Mike Fromowitz
Jun 13, 2014

Agencies were respected by their clients...at one time.

The intoxicating days of advertising portrayed in the now famous TV series “Mad Men” is unrecognizable to many of us senior advertising practitioners today. With the introduction of social media and everything digital, agencies have had to adapt to new ways of working to remain competitive.

Agencies were respected by their clients...at one time.

“There is no medicine like hope, no incentive so great, no tonic so powerful as expectation of something tomorrow.” — Orison S. Marden

Clients are very much aware that the market place has changed. They demand that their agencies are forward thinking and innovative, and that also means being at the forefront of technology and new media. As they question the return on their advertising investment, agencies struggle to prove their value. Clients’ expectation of accountability is growing, as is their impatience for efficiency and effectiveness. Most importantly perhaps, they expect that their agencies will be able to cover all aspects of their needs.

Just last week, a friend of mine who is based in China as head of an international brand agency, wrote to me and said, “I'm in a slightly cynical frame of mind about how clients are treating us, lack of respect etc. but I'm sure that's not something confined to Asia at the moment.” 

His statement made me think about how and why ad agencies got pushed down the value chain in the first place, and what we need to do to work our way back up. 

One of the leading issues I believe agencies have with clients today is that they are being treated more like vendors than marketing partners. They’re demanding that work be done faster and cheaper. Many agencies have fallen into the trap and have lost their professional status, and this is a growing concern. 

Other senior people I spoke to in the industry feel much the same as my friend in China.

“Clients don’t seem to appreciate the time it takes for strategic thinking and the fact that great advertising ideas take time to produce.”

“Clients these days seem to have a general lack of respect and for the work we are doing for them. We’re looked at as just another supplier. It’s a reality we helped to create.”

“The client always bears the responsibility for the success of a marketing campaign. But along with that responsibility is the need to listen to its advertising agency partner.”

I have some clients whose view of our agencies’ performance is dim. Clients are being asked to deliver more with less and are seeking a “better, faster, cheaper” attitude from agencies.”

No respect

At one time, agencies were respected by their clients. But then something happened. The large holding companies started to unbundle our services and expertise into silos — creative, media, digital, direct, etc.  They orchestrated this as a way to earn more revenue.  I think this backfired on them as this brought about a steady decline in profitability and took some of the “magic” out of the business. 

A recent survey by Kingston Smith LLP concluded that agency profitability has been in a gradual decline for the past 40 years. By breaking down agencies services into silos, it made it much easier for marketers to shop and compare services and costs.  By selling individual services, Agencies stopped being compensated based on results (when brand sales went up, agencies got more money to spend on media and creative, and therefore made more commissions). Add to that the huge impact the internet has had.  For example, consumers interested in holiday travel don’t need travel agencies any more because they have the internet.  The internet means that marketers can find easy, direct access to many of the providers of marketing services,  and so they feel they are much less dependent on advertising agencies.

In recent years there has been a significant shift from retainer based fees to project based fees. Whilst project work can be more profitable, it makes budgeting and forecasting that much more difficult as agencies are often unable to predict revenue more than a few months ahead. Clients look at the retainer as a way to save money, and agencies use it to dedicate appropriate hours, strategies and assets to specific projects. 

Clients frequently settle for project-based work, which makes it nearly impossible for ad agencies to allocate the suitable resources necessary, and puts pressure on the the client-agency relationship. I've seen some really incredible ideas suffer from project-based work as I have seen client-agency relationship suffer too. Talk to brand managers and they will tell you that they want a team that is focused on their business and knows their business as well as they do. But most project-based arrangements don't allow for fully dedicated teams, and the outcome often results in sub-standard work.

If not properly addressed, it can impact on service and delivery if staffing levels are not adequate to meet any peaks of work. Conversely, it can have a significant impact on margins if the agencies are overstaffed. Increasing employment costs are denting profits and agencies are trying to manage this by increasing the use of freelancers.

So what are agencies to do?

The standard, often repeated answer you hear most often from agency managers is: “We need to create more value for our clients. We have to do a better job of helping clients understand the value of what we do.” Truth is, for many clients, the services that agencies provide have a lower perceived value than an outcome. When agencies persist in selling individual services based on hours to perform those services, they are fueling the fire of commoditization. So they really need to start selling something that clients value more—the promise of game-changing campaigns that can transform a brand.  

So here’s an idea: let’s start charging for what we really sell and work our way back to our rightful place on our client’s value chain.

 

Creativity is still the most highly prized skill set.

So what can we do?  We need to change our idea about what we really sell—not services, but creative business solutions and ideas that help clients sell more products and services than they could have done on their own, and work our way back to our rightful place on the client’s value chain.

In spite of the fact that many clients these days believe they could do all of their own advertising and marketing programs faster and cheaper than their ad agencies, agencies have one big advantage: objectivity. Client marketing people are too close to their own products, their brands, and their history.

As agencies, our job is to get inside the mind of consumers. We look at the brand differently than a client does. We look at a brand the way the consumer looks at the brand. We also believe that consumers are really smart, and you can’t pull the wool over their eyes with silly brand claims that fall on their deaf ears. 

Another disappointment for ad agencies is that many marketing companies have been amping up their own internal resources and bringing many of the resources that have typically fallen within the domain of the agency back inside their own organization. It’s not uncommon today for clients to have their own people in the areas of social marketing, search engine marketing, analytics, community management, loyalty program management and even the day-to-day handling of website media. Social media has empowered clients to directly engage with consumers - one-on-one. 

It’s too bad more organizations don't take more advantage of their advertising agencies. An agency is an ideal organization to serve as the "eyes and ears" of a client that can determine the situation inside the minds of consumers.

 

Mike Fromowitz

 

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