The Media Playbook. Michael Drexler
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new millennium. According to the ANA, just short of half of clients are offering incentive plans to their agencies based on performance goals. For the most part agency costs are covered, as well as 5-10% of profit. If pre-established goals are met, however, bonuses are paid that could easily increase the agency’s profit above 20%. The thought is that an agency would work harder and smarter if offered a bonus tied to results in the marketplace.
The same ANA survey claims 3% of client/agency relations are on a Value Compensation program. More importantly, it is the talk of the industry at the moment. Value Comp suggests that the agency fee is no longer predicated on labor-based indicators. Rather, all or at least a significant part of the fee is predicated on meeting pre-established goals. Since sales are a prime criterion for value and incentive compensation plans and a brand’s sales are by no means entirely within the province of an agency’s work in the marketplace, this is an implicit invitation to the agency to begin making contributions beyond advertising alone.
Lastly, some agencies have visited non-transparent compensation practices upon our shores from overseas, and the industry is still grappling with the consequences.
Fracture Three: Proliferation of Everything – This fracture is seismic and is bending our business in new directions. The introduction of new media forms every day and their consumer engagement have changed forever the way agencies write, draw, plan, buy and think. Strategic communication choices abound, but if one doesn’t exist to solve a marketing problem, smart strategists are just as likely to invent a medium or a partnership as they go along.
Moreover, anyone who uses a computer knows how difficult it is to filter through their daily information dump in order to screen to what is relevant and useful. While it facilitates the availability of information when we need it, it overloads us when we don’t ask for it. Oftentimes this destroys our ability to focus on what is really important.
The result of these fractures is discontent.
Result (Short-term): Discontent – A recent count of agency reviews last year totaled over 150 accounts in review totaling $27.5B. That is 57% over last year and the highest total ever. Fully 49% of CMOs polled said they intended to put their accounts in review this year. With creative, media, digital, sales promotion etc agencies, the opportunity to become unhappy with service has multiplied exponentially. Every time discontent is expressed in the form of a review another campaign is plunged into uncertainty. One easy way to express this discontent is to proclaim the agency model broken.
Result (Long-term): The Changing Agency Shape – For agencies to thrive in this new environment they have to change the way they do business and get paid. But if Value Compensation is an answer, and the agency is held monetarily responsible for a brand’s success in the marketplace, then they must have a bigger seat at the marketing table to more directly affect some of the many other factors that drive brand sales—including price, packaging and distribution. This alone dramatically changes the agency model. Together with the array of new media forms, the agency will be increasingly asked to choreograph an integrated marketing effort. Essentially the CMO will be able to call upon an outside resource (the agency) to market products and services. Politicians have been using their marketing resources this way for decades.
The Next Step: “A Blue-Ribbon Panel” – I have often wondered why the ANA explicitly has a Client/Agency Relationship Committee and the 4As does not. The industry really needs its best brains working together to chart the future course of our business. A blue-ribbon panel of ANA and 4As members, moderated by a few sympathetic consultants, should be brought together to map these new directions and gain consensus. It is time for missionary work to begin.
SF 2008 (First appeared in Advertising Age)
Agency of the Future
“Holding companies will offer integrated marketing teams tailored with talent from across its agencies."
But First the Past
[In 2008] I published an article in Advertising Age entitled “The Agency Model Is Bent, Not Broken.” It was in response to claims that it was broken. Now, a half-dozen years later, I believe the model is finally evolving to the shape of the future.
Last August, when the planned merger of Publicis/Omnicom was announced (the deal eventually fell apart), the trades explained WPP’s “agency team approach,” in response. Sir Martin Sorrell did not emphasize competing on size, but rather on shape.
Quoting Ad Age: “WPP promises a client an integrated marketing unit tailored with talent from across its agencies… The teams range in size and structure; some are merely partnerships between a couple of WPP shops, but others are amalgamations of staff from numerous agencies, with their own offices, websites and monikers. WPP says that there are now more than 30 of these teams.”
And Now the Future
For years we have been advocating a system where the agency model mirrors the CMO’s multiple responsibilities—creative, media, digital, promotion, PR, branding, direct, data analysis etc. The new model would have an agency leader to mirror the CMO to become their alter ego and primary resource. Agency holding companies are uniquely positioned to effect this change. Certainly WPP’s most publicized team concept addresses that, as have attempts by Procter & Gamble (BAL system) and American Express’ Integrated Marketing Approach—both of the latter were introduced only a few years ago.
The new integrated marketing agency that reports to the client and serves many different marketing services needs in one place, we believe, is the future. Clients have told us that one of their biggest problems is working with several agencies to coordinate and collaborate on customized marketing solutions. Furthermore, over the past five years marketing services integration has ranked among the top three client concerns every year.
Of course change is not easy. Here are some pros and cons to the system.
Pros:
The team is easier for the client to manage since the leader of the team mirrors nearly all of the business interests of the client CMO.
Over time the team is likely to assume the personality of the client as much as the personalities of the various agencies from which they came.
Potentially client/agency relationship longevity could be improved, since the vested interests of both parties are more closely aligned. While individual members of the team may leave from time to time, holding company leadership is very involved with client business and relatively stable.
In comparison with a group of agencies from the same holding company, it avoids inter-agency squabbles over egos and siloed profit margin goals. Besides, the team could be more cost effective, since there can be one blended overhead rate and profit margin as opposed to many.
Cons:
Clients want best-in-breed specialists for their business and the ability to select agencies they believe qualify. The team is selected from within the holding company mainly by the holding company. The hope is that best-in-breed individuals will be assigned to the team.
The personalities of the various agencies within the holding company are likely to fade over time. Agency personalities are largely responsible for styles of creative thinking that could be lost. To continue to be valuable over time the team must not totally assume the identity of the client, but must maintain some of the independent personality of the holding company or at least that of their own strong team leadership.
In-depth resources for each discipline are expensive, especially in today’s data-driven world. The team most likely will have to dip into the resources of existing specialty agencies within the holding