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Building a Foundation for Trust in Client/ Agency Relationships

27 Feb

dreamstime_s_38659968Perhaps I was fortunate. Perhaps it was a sign of the times. When I began my career at J. Walter Thompson, we took great pride as an organization in the number of client relationships that we had, which were measured in decades. Clients such as Ford Motor Company, Unilever, Kellogg’s, Kimberly-Clark, Kraft Foods, and others were celebrated, revered, and nurtured.

Not unlike today, there were challenges to be faced and pressures to be dealt with, whether market-driven or internal.  So, what allowed those relationships to flourish through good times and bad?

The answer was simple. Trust and a mutual commitment to the partnership combined with alignment on business objectives.

Today it is believed that the average length of client-agency relationships is around 3½ years. Is this reduction in longevity correlated with the fact that there has been a slow, but steady erosion in the level of trust between advertisers and their agencies? Consider that a couple of years back, the Association of National Advertisers (ANA) conducted a survey and found that only 29% of its member marketers ranked the “current level of trust between client-side marketers and ad agencies as high.”

A waning level of trust can inhibit communication between stakeholders leading to difficulties that throttle the productivity of the partnership. Conversely, as Stephen Covey once said:

When the trust account is high, communication is easy, instant, and effective.”

Thus, if you believe that stable, long-term strategic partnerships are more conducive to achieving an organization’s business and marketing objectives, then the obvious question is “How can we establish client-agency relationships that endure the test of time?” The answer seems obvious… addressing the issue of trust.

In our experience, there are three fundamental steps that can be taken to build and maintain trust between advertisers and their agency partners.

  1. Contractual agreement predicated on a “Principal-Agent” model – Simply put, in this type of relationship the agency is charged with acting on the client’s behalf and in their best interest. This legally binds the agency to always put the client’s interests first and eliminates their ability to benefit from the relationship at the client’s expense. One of the beneficial outcomes of this type of model is that the client can take solace in knowing that the advice and recommendations of the “Agent” is more likely to be unbiased. In the event that an agency recommends the consideration of principal-based or inventory media buys or the use of or procurement of services/products from a related party of the agency, then the agreement language should require full-disclosure and prior written client approval.
  2. Periodic agency contract compliance and financial management reviews – Having a sound contract in place is a positive step in the right direction. However, if an agency’s compliance with contract terms and conditions is uncertain then achieving the desired level of trust may be elusive. Given industry concerns regarding transparency, all stakeholders will benefit from an independent evaluation of compliance and performance. Further, knowing that there will be an additional layer of oversight inspires stakeholders on both sides of the partnership to uphold the client organization’s desired levels of governance and transparency established within the agreement. This is not a sign of mistrust, but a signal of an advertiser’s commitment to the principle of “assurance.” As the saying goes: “In God we trust, all others we audit.”
  3. Establishing a fair and compelling agency remuneration program – Properly compensating agency partners is fundamental to securing the requisite level of support and bolstering an agency’s commitment to its fiduciary role. Additionally, a well-paid agency is less likely to engage in practices such as the pursuit of vendor kickbacks, the application of non-transparent mark-ups, profiting from the use of client funds, or the unauthorized use of sub-contractors and related parties. Contractual language capping agency revenue to that which is authorized within the agreement and subsequent statements of work will also protect the advertiser from these tactics and help curtail agency temptation to inappropriately supplement its income at the expense of its fiduciary obligations to its clients.

We have seen firsthand the benefits of this proven formula in promoting transparency and bolstering an organization’s trust in its agency partners. Thus, marketers and their agency counterparts should consider embracing this approach to strengthen and reinforce long-term agency-client relationships by ensuring a solid footing.

How is Your Media Agency Making Money in 2022?

17 Feb

agency holding company profitsWritten by Oli Orchard, Partner – Fuel Media & Marketinga specialist communications consulting company focused on advising clients in media communications. 

With Publicis and OMG in the news this week (February 2022) with significant revenue increases year-over-year, now would seem a pertinent time to look ‘under the hood’ of the different revenue streams agencies have available to them.

Using the traditional commission method, still prevalent today, it is often thought that a media agency has a disincentive to save clients’ money or indeed manage lower budgets.

Because most media agencies are compensated on a percentage of media spend, if they negotiate the prices down, and potentially reduce total spend, they will earn less money.

In practice, the traditional ATL percentages involved stop this being much of a disincentive.

  • A buy of $10,000 at 3% commission provides the agency with just $300 income.
  • If the agency negotiates 25% discount on the media, the agency will only lose $75.

Obviously, the agencies are doing this at scale, and those $75 discounts start to add up, as a result the agencies have long looked elsewhere to bolster their incomes. So, in 2022, what other revenue streams are open to the agencies?

Agency income takes many forms, and too many to go through here, so we’ll stick to the top ten.

  1. Fees & Commissions – Whether Time and Materials based, or a percentage commission on media spend these should need no introduction to advertisers. At Fuel we hold data on innumerable best practice contracts, and always work with clients and agencies to come to the most appropriate basic remuneration package
  2. Bonus/Malus schemes – These programmes have become synonymous with best-in-class-advertisers, looking to reward their agency beyond the basic remuneration for exemplary work. The Malus scheme has gained more traction in recent years, as agencies look to differentiate themselves from the competition by having some ‘skin-in-the-game’, often putting part of their profit margin at risk
  3. Incremental services outside of Scope of Work – These are often the result of out-of-date contracts, and can commonly comprise things an advertiser might expect to be included in the contract, such as Quarterly Business Reviews, competitive monitoring, dashboards, post-campaign reporting and even out-of-home planning
  4. Deposit Interest on bank accounts – Historically agencies have taken advantage of bank interest rates and been fast to invoice and slow to pay. With rates on the increase again, albeit slowly, advertisers will need to become increasingly aware of this. Agencies deal in vast sums of money, and this revenue stream should not be overlooked
  5. Kickbacks from vendors – AVBs, rebates, Specialist Agency Commissions, the list goes on; kickbacks have many names, and they don’t always take the form of cash. Free Space that can be given to advertisers to bring the CPM down to hit bonus targets, or alternatively sold on to other clients is another common form these shapeshifting kickbacks can take. It is also imperative that the contract encompasses as much of the agency holding group as possible, often kickbacks can be routed through other parts of the group
  6. Unbilled media – It is not uncommon for a media vendor to forget, unintentionally or intentionally, to bill an agency for a media placement that the agency has already billed the client for. The agency should be reporting and returning unbilled media on a regular basis, though clients should be aware of the fiscal statute of limitations, meaning the vendor could invoice the agency within a specified period of time (it is currently 6 years in the UK) and demand payment, which will then be passed on to the client
  7. Agencies acting as the principal (rather than agent) – This is commonly known as inventory media, the agency takes a position on, or buys, a quantity of media directly from a vendor, with no specific client lined up for it. There will be NDAs in place with the vendor preventing the agency from disclosing the actual price paid to clients or auditors. This allows them to mark-up prices, generally by a very significant percentage when selling this space on to clients. The flip side of this is that an advertiser can get a great rate on something they may have bought anyway, though they may also be pushed into a buy that is sub-optimal for their strategy just to meet the agency’s internal need to offload inventory
  8. Subcontracting to related 3rd Parties – Agency holding groups are vast and have many complimentary disciplines. It is not uncommon for a specific task to be subcontracted (attracting an additional fee) within the holding group
  9. OOH commissions – It is worth listing these separately to those above because OOH often has a unique commission structure where both the advertiser and vendor routinely pay the poster buying specialist for placing the media. This is frequently dealt with in agency contracts as an additional ‘Disclosed Commission’ tucked away in a schedule at the back of the document as Specialist Agency Commission
  10. DSP usage – Programmatic has long been the poster child of non-disclosed fee structures further down the digital value chain but there is one significant agency revenue stream that crops up near the top of the chain in non-disclosed White Label mark-ups. The DSPs allow their clients (in this case the agency, not the advertiser) to add an additional CPM into the net media cost, meaning that it doesn’t show up in any of the auditable invoicing trails, and is passed back to the agency
  11. As you can see from above, agencies constantly evolve income streams, seeking out new ways to profit, and let’s not get the intent of this piece wrong, agencies should be able to profit from their great work for clients. However, many advertiser clients are becoming cash cows, based on the agencies’ opaque trading practices.

At Fuel, we work with the agency and advertiser to produce the optimum contract for the situation, one where transparency around agency income is openly discussed, and the advertiser can make an informed, supported decision about the relationships they forge with their agency partners.

Here’s our checklist for advertisers:

  • Check that your contract is up to date – does it cover the entire scope of business transacted between you and your agency? The very best contracts are reviewed and revised annually to take landscape shifts and revised media strategies into account
  • Make sure that your agency is obliged to ‘call out’ and seek approval for inventory media and use of subsidiaries/sister companies
  • Have a frank discussion with your agency about the non-disclosed White Label mark-up that the DSPs allow them to add into the platform costs, and consider requesting to be part of the conversation around DSP selection
  • Undertake regular audits of performance vs. pitch or year-over-year guarantees, and tie the buying results to a bonus/malus scheme in tandem with service scores and achievement of business objective KPIs 

To find out more on how Fuel can help, contact Oli on +44(0) 7534 129 097 or email oli@fuelmediamarketing.com.

The Best Way to Involve Agency Related Entities on Client Business

28 Jan

dreamstime_s_137202250Four of the world’s largest agency holding companies account for over $47 billion of advertising spending. Each has dozens of agency brands, specialty service firms and media procurement, marketplace and or platform providers.

Part of the success of the agency holding companies in fueling organic revenue growth in recent years has been their ability to involve these specialists on their branded agencies client businesses.

The use of affiliates is certainly advantageous for the holding companies and can be beneficial for clients seeking to have a coordinated, comprehensive marketing communications program administered by a lead agency.

While there may be efficiencies that accrue to advertisers, unchecked there is an equal likelihood that they may be paying a premium for the use of agency related parties. Why? Because affiliate goods and services are often proffered without client knowledge or consent and may not have been competitively bid to determine value relative to marketplace alternatives. Further, affiliate remuneration is often blind to advertisers and can take the form of non-transparent, unauthorized mark-ups applied in addition to the fees and commissions paid to the lead agency.

Many client/ agency agreements have specific guidelines for agencies seeking to involve related parties (whether the guidelines are followed), others don’t even address this important area.

The best approach for agencies seeking to engage affiliate companies is “full disclosure.” This means notifying the advertiser in writing of the opportunity to deploy theses resources on their business, specifying the nature, scope and cost of the work or product to be accessed and being clear on how the affiliate(s) is to be compensated.

Unfortunately, in actual practice, advertisers often have no visibility into the involvement of agency related parties on their business. This is not an approach that we would advocate because it can fly in the face of an agency’s fiduciary responsibility to its clients. Further, when advertisers learn of some of these arrangements it can lead to an erosion of trust and or confidence in the agency’s intentions and their responsibility to provide unbiased advice that is in the best interest of its clients. As it has been said: “a single lie discovered is enough to create doubt in every truth expressed” and no agency should want to raise the specter of doubt with any client.

Sound contract language regarding the agency “supplier group,” the process for involving related parties, their obligations under the agreement and the attendant level of compensation can go a long way in mitigating these concerns. This creates the opportunity for a proverbial “win-win” situation where both advertiser and agency can truly benefit from this practice.

How Will Post-Pandemic Employee Compensation Impact Your Agency Fees?

26 Aug

Virtual OfficeWith COVID-19 vaccination rates increasing, organizations across the globe are evaluating whether and or when their employees will be required to return to the office. As part of the consideration process, many are deliberating on whether to allow all or select employees to continue to work remotely.

The question being assessed by employers considering extending remote work privileges is, “How will this decision impact employee compensation?”

Many organizations are weighing different pay scales for remote workers. As an example, Google is planning to adjust employee compensation based upon the local market wages where an employee works from. Which certainly seems like a reasonable trade-off.

By way of example, in a recent article by Reuters, which had seen Google’s “salary calculator,” an employee living in Stamford, CT, which is an hour from New York, would earn 15% less if they opted to work from home, rather than commuting into New York City. Of note, Google is but one Silicon Valley company that has implemented location specific compensation models for employees living and working in less expensive areas.

As advertising agencies evaluate their post-pandemic approach to the use of flexible staffing and or remote workers, it stands to reason that while some will opt for location agnostic pay models, others may implement location specific remuneration programs for remote workers. In the case of the latter, the obvious question is, “How will cost-of-employment adjustments impact the fees charged to advertisers?”

Will those on commission-based fees adjust rates downward? Will those employing direct-labor-based compensation programs reduce bill rates?

It is certainly reasonable to assume that if an agency reduces its salary and overhead expenses, that the fees charged to advertisers should be reduced accordingly. That said, it is likely that any adjustment to agency bill rates will need to be the result of collaborative discussions, initiated by the advertiser, between themselves and their respective agency partners.

At a minimum, location-based employee compensation adds an interesting dimension to the ongoing quest for a fair and balanced agency remuneration system.

Advertisers: What is Your Line of Sight into Your Ad Agency’s Use of Affiliates?

23 Aug

Line of SightDo your client-agency agreements require your agency partners to disclose their use of related parties? To secure your permission prior to engaging affiliates? To document how those affiliates are compensated?

If so, then you are in a better position than many. At a minimum, testing for agency compliance to such contractual requirements is an option that you can pursue. If not, the level of work being channeled to related parties by your agency may surprise you.

In our contract compliance and financial management audit practice, it is not uncommon to see 5 to 7 different related parties engaged by an advertiser’s agency. Examples of services provided by affiliates include items such as barter, programmatic buying, direct response TV, event marketing, principal-based buying and ad serving. Yet, oftentimes these affiliates and the manner in which they are compensated are not known to the advertiser.

Why should an advertiser care? For one, if work is assigned to an agency affiliate without undergoing a competitive bid process, what assurance can the advertiser have they are not being charged above-market rates? Secondly, the added profitability by recommending certain affiliates, such as those engaging in the procurement and resale of media inventory through principal-based buys or barter, could adversely influence an agency’s recommendations to the advertiser. And to compound matters, if said affiliates are also applying non-disclosed mark-ups to the media inventory procured or services provided, how can an advertiser fairly assess whether the total fees the agency is generating from its business are commensurate to the services being delivered?

Thus, it is important to revisit contract language to ensure that the following controls are in place:

  • Principal-Agent language that requires the agency’s fiduciary responsibility is to the advertiser and that all decisions and actions are undertaken in a manner that maximizes benefits to the advertiser.
  • Require the agency to disclose any and all related parties that it intends to deploy on the advertiser’s behalf and to secure the client’s prior written approval. Requiring quarterly updates to this list would provide an added layer of protection.
  • For instances where principal-based buys, barter or other non-disclosed transactions are being considered, require a double opt-in process:
    • The first step would be a formal letter of notification from the agency to be signed by the advertiser granting permission.
    • Secondly, any purchase authorization form presented by the agency to the client for approval should reiterate the agency’s intent in this area.

With these agreement guardrails in place, advertisers can further protect their interests by periodically auditing the agency to validate compliance and verify the accuracy of charges made by and or for related party activities.

Ultimately, this approach will allow an advertiser to leverage the full breadth of its agency partner’s resource offerings in a very transparent manner, providing comfort that its agency’s practices are aligned with its expectations.

What Role Will Media Agencies Carve Out for Themselves?

29 Jun

Role QuestionPoint of fact: The media marketplace is evolving at a pace never previously experienced.

While consumers have a dizzying array of choices for accessing content, ad sales are dominated by a handful of media ownership groups. According to a recent GroupM report, the “Top 10” firms accounted for 55% of global ad revenues in 2020. Of note, the “Top 5” firms (Google, Facebook, Alibaba, Amazon and TikTok owner ByteDance) represented 46% of global ad sales during this same period.

In the U.S., the world’s largest ad market, digital media represented 62.9% of U.S. media spend with 88.1% of digital display spend being placed programmatically in 2020 (source: eMarketer). Not surprisingly, Google, Facebook and Amazon increased their share of the U.S. digital market to almost 90% in 2020 (source: GroupM).

Top media ownership groups such as Comcast, Disney, ViacomCBS and AT&T have expanded their offerings to advertisers on a direct basis to include media space/time, content, product integration, experiential support, audience research and production services… somewhat reminiscent of the days of full-service advertising agencies.

And finally, media planning and buying decisions are becoming more highly automated as AI-powered algorithms and machine learning continues to expand their role in the advertising and media sector. This in turn has spurred advertiser investments in AI marketing, totaling over $6 billion in 2019 (source: Statista).

The question to be asked is, “How will media agencies distinguish themselves and their client offerings to protect their share of the media services market?”

This is an important topic, one which is surely being discussed within the major ad agency holding companies. Why? Media agency contributions to agency holding company financial performance are significant. This has been particularly so with the growth of digital media over the last decade-plus. According to Ad Age Datacenter, digital work in 2020 accounted for 58% of 2020 U.S. revenue for agencies from all disciplines. Yet, overall revenues for U.S. ad agencies have been lackluster at best, with low single-digit growth in 2017, 2018, 2019 and a 6.8% drop-off in 2020.

For advertisers seeking to boost campaign performance, improve media ROI and reduce time-to-campaign launch times, they will inevitably evaluate a range of approaches to planning and placing their media budgets. These may include adding consolidating their media agency networks to achieve better integration and improved leverage, in-housing certain aspects of the media strategy and or placement processes to improve efficiencies, working directly with media ownership groups and a host of other alternatives.

In a dynamic, evolving marketplace marked by uncertainty, the onus is clearly on media agency management to defend their role as gatekeepers and stewards of client media spend. Perhaps agency leadership can draw some inspiration from the words of American educator and the founder of Stanford University, David Starr Jordan: “Wisdom is knowing what to do next; skill is knowing how to do it and virtue is doing it.”

Risks Related to Ad Agency Staff Reductions

23 Feb

LayoffsAdvertisers cut budgets; ad agencies reduce headcount. This is a causal relationship and always has been.

No one can fault an ad agency for making prudent fiscal decisions when revenues decrease.

That said, advertisers need to take precautions in this situation to mitigate their risks, particularly when there are significant downsizings as there were in 2020.

It was recently announced that Omnicom and Interpublic had eliminated “10,000 roles” between the two organizations in 2020, citing the pandemic as the primary reason. This represented an 8.4% reduction in staff for Omnicom and 7.6% for Interpublic. Significant by any measure… and they will not be alone, the other holding companies simply haven’t yet disclosed annual headcount data.

Like with most professional fee-for-service providers, involuntary staff reductions tend to have a disproportionate impact on longer-term, more highly compensated individuals and personnel working in shared services functions such as finance, human resources, legal, procurement, traffic, etc.

Advertisers that have reduced their budgets obviously need to collaborate with their agency partners on revised scopes of work and remuneration programs that reflect new spend levels. Clients that have maintained or increased spending will need to implement safeguards to ensure that their accounts are adequately staffed and supported.

This includes making sure that the mix of agency personnel working on their business is reflective of the need for strategic insights, breakthrough creative and executional excellence in all facets of the business.

Items such as tightening up creative and media briefing and approval processes, specifying media planning procedures and desired outputs, identifying media management guidelines for in-flight stewardship and post-campaign performance reporting and being overt about financial management expectations and reporting (i.e. project tracking, job closure and reconciliation, third-party vendor payments, etc.) are necessary steps for advertisers to take.

In our experience, as long as both client and agency are aligned, working through these situations to mitigate the risks associated with involuntary staff reductions can be effectively addressed.

As Josh Billings, the 19th century writer and humorist advised: “Caution, though very often wasted is a good risk to take.”

Agency Model Transformation Was Already Afoot

31 Oct

One sad reality of 2020 was the negative impact of COVID-19 on U.S. employment. Simply stated, the loss of jobs resulting from shelter in-place regulations negatively impacted business sectors ranging from travel and hospitality to retail and yes, advertising. 

According to a recent report from Forrester, 35,000 U.S. ad agency jobs were cut this year. The principal reason for this contraction, agency expense reduction moves tied to drops in revenue related to marketing spend reductions by advertisers. 

However, the loss of ad agency jobs, which accelerated in 2Q20 was actually part of a broader trend tied to the ad industries adoption of technology. This according to Jay Pattisal and J.P. Gownder of Forrester Research, authors of a blog post entitled; “The Smaller, Smarter Future of Agencies.”

According to the authors, the application of artificial intelligence (AI) and intelligent automation (IA) to agency workflows “will yield a long-term reduction in the size of agencies as measured by the number of human employees.” By their estimation, creative and media agencies will lose 11% of their jobs to automation by 2023. Their recommendation to agencies is to embrace this change and accelerate their transformations, becoming more “streamlined, intelligent providers” by harnessing the power of “intelligent creativity.” 

Many within the industry have prognosticated on how the ad industry model might evolve and the perspective advanced by Forrester certainly has merit. However, for an industry with over 57,000 ad agencies operating in the U.S. alone (source: Manta Media), there is no “size nine shoe” solution that can be applied to each individual agency’s quest to remain relevant. 

One thing is certain, many of the jobs lost in 2020 will not return, regardless of the course of the pandemic or the resumption of client marketing spend. Process innovation, automation and consolidation will have rendered many of those positions as obsolete.

Will Consolidation Play a Role in Creating the “New” Agency Model?

27 Aug

Consolidation 2It was a simpler time when advertising agencies began to “unbundle” in the 1980’s, separating media planning and placement from creative. This, along with the shift from remuneration systems predicated on commissions to direct labor-based fees, formed the basis for today’s advertising agency model.

While there were certainly variations on the aforementioned theme, this approach served both advertisers and agencies well for the next thirty years. However, as the advertising business became increasingly more nuanced and fragmented, the industry saw a rise in the level of specialization resulting in an increased number of agencies with highly concentrated service offerings. In turn, agency holding companies went on an aggressive acquisition binge gobbling up traditional and specialized agency brands. While there were some efficiencies gained by the holding companies in consolidating back-office functions, the acquired shops were allowed to continue to operate under their individual identities. In so doing, there was little to no cultural acclimation across the holding companies’ agency brand portfolios.

One of the notable consequences of this movement was that marketers saw an expansion in the number of roster agencies, which swelled beyond their ability to effectively manage their now far-flung agency networks. According to Manta Media, in 2020 over 57,000 agencies were operating in the U.S. alone, creating a highly fragmented and competitive marketplace for marketing services providers.

Concurrently, a once stable and manageable business sector was now having to deal with increased levels of complexity stemming from an expansion in the number of media types and outlets, the rapid adoption of changing technologies, the emergence of “Big Data” and an ever-evolving set of consumer media consumption behaviors.

Fast forward to the present and it is easy to understand the position shared by many who feel that the “agency model” is no longer effective and needs to either be fine-tuned or perhaps completely overhauled. These pundits believe that talent constraints, eroding margins, expanding scopes of work, a shift from retained to project-based relationships and the emergence of management consulting firms as viable competitors in the marketing services space have led to the demise of the traditional agency model.

While there have been numerous questions raised, there has been little progress made on client-agency relationship improvements, compensation schema and or agency positioning, let alone ideation around creating a new marketing services delivery model.

There clearly is no “silver bullet” and while we don’t portend to have the answer to remedy all of the challenges facing the industry, we predict that the ultimate solution may involve some of the following actions:

  • Advertisers will streamline their marketing services agency networks with a goal toward eliminating redundant resources/competencies, clarifying agency roles and deliverables, establishing a “lead” agency and providing a framework for long-term, collaborative relationships.
  • In-housing will continue as advertisers seek to improve their controls, gain line-of-sight into the disposition of their spend at each stage of the marketing investment cycle, better assess their return-on-marketing-investment and to drive working dollars. This will involve managed service models where the client takes ownership of the technology and data and engages the agency to plan and execute select components of their communication programs.
  • Compensation programs will blend a balance of direct-labor and or project-based fee methodologies with gainshare and painshare components that link a portion of an agency’s remuneration to the advertiser’s in-market performance.
  • Agency holding companies will “right-size” their brand portfolios, combining and or shedding redundant service providers, consolidating agency brands and developing “centers of excellence” to gain scale efficiencies and improve client delivery within key functions (i.e. broadcast production, digital production, programmatic trading, trafficking, etc.).
  • Agency service delivery models will evolve to simplify advertiser access to the range of agency holding company resources through dedicated relationship management teams that can tap the entirety of a holding company’s offering.
  • Management consulting firms and advertising agency holding companies will co-exist, and in fact, will be called upon to collaborate in providing their clients with integrated end-to-end solutions focused on both building brand and driving in-market performance.

Experience suggests that the best way to solve complex professional services challenges is to focus on the common denominator and craft solutions that ease the burden of the client organization in accessing those services. Thus, consolidation will play a key role for all stakeholders (advertiser, agency, intermediary, publisher) as the advertising industry considers how to evolve its current business models.

The more you drive positive change, the more enhanced your business model.”

                                                                                                          ~ Anand Mahindra

 

The Cost of Feedback is Nominal, the Value Significant.

30 Jun

do advertisers get what they pay for“I think it’s very important to have a feedback loop, where you’re constantly thinking about what you’ve done and how you could be doing it better.” ~ Elon Musk

Chances are, most will agree with Mr. Musk’s sentiments regarding feedback and its link to driving improvements.

What organization wouldn’t aspire to successes achieved by one of the 21st century’s most prolific thinkers? Consider the fact that Tesla, with a market cap of $160 billion, is larger than GM, Ford and Fiat Chrysler combined. Or that his fledgling SpaceX organization has been valued at $36 billion after its first successful manned space flight.

As such, it was somewhat of a surprise to read the results of a recent World Federation of Advertisers (WFA) study. Conducted by Decideware, the study surveyed 60 global agency leaders on client-agency performance evaluation practices. Below are some key findings:

  • 7 out of 10 advertisers provide their agencies with feedback on at least an annual basis
  • Only 4 out of 10 advertisers allow for agency feedback as part of the evaluation process
  • 3 out of 10 clients conduct face-to-face meetings to discuss evaluation results
  • Agencies aren’t comfortable providing “honest feedback”
  • 43% cited the lack of honest feedback as the “biggest barrier” to effective evaluations

That so few marketers would invite their ad agencies to provide formal feedback on topics dealing with team performance, workflow, process and the overall relationship is a bit of a mystery; particularly given that anecdotally it has long been believed that strong client-agency relationships yield superior performance.

In our experience, we have found numerous examples of successful marketers that believe in and are utilizing a 360-degree evaluation process with their agency partners. Importantly, that process  incorporates candid, two-way dialog, which serves as a fundamental building block for their agency relationship management efforts.

It would be helpful to understand “why” some marketers have chosen not to invite agency feedback or to review performance evaluation results in face-to-face meetings. Are they simply not interested in what their agencies have to say? Are they too understaffed and time strapped to invest in a robust evaluation process? Are they of the belief that if their agency partners had a point-of-view that they would share their insights, without prompting?

Regardless of the reasons for eschewing this fundamental practice, there are compelling benefits to be gained for marketers by course correcting in this area by implementing two-way evaluation frameworks. At a minimum, eliciting agency feedback on day-to-day workflows, briefings and approval processes, in market results and client-agency relationship management can yield efficiencies that are beneficial to stakeholders on both sides.

Beyond near-term improvements in operations and performance, established communications programs, that encourage ongoing candid feedback, help to build trust and strengthen relationships. It is incumbent upon CMOs and agency CEOs to collaborate on putting the appropriate protocols in place to encourage, understand and act upon the perspective each party generates throughout the year.

 

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