FIVE PROBLEMS WITH THE AGENCY MODEL



Having spent over twenty years in marketing with the majority of that in a combination of national and local advertising agencies, I've observed both some trends and some issues with the way that ad agencies operate, particularly at the regional or local level.

These observations may seem controversial, but I also feel that left unaddressed, they represent some of the flaws of the model and undermine the professionalism and credibility of the advertising agency industry.


AN ENTERPRISE MODEL NOT TUNED TO BUSINESS OWNERS

One of the consistent characteristics of many agencies is the very model of who or what an agency should be in relation to their client. This model is based on the idea that an agency is hired to be the 'steward of the brand' and provides a strategic framework to engage audiences with messaging distributed to the right audiences through various media.

Nothing wrong with any of that, right?


In some aspects, yes. This model may serve companies where the marketing leadership changes over time and these hired members of the organization have no ownership stake in the organization. The idea is that the specialized skills and abilities of the agencies provide objective perspective for the client while also preserving continuity as the persons in charge of marketing move to other roles or companies.


The model does not serve businesses where their client or contact is the actual business owner. In this scenario (and there are many of them at the local level) the owner is not going anywhere. Many of these owners, having had to wear many hats to build and grow their business have an acute and accurate perspective of their customers and likely a solid foundation for what they believe their brand stands for. While they need the skills and resources that an agency can provide, they don't necessarily need to be removed from the strategy, especially the creative strategy. While some may indeed want to let the agency handle all of this, because the agency model and many of their cultures insist on the agencies own (narrow) definition of who should define the direction, the business owner is left with a relationship where they are told that their input, experience and insights are not only not needed, but unwelcome. Hey, we're an agency; we're the experts, right?


As I see it, the issue here is the application of an agency leadership model that works reasonably well when working with organizations where there is a temporary marketing leader who (let's be honest) has less investment in the history or success of the company.


But when an agency owner actually has not just a good, but an excellent perception of their market and what their brand means, this inflexible agency model results in conflict and frustration.


Sadly, many agencies with the best talent and ability to support these owners fail at these relationships.

To be clear, not all business owners want to have this role, and are more than happy to put their trust and the responsibility completely on the agency. It takes a perceptive account team and agency leadership to understand these boundaries and how and where they should focus on collaboration with their client instead of commanding the client.


AWARDS

Advertising awards are a particular problem for agencies, particularly in the way they manifest themselves in the unspoken internal priorities of creative development and execution.


Agencies are usually aware of this contradiction, and it's easy to see how it manifests in their own self-promotion.


If you do a Google search for 'ad agency', you will see multiple ads promoting their 'award-winning' accomplishments. When you actually talk to the agency, they will downplay the importance of the awards and take a stance that the work is done independent of any motivations for the agency to win awards.

Huh? Which is it?


First, what do these awards actually mean? Advertising awards are usually evaluated based on the creative aesthetics of the message, appearance and the production values of the ad. They are not awarded based on the success of the ad to connect with audiences or measured against actual business performance.

And that's the problem. Awards given for advertising independent of the accomplishments of these based on the original objectives incentivizes contradictory behavior.


Complement this with the fact that every human desires to be recognized for their abilities, particularly among their peers (and the egos and personalities at agencies are no different), and you have a potentially insidious system in place.


Great creative should be remembered by its audience, but it should be remembered for the right reasons: Promoting who the advertiser is and what makes them different than their competitors. If successful the message will result in a shift in ad recall, brand recall, purchase intent, and business performance. These can be costly and difficult to measure, and in most cases, aren't. That awards are given to agencies and creatives without this data is irrelevant at best, and destructive at worst.


I love great ads. I love to laugh and am amazed at the skill, humor, cleverness and all the technical skills that many agencies can bring to a client, but I wonder (as I'm sure most do) if this ad really made a difference for the business it was created for.


Unfortunately, when the creative process is abused to focus more on winning awards irrespective of results, many advertisers are understandably skeptical about the 'black box' of "branding".


COMMISSIONS

Digital advertising can claim to have improved many things about the advertising process, but one of the seldom mentioned characteristics of digital advertising is that the model seldom or rarely uses the 'agency commission' to incentivize or promote media spending.

Historically, the 'agency commission' model involves a 15% 'commission' (or discount) on media placement that the ad agency retains while the advertiser pays the full price. The advantage of this model is its simplicity: no haggling over hourly fees or tracking of time; spend $100,000, the agency gets $15,000 (with $85,000 going to the media).


This is model that has been in place between agencies and mass advertising media (starting with newspapers well over a hundred years ago) and continuing through radio, television and typically most forms of 'traditional' media. Even before the rise of programmatic advertising or social media advertising in digital, most web publishers were resistant or unwilling to follow this pattern.


Large national advertisers have been renegotiating the commission rate or removing the compensation attached to media spend for a couple of decades, but the model still lives on in the spot or local market.


So, why is the agency commission a problematic model? An agency should aggressively scrutinize advertiser spending and strategies for how to reach audiences, and make recommendations based on the most efficient channel to achieve marketing objectives. When some media channels provide a 'commission' and others don't, it complicates the incentives an agency may have for recommending a particular media solution.


To be blunt: the agency has an incentive to spend more money with one medium than others. They can make more money, and make relatively easy money in some cases, through a recommendation.

To be clear, this is not to say most agencies would do this: They know that bottom line performance is ultimately in their best interests, and yet, the lure of additional revenue can be a problem.


There is nothing wrong with agency commissions if the agency is transparent with the advertiser about the compensation it derives from this model. Conversely, advertisers should also understand that additional fees may be necessary to compensate the agency for projects or campaigns that use media without commissions.


The key here is transparency. The potential for conflict of media placement done based on cross-purposes is alleviated when working with a media planning agency whose acknowledged form of compensation is the commission, or when the agency and marketer understand and agree on this.

However, when this information or transparency is not acknowledged or identified, it should raise concerns about the potential bias for media placement.


LIMITED BARRIERS TO ENTRY

Many industries require specialized training and professional certification to become a credible service provider in that industry. In the marketing world, there is not such accreditation or standards-setting organization that established legitimacy.


While there are professional advertising organizations, the most useful are at the national level and are less relevant for local and small business-to-business marketing companies.

This can lead to people with little formal training or experience with marketing deciding that they would like to start an ad agency. And so they are. It's too easy. And it can be a problem at the local advertising level.


A designer decides they want to create ads; a TV sales person wants to do more than media sales; an SEO specialist wants to expand to social media; a PR firm envy's the agency's creative charter; a production company starts to buy media.


There is nothing wrong with these motives, nearly all of use want to expand our businesses. The issue is that they all run the risk of expanding into areas where they lack the years of investment and experience of specialized skills implicit in the expectation of what an ad agency should be.


Some great agencies got their start this way. But some very inadequate "agencies" also started this way and have ended up costing their clients time and money while they learned new skills at their expense.


TERRITORIALITY AND THE "AGENCY OF RECORD" MENTALITY

Marketing has become increasingly complex over the past two decades. A large function of this is the development of technology that are redefining not just how to reach customers (programmatic media, paid search, websites, etc...) , but how to interact with them (CRM, influencer marketing).


This is a particular challenge for agencies. The skills and abilities now required by marketers is extremely difficult for agencies to recruit and retain, particularly when some of these capabilities are only needed for specific projects.


Agencies have a legacy mentality exemplified by the 'Agency of Record" concept: an exclusive relationship with the advertiser and their agency. The agency 'does it all' (or appears to) and leaves no opening for more specialized firms.


To maintain this illusion of comprehensive capability, they may hide the fact they use a contractor or vendor, or do a mediocre job of it by doing something outside of their core competency. I don't believe it's required for an agency to share all its process, partnerships, tools or trade secrets (nor should any business), but it seems that deliberately misleading a client or prosective clients is a bad way to start a relationship.


Thankfully, many agencies, consultancies, design, production, and media buying firms are secure enough in their abilities and smart enough to realize the race to the bottom that this mode of thinking ultimately creates and they understand the critical importance of collaboration between them and other firms to support their client's overall marketing objectives.


But not all agencies at the local level see the value in this. Marketers should carefully evaluate their agency and marketing partners to ensure that they are not only transparent about the limits of their capabilities, but their willingness to collaborate with others to achieve their goals. Additionally, these same marketers should address the perceived threat that an agency might feel by promoting positive collaboration and communication between firms, and quickly extinguishing any attempt by one firm to one-up to denigrate others in the interest of self-promotion.

CONTACT!

SEND A MESSAGE!

  • Facebook - White Circle
  • YouTube - White Circle
  • LinkedIn - White Circle
  • Twitter - White Circle
  • Instagram - White Circle

PRIVACY POLICY: This site uses cookies to collect data for analysis and marketing purposes. By using this site you agree to the collection of this data.  Click here for the complete Privacy Policy

© 2017 by MESMERO