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A Key to Rebuilding Client – Agency Relationships

28 Jul

Bias and ObjectivityThe state of client-agency relationships has been on the decline for several years. Whether measured in terms of longevity, the increase in project-based work versus retained relationship commitments or the waning level of advertiser trust in their agency partners, all of these important partnerships are under pressure.

Regardless of the reasons behind the current situation, this is not a healthy dynamic for either advertisers or agencies. The result has been shorter, more volatile relationships, higher levels of agency personnel turnover and some would argue less effective, less efficient advertising outputs. Reason enough for both sets of stakeholders to thoughtfully assess the current situation and seek corrective action.

There is, we believe, a clear starting point for improving client-agency relationships. It involves a return to the tried and true “principal-agent” business model that once formed the basis for relationships between advertisers and agencies. The woes currently besetting these partnerships and driving advertiser concerns over transparency and trust are direct outcomes of the industry’s deviation from this important principle and the resulting practices that are averse to this model.

A basic tenet of principal-agent relationships is that the agent is bound to make decisions and to take actions that are in the best interest of the principal…always. This, in turn, guides interactions between the parties in a manner that achieves the highest possible degree of accountability and ultimately trust.

It wasn’t long ago that all client-agency agreements contained language establishing the principal-agent relationship, the need for agencies to provide unbiased counsel and the resulting fiduciary obligations of both parties.

Sadly, agency compliance with and commitment to this framework began to wane within the agency community. Some may remember the controversial comments by Irwin Gotlieb, once CEO of WPP’s Group M who opined at the 2015 “Agency Financial Management” Conference hosted by the ANA: Those relationships, rightly or wrongly, don’t exist anymore” he said, adding that “You cease to be an agent the moment someone puts a gun to your head and says these are the CPMs you need to deliver.” Blaming advertisers for the bad practices adopted by some agencies was inappropriate at best.

Even with contractual safeguards in place, problems occur when “agents” have hidden agendas or substitute their interests over those of the principal. This is why the topic of “media rebates” secured and retained by media agencies, without client knowledge or approval proved to be such a lightning rod topic when it initially surfaced.

Fast forward to the present and certain revenue-generating practices that are pursued by many agencies such as principal or inventory buys (media arbitrage), acceptance of incentives from third parties (i.e. rebates, value pots, EPI’s, etc.), agencies awarding work to their holding company affiliates without a competitive review or client authorization, and the application of non-disclosed, unauthorized mark-ups.

Whose interests are being served by such practices…certainly not the advertisers. To paraphrase Shep Gordon, Hollywood producer and talent manager:

“I think a problem for most people in a fiduciary capacity is to eliminate self and greed and all those things so that they can actually be in a fiduciary capacity where the client comes first, whoever the client happens to be.”

Advertisers must protect their legal and financial interests by crafting contract language and implementing the appropriate controls, including performing periodic audits. How else can they ensure that they have the transparency they seek in the context of their agency partners’ financial stewardship of their advertising investment and the confidence that their agencies are acting in their best interest?

On the topic of principal-based buying specifically, we have a contrarian perspective and don’t believe that it is ever appropriate for an agency to purchase media inventory in its name, mark it up by some undisclosed amount and re-sell that to its clients. Yet, these non-disclosed buys have proliferated as programmatic digital media buying has exploded. While the 4A’s issued guidelines to address this practice including documentation including client opt-in, explanation of an advertiser’s audit rights (if any) and access to the underlying costs, oftentimes agreement language is silent on these recommendations or are simply not followed in actual practice.

Thus, if both parties want to establish trust and rebuild the client-agency relationship, begin by eliminating the risk of bias in an agency’s recommendations and or actions and reinforce the principal-agent framework in agreement language.

One Thing Marketers Can Do to Mitigate Advertising Risk

26 Nov

Chances are, in 2020 your advertising budgets were slashed in response to your organization’s fiscal response to COVID-19.

Further, if you’re like most, those budgets aren’t likely to bounce back in the near-term. According to WARC Data’s latest study on global advertising trends, even if the ad market rises by the expected 6.7% in 2021, it will only “recoup 59% of 2020 losses.”

Downward pressure on ad budgets certainly is creating a need for organizations to optimize marketing resource allocation decisions. Yet, given the nature of the ad industry and its complex, layered, often non-transparent supply chain, advertisers may not have ready access to information needed to support these efforts.

As a corollary, in our contract compliance and assurance practice, we have found that those advertisers who do receive timely, detailed, and accurate financial reporting from advertising agency partners benefit greatly – however, most client/agency financial reporting relationships often do not meet this standard.

What is the “one thing” that marketers can do to improve the effectiveness of their advertising investment and to simultaneously mitigate risk? Implement a structured and consistent agency financial reporting (AFR) and monitoring program.

The AFR program’s core element is a finance (client) to finance (agency) relationship and a set of standardized templates to be completed quarterly by each agency partner. AFR submissions include both detailed and summary quarterly and year-to-date activities, and includes at a minimum:

  • Aged work-in-process summary
  • Billings by job and summary, including associated client purchase order, SOW or MSA
  • Out-of-pocket expense & travel by job and summary
  • Budget status by job (approved, spent, balance remaining, job close date)
  • Actual agency hours incurred vs. planned (tied to each staffing plan) for each retainer and out-of-scope fee jobs, including the reasoning for variances
  • Agency fee projection (trend vs. plan)
  • Unbilled media summary

Reporting templates and submission deadlines should be standardized across agencies, managed by client finance (non-Marketing) personnel, and shared cross-functionally within the client organization. AFR details can also serve as inputs to formal, broad-based “Quarterly Business Review” meetings that should routinely take place between client and agency.

The client finance team should take the lead in administering the AFR process, review agency submissions, and have a direct line of communication and relationship with agency finance personnel.

When assisting in implementing these programs, our experience has shown that once an AFR program is pushed out to an agency network and client stakeholders have been through the cycle for two or three quarters (receive agency reporting, review for completeness and reasonableness, perform variance analysis and engage agency finance personnel in Q&A) then ongoing maintenance of the program becomes more routine, engrained, and time commitments decline.

More importantly, advertising ARF monitoring and oversight will mitigate risk, will boost agency reporting accuracy, and will increase shared confidence between client and agency when it comes to financial management and future resource allocation decisions.

Keys for Optimizing Agency/ Client Relationships

29 Jul

Abstract concept, fingers are touching padlock symbol, With protThe Agency/ Client relationship has been under duress for a couple of decades. The “Procurement Phenomenon” at the dawn of the new millennium has morphed squarely into the Procurement Era for Marketing Services adding stress to these important relationships. This has been further compounded by the erosion of trust resulting from media rebate and transparency issues that have beset the industry, and even more so as a result of the current socio-economic turmoil.

Join J. Francisco Escobar, a leading industry “marriage counselor” and Procurement consultant for a webinar that will cover current trends, compensation practices, a Procurement primer, and negotiation tips that will guide agencies and advertisers in optimizing their relationships. Key takeaways include the followingView Webinar

  • Key trends impacting ALL Marketing Communications Services
  • Top 10 ways to Demonstrate Value to Procurement
  • Practical negotiating  tips and best practices
  • Actionable keys to optimizing Client relationship

Adjusting Marketing Budgets is Multi-Dimensional

5 May

budget cutAs we began 2020 no one could have predicted the level of upheaval the economy would experience as a result of the COVID-19 pandemic. The changes forced on businesses as a result of government mandated shelter in-place policies, while critical for curtailing the spread of the virus, have been devastating. According to consulting firm, Brand Finance “America’s Top 500 Brands could lose up to $400 billion” due to COVID-19’s impact on the economy.  

Organizations have sprung into action, many slashing advertising spend, along with other expenses as they seek to offset dramatic reductions in revenue and to deal with mounting cash flow challenges.

As marketers approach the mid-point of the second quarter it is clear that the changes to their fiscal budgets will be significant and potentially lasting. In a recent poll of marketing and advertising executives, by Advertiser Perceptions, 77% of those surveyed expect ad spend to be soft through the first-quarter of 2021.

Thus far, many companies have taken a wait and see attitude with some of their advertising and marketing commitments as they rightly weigh options related to modifying, rescheduling or cancelling advertising commitments. Moving forward, decisive action will be required to safeguard and recall funds pre-paid to agencies, production resources, events management companies and media sellers for creative that will never come to fruition, media that will never run and sponsorships that will be postponed or cancelled.

Equally as important is the need to review and likely revise annual agency scopes of work, staffing plans and remuneration programs that have been impacted by the reduction in marketing spend.

These can be challenging and complex conversations to have with your agency partners and in turn, with third-party vendors, particularly because their organizations are dealing with comparable business and financial issues. For the purposes of this article, we want to focus on the client/ agency portion of the ledger, rather than external commitment and resource reallocation reviews that are likely currently underway.

A disciplined approach, focused on contractual terms and current financial facts, will yield the greatest return as you seek to right size your marketing budget in a fair, responsible and expeditious manner. This approach also recognizes that in addition to the goal of reducing costs, companies are seeking to improve financial flexibility and limit risks and exposures. Stephen Covey wisely suggested, it is best to; “Begin with the end in mind.” Same applies now, it is best to begin with a review of current governing documents between advertiser and agency, and any year to date agency financial reporting, in order to answer this handful of straightforward questions:

  1. Does the Agency Agreement afford you the right to modify your Scope of Work and or retainer fee? If so, what is the notification requirement in your agreement?
  2. What Scope deliverables have been completed to date?
  3. Where is the Agency on their Staffing Plan commitments?
  4. What P.O.s have been issued to the agency? For open P.O.’s what is the open balance on each P.O.?
  5. Do you have a detailed Job History Report, that provides financial details for all jobs, open or closed? Can you identify which jobs have been completed? Of those that remain open what are your options to postpone, modify or cancel any of them?

Answers to questions such as these will assist in facilitating productive interactions with all stakeholders, across multiple fronts ranging from informing budget reduction and reallocation decisions to the potential impact of internal or agency-side staff reductions on financial management processes and controls and the corresponding risks.

One area that must be addressed is agency remuneration. Reductions in overall spend, scaled back Scopes of Work and revised agency Staffing Plans necessarily impact agency compensation, whether commission or fee based.

For their part, agencies have rightly taken steps to address the impact of client ad spend reductions. To date, each of the major holding companies have announced plans to reduce expenses. These reductions include; employees being furloughed or laid-off, involuntary salary reductions, the waiver of bonuses and 401k contributions, executive management taking massive pay reductions and a freeze on non-billable expenses… all designed to lower their cost base.

If your agency is on a direct labor-based remuneration program, the reduction in the agency’s direct labor and overhead costs means that the fees which you pay should be reduced accordingly. With this compensation schema, even a modest change in an agency’s cost structure can have a meaningful impact on the fee calculation.

It should be noted that the goal of the compensation review is not to wring out savings at the expense of the agency, but to adjust the fees to reflect the reality of the revised 2020 marketing and advertising budget and corresponding changes to the Scope of Work.

Marketers have a fiduciary obligation to their organizations to account for, safeguard and recall funds targeted for reduction. This can best be done working in collaboration with their agency partners, while affording those partners a high level of respect and empathy. Once the budget right sizing process has been successfully completed, all stakeholders can refocus their attention on the future, perhaps drawing motivation from retired 4-star U.S. Army General, Colin Powell who once said: “Always focus on the front windshield and not the review mirror.” 

 

 

2 “Year-End” Practices That Will Boost Agency Performance

30 Nov

end-of-yearTo be sure, the end of the calendar year is a hectic time for advertisers and agencies. Tasks such as wrapping up ongoing initiatives, closing out jobs, addressing last-minute out-of-scope projects and readying for year-end financial reporting take on a sense of urgency and seem to consume more time than either party has available to invest.

Then, seemingly without warning (but never too soon) the holiday season is upon us and co-workers, suppliers and client-personnel scatter to the wind as companies close down for the holidays and individuals use up remaining comp time. This is followed by a “return to normalcy” the first week in January when we close-out any remaining prior year tasks and turn our attention to implementing the new year’s plans.

Sound familiar? Probably so.

Thus, it comes as no surprise to anyone that certain intended actions fall by the wayside as people adjust schedules for the December/January timeframe in order to balance hectic and often stressful workplace and personal schedules.

In our experience, there are two Client/Agency activities that often fall victim to this re-prioritization:

  1. Undertaking year-end agency financial reconciliations (i.e. time-of-staff, agency fees, expenses); and
  2. Conducting annual 360º agency evaluations.

On one hand, it is easy to understand how and why these activities get moved down the priority list, receive a lower-than-desired level of scrutiny or simply get passed over. On the other hand, these are incredibly valuable practices that yield a wealth of financial, process improvement and relationship management insights and opportunities, well in excess of the time and energy invested in their undertaking.

Sadly, missing these annual end-of-year activities once, significantly increases the odds of annualizing their omission from the standard operating procedures “playbook” moving forward. Further, human nature being what it is, people then begin to rationalize why it is appropriate never to reconcile and review. Perhaps Paul Harvey, the noted broadcaster, got it right when he quipped:

Ever since I made tomorrow my favorite day, Ive been uncomfortable looking back.”

From a practical perspective, our experience would fully support Mr. Harvey’s lack of comfort with “looking back,” particularly when clients and agencies forgo these important annual oversights and relationship management practices. Why? The lack of oversight can beget poor record keeping, which in an estimated billing system carries huge financial risks. Additionally, forgoing a 360º evaluation and the opportunity to discuss how to address open issues, correct performance shortcomings and leverage those things that are working well is not only costly, but can sow the seeds of discontent in the Client/Agency relationship, which is not healthy for either party.

Therefore, we believe that these two “year-end” practices should never be forgone or given short shrift. The most practical approach to prevent this is to create project work plans for these practices, complete with timetables and milestones, the assignment of task level responsibilities to specific individuals and locking-in calendar placeholders for progress updates and report-out meetings.

In the end, everyone benefits from the enhanced levels of transparency, solid two-way communications and ultimately, improved performance.

Will the Media Industry Find Its Way?

27 Apr

agencies as media ownersThere was a time when ad agencies represented an advertiser’s interest when interacting with media sellers to secure time and or space for the conveyance of the advertiser’s messaging. The media supply chain was uncluttered, machine-to-machine buying was not even a distant thought and the roles of the various players were understood by all parties.

As the media industry has evolved, the complexities of the supply chain and the clarity of “what” each intermediary does, what they are responsible for and what they earn have sown confusion, limited advertiser transparency and eroded stakeholder trust.

One of the key drivers of supply chain complexity, and all that comes with it, has been the rapid growth of digital media in general and specifically the expansion of programmatic buying. Thus, there may be no better barometer of this dynamic than the “Marketing Technology Landscape” prepared annually by Scott Brinker. Mr. Brinker’s landscape chart incorporates the logos of each available advertising, marketing and search solution. This year’s version contains logos for over 6,800 solutions, up from 150 in 2011. That is a staggering number of ad tech and mar tech solutions vying for a slice of an advertiser’s digital media dollar.

In spite of the dramatic increase in the number of marketing technology solutions and the exponential increase in the level of data available to inform practitioners media decisions, the industry is still grappling with issues that negatively impact media performance. Issues that include ongoing limitations in attribution modeling, difficulties with omnichannel measurement, a lack of standardization in assessing audience delivery and continued concerns regarding ad viewability, fraud, ad blocking and privacy.

Many would agree that the current state of affairs is not healthy for the global media industry which totaled $500 billion in 2017 (source: MAGNA Global Advertising Forecast, December, 2017).

Marketers, who are under increasing pressure to improve performance, are clearly not satisfied with the status quo within the media supply chain, which many describe as “murky” and “inefficient.” These marketers are committed to seeking out new partners, processes, tools and solutions that can improve working media and increase the chance that each dollar they invest in media has the opportunity to positively impact business outcomes.

Media agencies, for their part are increasingly being challenged to improve both transparency and the cost effectiveness of their clients’ media spend. Sadly, many agencies have taken the stance that there is a cost to be paid for improved transparency, enhanced viewability and brand safety and believe that these costs should be borne by the advertiser. Advertisers rightly disagree with this position.

Let’s be clear. When agencies strayed from a singular focus on their fiduciary responsibility to their clients, they did so at their own risk. Their pursuit of principal based media buys, non-disclosed relationships with other commercial entities in the media supply chain (including their own affiliates) and the myriad of unauthorized, non-transparent revenue generation practices employed by some agencies netted them significant profit gains… in the short-term.

However, as advertisers became aware of these practices and began to understand the negative impact on their business this created a crisis in confidence among advertisers and lessened the level trust that they had in their agency partners. In turn, this has created opportunities for management and technology consultants to make inroads with CMO’s as it relates to their media business and incented many advertisers to begin looking at taking control over portions of their media business, including bringing work in-house.

These trends coupled with the corresponding reduction in non-sanctioned revenue opportunities resulting from greater levels of advertiser transparency have constrained agency margins. How agencies positon themselves for the future in light of the evolving competitive set, while rethinking their service offerings and charging practices remains to be seen, but will be of critical importance.

As for the ad tech sector, there will surely be a shakeout that will result in a reduction in the number of vendors (over 6,200 in 2018) providing solutions. This will be driven in part by consolidation due to the convergence of ad tech and mar tech solutions and the dominance of large players, such as Google, Facebook and Amazon. In addition, the emergence of consumer privacy protection regulatory actions and the eventual emergence of blockchain technology within the media market has the potential for significant disruption.

Clearly, there are uncertainties and challenges facing the media industry and the myriad of supply chain participants. That said, while continued change will be the norm and course corrections required, there will be winners that are able to navigate these turbulent times and position their organizations for future success.

“It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change.” ~ Charles Darwin

 

The Ad Industry is Metamorphosing

30 Jun

dreamstime_xs_83082522It was the best of times; it was the worst of times…” Most of us are familiar with the opening line from Charles Dickens in his epic work A Tale of Two Cities. Many marketers may even consider it an apt description of both the current state of the advertising industry and the challenges that they face in sustaining brand relevance and driving growth.

Phoenix risingSo, who will marketers count on to assist them with the tasks of deepening brand engagement with core target segments, revitalizing sales and profits in a low-growth environment and in differentiating their brands for competitive advantage?

Over the course of the last few years, many have opined on the viability of the ad agency model and what it portends for advertiser/ agency relationships going forward. And with good reason. Concerns cited include threats from non-traditional competitors such as management consulting and technology firms encroaching on their turf, talent recruitment and retention challenges and margin compression due to downward pressure on fees and expanded scopes of services.

It may be as some predict that management consulting firms will leverage their capabilities in the area of strategy and integration to pirate work from ad agencies and that ad-tech providers will enable marketers to take certain tasks in-house. The question remains, how will marketers adjust to this dynamic and the evolution of their agency networks to potentially include consulting, data and ad-tech firms? There are already very real challenges related to agency stewardship today due to under-resourced client marketing staffs.

The aforementioned challenges, combined with the rate of digitization and the emerging role of artificial intelligence occurring within the ad industry, certainly pose challenges for advertising agencies and could serve to lessen their stranglehold on the marketing and advertising sector. In a recent McKinsey article entitled; “The Global Forces Inspiring a New Narrative of Progress” the authors note that “disruption is accelerating.” They opine that this dynamic is raising serious concerns for many organizations relating to the question, “How long can their traditional sources of competitive advantage survive in the face of technological shifts?”

That said, in spite of these risk factors and other marketplace developments, ad agencies are doing just fine:

  • Agency holding companies have continued their aggressive acquisition drives, supporting both their horizontal and vertical integration strategies. While overall M&A activity is down from 2016 levels, WPP and Dentsu have consummated twenty acquisitions with a combined value of $700 million through the first 4 months of 2017. (Source: R3’s “State of Agency M&A report” for January – April, 2017).
  • While down from 2016’s 5.7% growth rate, global ad spending is projected to grow 3.6% in 2017 (Source: Magna Global, June, 2017). Of note, this is higher than the International Monetary Fund’s projected increase for global GDP growth.
  • Even though 1Q17 Advertising Industry gross margins fell to 44.15%, the industry itself is healthy. For instance, within the services sector, the Advertising Industry achieved the highest gross margins, net margins, EBITDA margins and pre-tax margins for the quarter (Source: CSIMarket.com).
  • Some 86% of mid-sized ad agencies are confident that this year will be better than last in terms of profitable growth (Source: Society of Digital Agencies (SoDA) survey).

Importantly, since the demise of the “good ole days” of full-service agencies and the fifteen-percent commission remuneration model, agencies have demonstrated a unique ability to not only keep up with industry changes, but to take the lead from both a thought leadership and innovation perspective. They have been able to scale, attracting more clients and deeper talent pools, they have invested in emerging technologies to deal with increasingly complicated, data driven processes and to pioneer the use of algorithms and artificial intelligence to efficiently execute deliverables ranging from digital media investment to creative adaptations… all while dealing with evolving client expectations.

Further, it bears noting that the publicly traded holding companies; WPP, Omnicom Group, Publicis Groupe, Interpublic Group of Cos. and Dentsu, had combined estimated worldwide 2016 revenue levels of $60.7 billion (Source: Advertising Age, June 2017). When one considers the pre-dominance of the estimated billing process and agency remuneration schema that includes direct labor and overhead cost reimbursement plus guaranteed profit margins of 14% to 17% or more, one must also respect the financial clout that these publicly traded entities wield.

Is there a need for near-term belt tightening to offset softer 2017 ad spending levels? Yes. Do the holding companies need to consolidate agency brands and realign capabilities to boost the efficacy of their service delivery models and generate much needed efficiencies? Yes. Will agencies need to improve their talent recruitment and retention practices, across a diverse range of specialties? Yes. But no business is immune from these challenges, including management consultants, ad-tech platforms and publishers.

The big question the industry in general and marketers will need to assess is related to whether these players will be able to boldly transform their current business models, repositioning their firms to deliver integrated, multi-specialist services in a nimble, cost efficient, on-demand manner.

Broadly speaking, all participants are facing challenges as the ad industry undergoes its current metamorphoses. We believe that it is too early to predict winners and losers or to suggest that marketers adapt an attitude of empathy toward any of their marketing supply chain partners. After all, it is their marketing spend that has built this sector into a $457.4 billion global machine in 2017 (Source: Statista, 2017). And they must vigilantly safeguard and optimize that investment.

Below is one of the closing lines from A Tale of Two Cities, one that many may not be as familiar with:

“It is a far, far better thing that I do, than I have ever done…”

With this parting thought, Dickens’ suggests that the main character in his novel and the city of France will be resurrected, rising above their present strife and “made illustrious.”

Here’s hoping that the ad industry achieves similar transformative success.

 

 

Can AI Bots Solve the Agency Remuneration Issue?

21 Mar

Commodorergb1-243x300It was a simpler time in 1864, or so it seems, when the “Commodore,” James Walter Thompson, founded his namesake agency.

As the ad industry grew over the next several decades, a commission based compensation system was the predominant means of remuneration. Simply put, full-service agencies kept 15% of the gross media rate charged by media owners from whom agencies purchased advertising for their clients. At some point in the 1960’s commission based remuneration began to give way to labor-based fees that were predicated on an agency’s direct labor and overhead costs and a reasonable level of profit.

It wasn’t long afterward that the agency “holding company” was born and full-service agencies gave way to agencies that specialized in a particular area such as creative development, media planning and placement and sales promotion. Both of these trends directly impacted “how” and “what” agencies charged clients for their services. As importantly, advertisers became more acutely interested in understanding more finitely the details behind the composition of their agency partners’ fees. This in turn created anxiety and concerns on the part of ad agencies and clients alike. Advertisers sought to reduce the level of fees that they were paying and the agency community sought to protect their profit margins and maintain some level of privacy surrounding their financial operations.

Fast forward to 2017 and the topic of “non-transparent” agency revenue sources such as rebates, kick-backs, float income and media arbitrage has been at the forefront of contract and compensation discussions since the Association of National Advertisers (ANA) completed their landmark “Media Transparency” study in 2016. Rightly or wrongly, many in the industry feel that client procurement tactics, focused on squeezing agency compensation led to the rise in non-transparent revenue. Agencies for their part, feel as though they are overworked and underpaid, while clients continue to sense that they are paying too much for the resources being proffered by their agency partners.

Challenging times to be sure. Add in the shift from traditional media to digital, the attendant impact on workflow and resources, the rise of new competitors to ad agencies that include consultancies, publishers and ad tech providers and the rapidly increasing impact of technology on operational efficiencies and the topic of agency compensation becomes even more vexing.

And while agencies wrestle with their organizational, talent and cultural issues, the industry is poised for a giant leap forward in operational efficiency. Algorithms that can place media and inform resource allocation planning and artificial intelligence bots that can actually create advertiser content and oversee the production of creative materials have the potential to displace agency personnel across multiple functions. The question is: “What is the impact of these technology trends on agency remuneration systems?”

For an industry that has relied on labor-based fees linked to marking-up employee salaries and selling their time to advertisers, the notion of automation and doing more with less can certainly be daunting. As IBM Watson Chief, David Kenny, once said:

“If you are using people to do the work of machines, you are already irrelevant.”

Thus it is time for the ad agency community to rethink both how they organize themselves to deliver client services and how to evolve from labor-based compensation models to outcome based remuneration systems.

Wonder if there is an AI bot that can assist with this transition?

If you’re an advertiser and interested in learning more about how to compensate your ad agency. Contact Cliff Campeau, Principal, AARM | Advertising Audit & Risk Management at ccampeau@aarmusa.com for a complimentary consultation on this important topic.

 

 

 

What is Missing in Client-Agency Relationships Today?

28 Dec

What's Missing Question Words Puzzle Holes Gaps Incomplete PictuOne can’t help but marvel at the length of some of the most enduring and successful client-agency relationships. Unilever and Lowe & Partners have been together for 117 years, Unilever and J. Walter Thompson for 114 years, General Electric and BBDO for 96 years and FCB and Levis Strauss for 43 years. In an age where the average lifespan of client-agency relationships is less than 4 years, you certainly have to tip your hat to these partnerships.

What is it that they know or are doing differently that has eluded others in their pursuit of long lasting, stable and productive relationships?

While there are certainly many contributing factors, I believe that the most important ingredient in these long lasting relationships is the principal of “fidelity.” In short, these organizations obviously share a commitment to the quality of being faithful to one other. This can be evidenced by their ongoing loyalty and mutual support for one another, an intangible but valuable trait that has served them well. As the late German actress, Lilli Palmer once said; “Fidelity is a gift, not a requirement.” But as can be evidenced by the length of these unions, this gift can yield meaningful benefits.

Experience has taught us that successful client-agency relationships are more often than not predicated on marketplace performance… building enduring brands, driving revenues and expanding market share. Great work and great outcomes are clearly an integral part of achieving success when it comes to enduring partnerships. Such work is also a byproduct of one of the keys to achieving and maintaining fidelity, a shared sense of purpose. This shared sense of purpose is truly the glue that holds relationships together. Whether that is between an organization and its associates or between advertisers their agencies and their third-party vendors.

In a complex, ever changing global marketplace the best way to instill a shared sense of purpose is to gain alignment on five key components of a client-agency relationship:

  1. Client Business Goals – For an agency, understanding the client’s overall objectives is a necessity for generating break-through ideas and developing work that will move the proverbial needle. It is also a pre-requisite to earning the respect of the C-Suite when providing strategic counsel and advice. The client organization also benefits exponentially when its personnel and business partners have a clear line of sight into the enterprise’s goals. Thus, client-side CEOs might benefit from the wisdom of George F. Burns, who said, “Define your business goals clearly so that others can see them as you do.
  2. Agency Deliverables – Establishing the agency’s role and overarching responsibilities is a necessary first step in identifying a specific set of deliverables, which in turn are designed to support the marketing objectives that will contribute to the attainment of the business goals. In turn, these deliveries will also provide the impetus for both the agency and the client to assess what level of resources they need to allocate to satisfy these expectations during the fiscal year.
  3. Resource Requirements – While we normally think about resource commitments in the context of agency time-of-staff, technology, data resources and the like, both the agency and client must ask themselves what level of resource investment is required to execute these deliverables in an efficient manner. Too often, client organizations may not be adequately staffed to provide timely and or relevant feedback on day-to-day decisions or in the context of providing sound strategic direction at the onset of campaign planning. Thus, both parties must carefully assess the amount of time and level of subject matter expertise each will require to support one another.
  4. Communication Protocols – One of the realities of client-agency relationships is the constant grind of daily tasks and unforeseen activities that sap resources, energy and potentially creativity. However menial these tasks might be, they are necessary. That said, it is equally as important to establish client-agency contact plans that allow for periodic contact between executives of both organizations to discuss business performance, opportunities and exchange ideas on how the agency can better assist the client in pursuit of its goals. Similarly, outside of the weekly status updates, monthly performance tracking discussions and financial management reporting it can be very helpful to establish regular quarterly business reviews (QBRs). These QBRs should be attended by cross functional representatives from each parties marketing, finance and procurement teams and should address both year-to-date status updates (i.e. project tracking, budget management, agency time-of-staff/ fee tracking) but also allow for meaningful discussion on potential shifts in strategy or tactical support to address competitive actions or market opportunities.
  5. Performance Measurement – Simply put, what criteria will the client use to assess the value of the agency’s contribution to the attainment of the organization’s goals… and the timely, efficient execution of its deliverables. Discussing these expectations upfront, monitoring progress on a monthly basis and making the requisite course change decisions if and when necessary can be helpful in driving consensus on how the agency and client teams are performing.

Focusing on these components of client-agency relationships will not only instill a sense of shared purpose and fidelity, but will strengthen the level of respect both organizations have for one another. In the end, this is the key to transcending the organizational changes that will inevitably occur on both sides of the aisle and nourish a long-term, mutually beneficial relationship.

When one considers the strains on today’s client-agency relationships there may be no truer words than those spoken by the 35th president of the United States of America, John F. Kennedy, when he said;

“Efforts and courage are not enough without purpose and direction.”

 

 

 

Ready to Embrace Full-Service Agencies Once Again?

24 Aug

full service advertising agency“Back in the day” is a catch phrase that many of us who came up in the ad business during the full-service agency, 15% commission era are accustomed to using when discussing the state of affairs within the industry today.

Things were simpler then for both marketers and ad agencies. Agencies were valued strategic partners, with C-Suite access that were tasked with developing brand positioning architectures, target segmentation schema and the creation and stewarding of brand communications across customer touchpoints. Marketers managed one full-service agency to handle all of the “above the line” branding and activation activities and maybe one or two “below the line” shops to handle tasks such as sales promotion and yellow pages advertising.

Fast forward to the here and now and the concept of “generalist” agencies, as full-service shops are often derogatorily referred to, has given way to specialization. As a result, marketers have seen the depth of their agency rosters swell in number to represent several to several dozen shops, each responsible for some, but not every aspect of a brand’s interaction with some, but not all segments of that brand’s target audience.

In the current “specialization” model, the challenges for marketers, particularly for those with limited staff resources, that don’t employ a full-service agency-of-record, are many. There are critical tasks and hand-offs which need to be addressed within the client organization and across their agency network, such as:

  • Who is responsible for marketing communications strategy development?
  • Who is on point for the integration and coordination of the communications program across touchpoints? Across media? Across target segments? Across geographies?
  • Who owns the agency relationships?

Factor in the challenges caused by evolving dynamics including organizational silos (i.e. digital versus traditional media), cross-channel marketing and attribution, big data and ad technology and the level of complexity, which marketers face grows to an almost dizzying height.

As to “who” is responsible, the obvious answer is that ownership of these tasks clearly resides with the client-side marketing team. This might help to explain why marketers are feeling stressed out, with many actually expressing a lack of confidence in their team’s ability.

Two short years ago Adobe conducted a survey of 1,000 U.S. marketers and found that only 40% of those surveyed felt that their company’s marketing efforts were effective. This same survey indicated that 68% of marketers were feeling “more pressure to show a return on investment on marketing spend” (ROMI). Earlier this year, Workfront surveyed 500 marketers and found that 25% felt “highly stressed” and 80% stated that they felt “overloaded and understaffed.”

It should go without saying that this is not a healthy dynamic for marketers and doesn’t seem to bode well for organizations seeking to optimize their ROMI.

One might realistically ask the question, are such organizational and or workload challenges impacting brand/ customer relationships? Some industry experts, such as Liz Miller, SVP of Marketing at the CMO council have suggested that consumers in fact have a disjointed perspective of certain brands, resulting in part from inconsistent experiences across touchpoints. In a recent interview with Marketing Daily, Ms. Miller suggested that the key issue facing marketers was delivering a “holistic, connected customer experience.”

Thus it would seem that in this era of specialization, deep agency rosters, headcount pressures on both client and agency organizations, rapidly evolving ad technologies and an empowered consumer, with a wide array of choices a return to “simpler” times would be welcome.

In our experience, advertisers that are successfully navigating this complex, rapidly changing market have done three things that are contributing to their success:

  1. Reduced the size of their agency rosters.
  2. Deputized an Agency-of-Record partner to share in the responsibility for developing strategies and orchestrating marketing activities to deliver a holistic brand experience.
  3. Placed a high premium on effective, collaborative communications with their agency partners and internal stakeholders to gain buy-in to the organization’s marketing communications efforts and to provide regular performance updates.

While a return to the “good ole days” may be nothing more than a fanciful wish, the concept of simplification remains a viable means of steadying the ship and allocating both advertiser and agency resources in a more efficient manner.

As American computer scientist Alan Perlis, once said;

Fools ignore complexity. Pragmatists suffer it. Some can avoid it. Geniuses remove it.”

 

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