing success.
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