What Some Agencies Don’t Understand
What many agencies don’t do particularly well is try to show that they understand the client’s business, their market segments and the competitive industry. And they often neglect to demonstrate innovative problem-solving approaches. When they do, they don’t offer unique insights and opportunities for the particular client prospect. Agencies like to show off how successfully they have built the agency and its resources instead of showing how good a strategic, innovative, problem-solving partner they can be.
Formerly, over the years, all eyes were focused on who could get better rates and charge the lowest fee or commission—in other words, making the agency business a commodity. So clients got used to thinking that way: that agencies are virtually interchangeable. With the advent of digital technology and increased pressure on both client and agency costs, the whole ballgame began to change. Everyone ran to build their digital resources, bring in the required expertise and look for ways to add new revenue streams, sometimes without the appropriate client disclosure practices in place. So the model continues to need fixing. Not patching, fixing. The agency model may be broken, but it has not been destroyed. Here are some observations
Real agency integration, not profit center silos, continues to be an issue. Media integration and creative integration that enhances the communication process to produce a better marketing result and measuring that result with appropriate methods and benchmarks.
Strategic insight and plan development in concert with the client marketing staff, including a view towards client future goals and objectives, to demonstrate agency leadership including trend data and talent that brings new agency thinking into the equation.
Cohesive staffing with the proper disciplines to solve specific client problems and the essential people to form a core client team, not an agency group consistently on board that primarily adds to overhead.
Compensation formulas that are reasonable and acceptable to all parties and are negotiated into the contract, without agency concealment and hidden revenue streams that leverage client media investments for the sole benefit of the agency.
Holding company structures, where they exist, to add real value to each client’s individual businesses and enhance operating efficiency.
Committed relationships that share client concerns and help to expand long-term business opportunities.
Digital media platforms, exchanges and trading desks that represent the best interests of the client with full operating transparency.
These are just some of the important steps that need to be taken if agencies are to continue to grow and thrive with their clients. The rapidly changing media world has become increasingly complex on many levels. It requires a better client understanding of how an agency functions today and what clients believe is lacking. In my opinion, agencies must begin to think more like consultants or the consultants will take over the agencies.
MD 2014
Is the Advertising Agency Business Going Full Circle?
“Emphasis on ROI and metrics that leverage every marketing investment … is creating significant pressure on clients and agencies.”
It is no surprise that the recent reincarnation of McDonald’s’ relationship with the advertising agency business may be changing the industry … back to the future. Specifically, creating a dedicated agency that brings back an integrated full-service team of creative, media, research and account management.
All Advertising Disciplines Working Together
When clients and agencies first began working together the various disciplines of marketing were generally under one roof. Different agency functions were brought together when needed, with an account lead representing the agency to the client. It seemed to work well for many years until financial resources began to sputter. Clients looked for a different compensation arrangement based on fee rather than commission (only the media buying function remained largely commission). Clients wanted more for working media and to pay agencies compensation only for specific scope of work on their business. If the workload requirements changed so did the fee, and agency cost accounting was based on time sheets plus an overhead factor and a markup for profit. Agencies believed that creative and account service were paramount and that’s where the money was spent for talent. Media got the short end of the stick until media departments learned they could build their own business with outside (usually non-competitive) clients in addition to the agency clients and charge separately for planning and buying. The next step was the media department spin-off with media creating their own agency name and their own business, complete with staff, resources and financial structure.
For the last several decades the agency business existed with media agencies completely separate from creative agencies and almost every function within the holding companies responsible for their own P&L. Integration was undoubtedly more difficult and the idea of holistic marketing was more of a dream than a reality.
The emergence of the digital world has made it much more complex. Many digital agencies have sprung up, often specializing in one form of digital or another (such as search, social, mobile, video, etc), and creative became more attached to media planning and buying. It continues to increase with options such as native advertising, bots, branded content, sponsorships (and more) along with publishers and DSPs involved with programmatic buying, trading desks and ROI metrics. And the holding companies (and independent agencies as well) are making digital acquisitions so they can stay ahead of the game and feed off new revenue streams. But the real integration still lags in many cases, especially between traditional and digital media.
Along comes McDonald’s creating an alternate model that seems to fit more harmoniously with the agency of the future. Under the Omnicom holding company a new custom-tailored agency named “We Are Unlimited” has emerged dedicated to most all McDonald’s marketing functions. It’s reported that the majority of people will come from Omnicom (and OMD) as employees of the new agency and some will be brought in from outside sources as partners. But they are all fully committed to working together on behalf of McDonald’s. Even the compensation arrangement will have a performance (KPI) component.
What McDonald’s is saying is that marketing must be viewed in its entirety and that all resources must be brought to bear on unified objectives. Everything must work together with a common focus. Compensation should be built on staffing and resources (including overhead costs) but the real profit margin should be a shared responsibility that allows McDonald’s to also benefit from achieving certain goals established at the outset. I expect most of the arrangement will be spelled out in a very explicit contract that all parties will agree to and sign off on. Transparency, of course, will be the most obvious ingredient.
The concept of bringing several agency disciplines and media resources together as an account team unit (embedding creative) is also being done by some other holding companies as greater emphasis on ROI and metrics that leverage every marketing investment in the short term is creating significant pressure on both clients and agencies.
Forming a new dedicated agency as Omnicom has done for McDonalds may be a snapshot of the future as more clients reexamine their business requirements in a complex and fast-changing digital environment. It
