Is the media agency model moving towards outcome-based payment?

A recent World Federation of Advertisers (WFA) report showed that global brands want better integrated services and more payment based on results from their media agencies. Are agencies able to deliver this and what is holding them back?

 

“There’s an appetite for change,” wrote Catherine Lautier, VP, global head of media and integrated brand communication at Danone, in her introduction to the WFA’s latest report, Future of Media Agency Models, authored in partnership with MediaSense.

 

That’s rather an understatement, considering the headline-grabbing statistic that 24% of the multinational brand marketers polled chose to describe their current media agency model as “unfit for future purpose”. Only 11% said it “aligns well to my future requirements” and the remaining 64% answered that they had the correct model but there was room for improvement.

 

 

To sum up what the majority of the 70-plus clients surveyed are looking for, Lautier wrote: “Simplification, integration, consolidation, flexibility ... Clients are looking for a more ‘networked’ model, where global agency capabilities can be leveraged to unlock speed, agility and talent.”

 

It’s a view that’s backed up by some agencies. For example, iProspect global client & brand president Amanda Morrissey tells PMW: “I’m not surprised by these results, we saw this pattern emerging a while back and have pivoted how we partner with clients, to ensure their needs are met and well serviced. I would go as far to say, we’ve been doing this since 2010 and in that time built a rich culture of radical collaboration across our network, with people and capabilities flexing around each client’s business objectives.”

 

 

Wavemaker UK chief operating officer Katie Lee also accepts the report findings, adding: “Often it’s not what clients are just asking from us but rather something we are working on in partnership. Their businesses are on transformation journeys that we are supporting and we are changing how we work together simultaneously.”

 

 

One of the reasons that agencies are finding themselves having to change to meet client needs is that “continued proliferation of media has forced many to over-specialise into individual disciplines to provide depth of expertise”. That’s according to one of the report’s two co-authors, Ryan Kangisser, managing partner at global media advisory company MediaSense (the other is Matt Green, director of global media services at WFA). 

 

Agencies, in Kangisser’s view, are therefore falling short on integration because of “a dearth of people capable of joining the dots across multiple touchpoints (ATL, BTL) and disciplines (i.e. media, creative, production, data et al)”. This shortage means generalists carry a premium that some agencies may not be able to afford to pay given their “dwindling margins”, he adds.

 

 

Morrissey at iProspect echoes this diagnosis when she says: “Agencies who don’t have either the scale, expertise or ability to bring all of it together effectively into one place and mould to the client’s current and future reality are the ones who ultimately trip up.”

 

However, Kangisser admits that the “channel-centric view can also be reinforced by clients who may share similarly siloed organisations with distinct departments, objectives and budgeting approaches”. 

 

Lee accepts that “clients are still operating in very siloed structures which often makes integration or getting to the right people challenging”, but adds: “At Wavemaker, we have spent 2023 moving the business to a matrix model for this very reason. It enables our clients to access specialists and have the flexibility to pull together the team they need for the task in hand. It ensures a more integrated response at pace.

 

“It’s not been easy, because changing behaviour is always uncomfortable but the work we’re doing and the client feedback reassures us that it is the right way of working in today’s complex operating environment.”

 

“Current models do not incentivise the right behaviours”

 

Speaking of client feedback, another clear finding from the WFA report was that an overwhelming 74% of respondents believe the next three years will bring a shift towards outcome or output-based pricing.

 

This change is generally seen as desirable, with Kangisser arguing: “There is wide belief from both clients and agencies that current models do not incentivise the right behaviours, with many encumbered by legacy approaches which support a more traditional client-agency dynamic.”

 

However, moving to outcome-based pricing specifically “will take time and importantly leadership from clients and agencies”, even if “simplification and integration of the agency model will better equip advertisers and agencies to explore it”.

 

“When both client and agency are invested in the outcome it removes any doubt about the collective motivation to succeed”

 

For Lee there is a shift to outcome-based pricing but it’s not uniform. “As we diversify our services, we are seeing more future-fit remuneration models that are outcome-based. However, in our core business it’s moving slowly, more often than not due to compliance and governance client side. We have more success with output-based modelling around products/solutions than outcomes.”

 

And in Morrissey’s view it’s a long-term shift that again is positive for the client-agency relationship. “Outcome-based models are becoming more common and, in some cases, we’ve had performance related fees in place for years now. When both client and agency are invested in the outcome it removes any doubt about the collective motivation to succeed.”

 

With the report also showing that 21% of clients believe their current remuneration model is unfit for future purpose, there seems to be a substantial weight of doubt to shift.