Pitching for a better outcome
Life’s a pitch. And the pitch needs reinventing.
A view on how advertisers can make best use of the agency pitch process, to deliver a much more business relevant outcome.
Part of the challenge in any client-agency relationship undoubtedly lies in building greater trust between the two parties. But to do so, clients need to help raise the standards and create a pitch framework where agencies not only commit to saving an amount of money, but instead compete on which strategy will deliver the greatest possible impact on sales and revenue. In other words, it is time to reinvent the pitch process from being a quick-fix “Race to the Bottom”, to become an outcome focused “Race to the Top”.
Surviving the recession
For most international advertisers, the recession meant that their agency relationships shifted focus to a cost-containment strategy, with a little added taste of never-ending budget cuts and unfavorable payment terms. And with Procurement delivering on these terms (and in a language Senior Executives can understand), agencies are finding themselves stuck in a downward cost-cutting spiral. Translating that into marketing reality: Lots of procurement-run pitches.
The stakes are getting bigger
When looking at what’s at stake at pitches, no-one close to the global agency scene can be in doubt that the numbers are getting bigger and bigger. Giants like Unilever, P&G, J&J, SC Johnson, Reckitt Benckiser, and more lately GM have all engaged in multi-billion $ agency reviews, with the key objective of driving down overall costs on a regional or global scale. An example epitomizing this trend is when GM’s ex-CMO Joel Ewanick happily shared that GM’s cunningly masterminded Chevy agency review would save over $2Bn savings for their struggling brand.
Thinking back over how multi-billion agency reviews are traditionally handled, we keep asking ourselves if it is possible that those smart Procurement folks are asking for the wrong things negotiating with their potential agency “partners”? Is it possible that short-termism stifles the pitch process, and that conversations about building market-share are replaced by short-term savings targets? Is it possible that the pitch outcome is determined even before invitations are issued to agencies?
Are Agencies asked to deliver on the wrong KPIs?
We asked ourselves these questions because we have seen many global advertisers fall short when it comes to looking at a bigger picture. In our daily work, we see countless high-profile advertisers force agencies into a relentless downwards spiral of cost-cutting. We see many agencies bring immediate benefits to the advertiser, but as the relationship goes on, the incremental gain evaporates and clients struggle to get back to historically acceptable service levels (at reasonable costs).
The role of Procurement
There is no doubt that Procurement as a discipline has become immensely more sophisticated in recent years, but a cost-control mentality still prevails: “What does the company need to buy – we’ll get you a really good price on that” is how Procurement predominantly sees their role at the company. And with Procurement’s growing influence, it’s no surprise that agencies feel trapped.
On the upside, cost reduction may be the best way-station on the road to brand success (it may help control the immediate cost of the journey). Yet, Procurement seems largely unable to build sound and sustainable relationships between clients and agencies.
Agencies play a low-risk, low-reward game
When it comes to the agency side of things: the current system forces them to make their profit within the confines of ever smaller fees and ever more restrictive terms. Human nature being what it is, that pressure motivates them to investigate ways of making money that may depart from the single-minded pursuit of their client’s success in the marketplace.
Quite apart from the damage it does to transparency, this tendency diverts agencies’ effort away from what should be the ultimate real goal, which should be for advertising budgets to deliver increased revenue and profitability for their brands and products.
However, with ever-shorter agency tenures at the horizon, it is no wonder they don’t want to commit to delivering certain revenue targets, and share risks/rewards.
Fragmentation doesn’t help
And it gets worse when agency services are fragmented and pitching for advertising accounts is forced into discipline-specific ‘silos’ (separate creative, media, digital, search, PR, promotions…). The trend of un-coupling services may work well for tactical or operational purposes, but it will never motivate any single supplier to see themselves as a prime mover in determining the growth and value of their clients’ business.
So does your current pitch process deliver real business partners?
If the honest answer is “not really”, or “not quite”, or “frankly it’s a master-slave thing” then the relationship risks being one between ‘frenemies’. In which case, pitching the business under different and more business-relevant terms should be the first step towards resolving this problem once and for all.
But to change the game, corporations need to adjust and embrace a completely different set of pitch objective. No longer can the brief to Procurement be: ”Go buy this piece of service at the lowest possible cost”. Instead, Procurement needs to learn to engage in a much more collaborative and encompassing process, where they single-mindedly focus on delivering on the bigger questions, such as:“What can this agency group do for us?”“Can they move our business forward on all fronts?”“Are we/agencies willing to invest time, effort and money into creating and delivering unprecedented positive change?”
The role of Executive Management
To make this work, Client Management should really look to their Procurement and Marketing colleagues, and brief them to build new and accountable agency partnership models, that pro-actively reframe and deliver on business purposes. Putting it differently, senior management should demand from Procurement that they deliver agency solutions that benefit the company on strategic, tactical and operational level (today, agency supplier relationships are considered purely operational, and they can be changed irrespective of how the company performs). In a sense, the pitch process needs to allow that agency to help the client sell before they can save.
In the classic model, client A uses agency B to chase objective C.
The agency’s focus needs to be the same as the client’s, however the objectives have been defined. Like what? Brand trial, penetration, conversion? Sales, market share, return on communication investment? Probably all of the above.
Once the pitch is over, and the knot has been tied, there should be no further argument between client and agency over compensation or reward. The reward for the one is the reward for the other, as the brand, like Pac-Man, uses both mandibles to swallow up the trail of crumbs.
A new beginning = new rules
The above makes it look easy, yet all parties involved in the pitch would have to fundamentally re-think what they are doing and why. Agencies and clients will need to buy wholeheartedly into an entirely new type of business-driven relationship, collaboration and process, based on sharing a long-term, exclusive, outcome-driven commercial arrangement. Gone are the days when the agency could sit on the fence, complaining behind your back about low fees, lack of access to data, and limited access to decision makers.
Reinventing the full-service pitch
Implicit in this startling thought is that now is the moment that advertising needs to move back towards the original concept of the full-service agency, the long-term joint commitment of client and agency to commonly held goals. The one-stop-shopping, full-service contract is due for a major comeback, reversing a 30-year trend towards fragmented advertiser contracts with discipline-specific specialist agencies.
Increasingly, these specialties are offered side-by-side by the big agency groups, whose proudest boast is that they can “do it all” through their network of offices, subsidiaries and specialist supply-points. Accordingly, if all parts are once again to become components of a full-service whole, agencies need to believe that clients really mean it.
Though any sensible agency would favor the idea of higher income through jointly achieved results, their first reaction is likely to be: “So where’s the catch?” The truthful answer to that has to be: “There is no catch”. But to work, the process will require not less accountability but more – from both agency and client. Brand owners will need to be trusting enough to embrace a collaborative working culture based on full disclosure and shared goals. For their part, agencies will need to transcend the narrow and limited performance benchmarks they work to, abandon all hidden agendas, and embrace the bigger picture of meeting business objectives.
Mapping the labyrinth
To extend the Pac-Man analogy, this means mapping the labyrinth, plotting the path of opportunity, and pre-identifying any hidden enemies, lurking monsters and traps for the unwary that may be strewn in the brand’s path. To put it less whimsically, the agency-client relationship has to be anchored in a working framework, based on comprehensive and unbiased unified performance metrics (covering strategic, tactical and operational deliverables).
In addition, econometrics would be an indispensable way of mapping a picture of today and finding the brand’s pathway to tomorrow.
Throughout the agency selection process, much greater attention and effort need to go into fully integrated, (pre-) agreed econometric-based framework, which support decision making and performance measurement throughout the relationship.
Under this new era, econometrics can no longer be an “optional extra” or a discretionary add-on.
Workshops and chemistry meetings
All targets, strategies and expectations need to be set out and agreed in principle in a series of workshops (often 6-8 are required), covering all aspects of the potential relationship plus a maximum “what if” scenarios. It is critical that both the client and the agency teams are exhaustively prepared for these meetings, and both parties are (including procurement) are realistic about the amount of information, work and time that this will take. In particular, we see the following being indispensable:Research, consumer insight have been disadvantaged in agency organizations, as costs and service fees have been squeezed. They need to be restored to their rightful place as indispensable disciplines in defining strategies and determining outcomes.Brand KPIs (the list of Key Performance Indicators by which progress is monitored) need a comprehensive overhaul and upgrade. Demote indicators that are only minor contributors to the outcome. Promote indicators that stand in a causal relationship to outcomes, such as consumer cost-per-acquisition or cost-per convert (or similar if the brand is seeking to expand existing users rather than recruit new ones).Measurement is indispensable – but mastery of data is not enough. It’s the ability to analyze, synthesize, pinpoint key learnings, and convert them into real-time actions that can affect outcomes. The brand has to be able to determine with reasonable certainty which bits of the investment are producing what portions of the end-result, and assess each one’s cost-benefit ratio.
Fully comprehensive NDAs and rules of engagement, covering agency front and back office, will need to be prepared and signed by both the client and the pitching agencies prior to any sharing of information.
The outcome of the various workshops and chemistry meetings will be an all-encompassing framework, on which all aspects of the new relationship will be based and measured.
Timing, too, is important
Finding the right agency group and forging the right relationship will take time. But the digitalization of our lives, and the rising consumer expectations it has occasioned, have speeded up sales cycles in an important and irreversible way.
In many sectors (consumer electronics to name only one) there is an increasing requirement for speed of reaction. Sales progress has to be measured in real time, and attributed accurately to the element of the selling effort that actually caused it. After-the-event checks on an agency’s service costs, buying efficiency and obedience may still be necessary, but none of these things in itself determines the outcome in the marketplace.
Both client and agency need to be getting it right from early on
It’s a dangerous world out there, with brands facing perils as well as opportunities. When things go wrong, they need to be acknowledged fast, accurately and dispassionately. Diagnose the problem, and turn it around fast, correcting course by mutual consent. Act exactly the same when things go right: why did that work? And how can we do more of it? If part of the agency supply chain (or indeed the client) looks like dropping the ball on one key issue or discipline, there has to be a commitment to correcting the problem in real time, before the overall outcome is imperilled.
How is all this to be achieved in practical terms?
Whilst a pitch consultant can certainly help (not least in coordinating the various strands that need to be tied together), this should by no means be a requirement if the Procurement team is capable of achieving alignment and driving the process. To make the process work, we’d suggest a procedure along the following lines:Set up the senior in-house pitch task force (and nominate a pitch consultant if needed).Create the desired framework and define the brief, working open-endedly to define the best desired outcomes and priorities.Define all the communications disciplines encompassed by the framework. Consolidating and streamlining the vendor roster means getting more work from fewer suppliers, bringing economies of scale, tighter focus and easier administration, to the benefit of all concerned.Identify the candidate agency groups that can meet client criteria on disciplines, geography and avoidance of problematic account conflicts.Brief shortlisted agency holding groups and conduct separate workshops with them, carefully monitoring each one’s response and commitment to the “outcome-focused” brief. Whilst these workshops should result in the progressive modification of the framework itself, either agency should contribute significantly and as such, identify itself as a potential partner.Define budgets, to which agency will be required to commit in developing their outcome-focused commitments. Favor “working money” over “non-working” expenditure such as fees and commissions.Define metrics, responsibilities, timelines and reporting lines.Collaborate with the pitching agencies to make joint provisions for eventualities such as economic shifts and changing competitive environment. This will avoid knee-jerk budget changes and other strategic changes that could endanger the agreed framework.Establish a continuous program of periodic reality-checks, progress monitoring and course corrections.Once all that has been discussed and established, your choice of agency group should be clear, and commercial negotiations should be engaged.
It will be a brave and determined client that signs on for such a do-list in one go across all their businesses, and multi-sector clients may choose to adopt this new approach by putting one of their brands or businesses out to pitch (and then roll out the approach to their other businesses over time).
Handled right, however, the rewards of a successful agency pitch could deliver massive commitment from both advertisers and agencies alike. To give some perspective of the numbers in play, one only needs to look at GM’s Q2’12 net revenue of $36.7Bn. And with appropriate performance metrics linking (certain parts of) company revenue, even the minimum improvement above and beyond industry average growth, would represents very significant value to all parties involved.
Let’s close with some advice
i. Supervise the pitch from the highest level (one or more board-level executive sponsors are needed).
ii. Empower the agency not only to act on the brand’s behalf, but to think on the brand’s behalf.
iii. Ensure the motivation for Procurement is to “think bigger”, rather than just “thinking savings”.
iv. Set out the rules of engagement from the very first contact with potential agency partners (i.e. a revolutionary type of client-agency relationship).
v. Only speak to the top of the agency world (and there are only 5-6 groups), and get to 2 contenders asap.
vi. Test and learn – a single brand may be a perfect test run before rolling out broader.
vii. Debrief both winners and losers.
viii. Prepare to work harder during the interim pitch period – your existing agencies may feel more/less motivated (external pitch support can help save many headaches, time and money).
ix. There is no shame in getting external support, even behind-the-scenes.
Re-thinking the pitch process to this radical degree will require courage, imagination and goodwill from both sides of the client-agency divide. The reward for both is that the divide itself can and should disappear.
Let’s close with a quote from the movie ‘Inception’. In a dream-state, the Joseph Gordon Levitt character is picking off rooftop snipers with a rifle. A comrade appears beside him and blows the enemy’s entire roof off with a massive rocket-grenade launcher, with the smiling throw-away line “You mustn’t be afraid of dreaming a little bigger”.
Dream on, Pac-Man.
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The elephants are in the media room
The media industry is in a mess.
If your immediate reaction to that is “Yeah? Tell us something we don’t know” then that too is part of the problem.
People working in media are now so blasé about how their industry has changed beyond recognition in the last decade that they’ve lost all belief in their management’s ability to do something about it. But they can.
This is not about delivering client campaigns on time, on message and on price as media complexity increases. Experiencing the adrenalin rush of achieving unreasonable goals against ever-increasing odds was part of the decision set when you first came into the crazy world of advertising and media. Unfortunately, the problems run far deeper than that.
As an industry, media needs to regain its position as one of the most rewarding and forward thinking industries to work in – a place that attracts young, creative talent as well as hard-bitten pros. But for this to happen, there are a few fundamental truths that need to be addressed and a few elephants that need to be seen off.
Clients don’t trust agencies and agencies don’t trust clients
Nothing poisons our industry more than mistrust created by opaque media trading practices. The lines are blurring as media buyers become owners and sellers of media inventory, creating hidden agendas and margins that never existed before. If agencies are ever to see eye-to-eye with the clients who pay their bills, they need to start acting more decisively on media transparency and start coming up with workable solutions. Conversely, clients need to inform themselves better about available media trading models and understand the financial implications of not achieving full media transparency.
Agency remuneration models suck
Over the last 20 or so years, very little has changed when it comes to developing new agency remuneration models. In 2014, they will still be based on staff clocking in/out plus occasional small incentives. If agency leaders wish to stop the downward spiral of ever-lower fees, complemented by alternative revenue streams, it’s time to get creative when it comes to costing out agency services. Going well beyond the traditional cost/quality/service incentive and into delivering business results is vital – unless you want to hand your business over to the management consultants, of course.
Client-side media experts may soon be an endangered species
Everyone knows that media still represents one of the biggest capital expenditures – the disappointment is in how few global corporations have actually invested in building a proficient media organization and culture. As controversial it may be, the reality is that real client-side media experts are now so few and far between, it’s no wonder that so many corporations struggle to extract the best value from their media agency partners. Clients need to show much more leadership and redirect investment back into media-specific training, recruitment and media performance management frameworks. If they don’t, agencies will increasingly buy plans that match their agency volume deals, rather than reflect the true scope of their clients’ ambitions.
Clients won’t do the maths
These days, when it comes to media budget allocation, far too much is left to “gut instinct” and far too little to calculated risk. Whether it’s integrated and cross-channel measurement, brand portfolio media management, or simply annual negotiation strategies, exhaustive analysis is very rarely done. Why? None of the above are too difficult to analyze from a impact and financial POV, yet clients are as reluctant as ever to do the sums. If advertisers decided to spend a little more time on the good old media planning virtues of reach, frequency, recency and engagement, they surely would realize just how much value resides in optimization.
ROI talk is cheap, delivery isn’t
Despite the bundles of consumer and digitalized tracking data being readily available to agencies and their clients, ROI is still all too often measured in oversimplified and pure media metrics and KPIs. Agencies need to start providing more developed econometric modeling and marketing-mix analysis (that go well beyond media metrics) if they ever aspire to be considered as true business partners. Being able to prove the positive and quantifiable contribution to a business beyond media and/or sales should be the least a client expects from choosing an agency (or consultant/ auditor for that matter) to provide a service.
Clients get robbed…every day
It’s amazing how we have allowed digital advertising to become the most fraudulent medium of all. Whether it’s bots, robot re-targeting, arbitrage or viewability issues, there is no way around the fact that over half of display ads paid for by advertisers, are never seen. Common standards need to be agreed on urgently across the entire industry – or risk an otherwise good business model becoming another lost opportunity due to lack of support from marketers. Tip to clients: check the small print on those insertion orders…
Legacy pricing = lost value
More than anywhere in the world, US agencies seems to have convinced their clients that last year’s pricing somehow determines this year’s. But do they tell you precisely how they now leverage entire client portfolios into agency deals to ensure better pricing, controlled quality and a host of other advantages? Do they hell! Thinking that the biggest groups automatically offer the best pricing/quality ratio to all of their clients is a fallacy, deliberately peddled daily by the very people doing the dirty. If you doubt it, just ask one of them to explain how it’s even possible.
Clients hate negotiating
Where does price sit in the value equation? What should clients (or indeed agencies) expect from a well-constructed negotiation strategy? Questions like this should be at the heart of any media review but rarely are because of a chronic aversion to the simple craft of negotiation. Certainly, media price elasticity is high at the moment but focusing on short-term savings or cost-cutting exercises is not the answer. If we want to create sustainable net media improvements, or return to client-agency partnerships based on mutual transparency and trust, we need to get back to honest, objective negotiation. For instance; whatever happened to having a strategy for every value opportunity? That would be a start.
Transforming a business through strategic use of media $ still represents one of the greatest opportunities out there. But for this to happen, clients and agencies need to build strong relationships based on trust and business results. Cutting corners won’t make it easier; it requires hard and smart work.
So now you’ve met the media elephants, make sure they never enter the room again. It will only enhance your chances for a healthy and long-standing client-agency relationship.
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Media Transparency: Are you getting enough?
Complacency vs. complexity – or both?
A view on how advertisers and agencies can turn media transparency and rebates into an advantage, and why having a plan is key to success.
If we are to believe the headlines in recent international and regional trade press, advertisers have never been so disgruntled by the opaqueness of the media trading system currently used by agencies. And adding the murkiness of digital trading desks and other digitalized seller/buyer platforms, it is no wonder that advertisers ring the alarm bells. But when it comes to actually confronting the issue of surcommissions, surprisingly few advertisers engage constructively with their agencies, to ensure reach deals that deliver both optimum transparency and value for their brands.
An evolving rebate system
Going back only a few years, the rebate system was still relatively straightforward whereby an annual cash transaction took place between the vendor and the media buying agency. Today, agency holding groups have taken over the management of rebates, surcommissions and Agency Volume Bonuses (AVBs), and they run it through a well-structured, yet complex web of sister companies, intermediaries, whole sellers, brokers, aggregators, and various other third party set-ups. This evolution has inevitably made it much harder for clients to navigate through (and next to impossible to trace from an accounting standpoint). But more importantly, with more links in the supply chain, it has opened the door for agency holding groups to build in profit margins across more places within in the chain. Blanketing the whole system with a “Three Wise Monkeys” policy at central and local level (i.e. speak no, see no, hear no) furthermore complicates the task for any persistent advertiser that wants to gain clarity.
Should advertisers care?
There are few fundamental reasons why advertisers should act more decisively on AVBs:Most consumer facing companies spend 50%-60% of budgets on media buying – making it the single biggest capital expenditure. These are the amounts that AVBs apply to.The current economic environment demands that brands achieve optimum value and campaign effectiveness. And with AVBs often representing several $Million, there should be no excuse to leave any stone unturned.Brands should benefit from fully impartial media planning at all times. Unfortunately, when kick-backs are involved this is not the case.Whilst operating agencies may find themselves under pressure, holding companies many times prefer to find a workable solution to the rebate problem (instead of compromising an otherwise healthy client relationship).
How do advertisers react?
Considering the complexity of the issue many advertisers simply refuse to acknowledge that the problem exist (or they don’t know, which is even worse).
In the other end of the scale, few advertisers have historically demanded “everything” back, predominantly using arguments based on fear and intimidation where any fraudulent behavior automatically excludes the agency group from the agency roster (yet, full value is rarely returned to the client).
A third group of advertisers seems to accept that the problem exists, but are unable to quantify the problem and find a solution. In a sense they “side-step” and try to recover lost value elsewhere, e.g. lower fees, free space, free tools and research, more and smarter resource, advantageous payment terms etc. Whilst “side-stepping” in itself is not a bad solution for the unaware, it however merely focus on improving the non- working budget (less than 5% of total budget), so it can never produce benefits similar to the levels that full transparency does. Moreover, it doesn’t create an agreeable long-term solution, but instead it temporarily brushes the problem under the carpet (at least until the agency contract is next up for renegotiation).
Whose money is it anyway?
The most common knee-jerk reaction from many (ignorant) advertisers is to state that any money the agency makes as a result of placing their clients’ media budgets should be returned to the clients. Even if this theoretically makes sense, reality is that in 99% of cases, the agency remains the principal in any media deal they have negotiated (in it’s entirety). And as the principal, they have the legal right to negotiate additional benefits which, depending on the specific commercial terms and conditions in individual client- agency contracts, they may chose to keep or to pass back. It is therefore recommended that advertisers seek advice on specific contractual language, clauses and definitions, to ascertain to which extend they can rightfully reclaim ownership of rebates generated by their agency.
How widespread is the AVB issue?
Bearing in mind the multiple shapes AVBs can take, and the complexity of deals negotiated, there are only very few media and markets in the world where this trading system doesn’t overtly play a role.
In the US, rebates have caught much more attention recently, and as a result agencies have started asking clients that they sign up to inventory management systems (traditional media and digital). This has, in turn, allowed the buying agency to exert pooled buying, which inevitably has opened the door to additional benefits above and beyond what clients receive. As expected, the upside to this change is that agency deals can deliver significantly better value than client deals – the downside is that the buying agency no longer act as an “Agent”, but instead becomes the “Principal” in law.
What is holding advertisers back?
The single most important obstacle for advertisers is the lack of knowledge amongst the people involved in contract negotiations. Rarely do advertisers have sufficient in-house experience to handle the difficult issue, let alone have people who can navigate a successful negotiation covering multiple commercial intricacies.
Then there is the fact that many clients worry about destabilizing their day-to-day agency relationship. This may be right or wrong, but is it enough to accept improper business practice?
Also, a misconception as to whether the AVBs replace lower agency fees seems to exist. From the advertiser’s perspective this may be a “reasonable” way to look at things, but from an agency perspective it makes no sense at all as the two revenue sources are in no way directly linked (again, referring back to AVBs being linked to working budgets as opposed to operating agency remuneration).
The last thing that holds advertisers back from investigating is a lack of openness and experience. Everyone involved need to remain open to work towards a workable solution that responds to both the client’s and the agency’s expectations. It may take time and efforts, but it is only by confronting the transparency issue head-on that light is shed, and sustainable solutions are found.
Getting professional help
Unless a company has highly specialist media people working in-house, it is highly likely that getting external help can dramatically improve any clients’ chances of reaching optimum transparency. There are also many operational advantages that should be discounted, not least the consistency of messages shared with the agency, as well as the constant disconnect of the transparency negotiation from day-to-day operations. And it helps clients make decisions based on informed, independent and carefully measured basis.
A surefire process
Advertisers need to know exactly how to approach the issue, and then build and implement a carefully thought-out plan. From two decades experience in helping clients maneuver though transparency recovery programs, we see the biggest challenge to any advertiser being the task of always keeping a cool head. Even so, the voyage will be rough and onerous for everyone concerned, and it will be filled with pitfalls for even the most experienced negotiator. So to help navigate through a transparency program, we strongly suggest that advertisers follow our 10- point action plan when approaching transparency negotiations.
1. Clarify the role of your agencies
Validate in which markets your agencies act as Principals in law and not as Agents. This is important as it determines who owns the rebates, and where recovery is possible (unless stipulated otherwise in the client-agency contract obviously). Once clarified, verify if your interpretation conforms to local customs and practice. Once clear, this should reduce any knee- jerk reactions from people who don’t know what they’re talking about, and you’ll have a much clearer view on what’s potentially recoverable and what’s not.
2. Define rebates clearly
The first aspect in any rebate conversation with your agency should be about the definition of rebates. Once agreed, your contract could then cover off all the variants, including Agency Volume Bonuses, Agency Volume Rebates, extra- tipos, extra-primas, end-of-year discounts, surcommissions, bonuses, super commissions, etc.. When doing this, be aware that prompt, upfront and pre- payment discounts are counting against rebates (specific advantageous payment terms are more reliant on client behavior, and can be “earned” if adhered to).
3. Align base for calculation
Once you’ve defined what’s considered a rebate (and what’s not), you need to make sure that rebate value is calculated using the same base all over the world. As this is a relative straightforward discussion, your agency should be able to clarify this without too much discussion. Things to look out for here is whether the base for rebate calculations reflects local terminology, i.e. gross, net, net net, net client etc. Once set out in the contract, there should be little room for confusion and misinterpretation. Simple step – yet helps focus the conversation immediately.
4. Look beyond the operating agency
With the agency world adjusting its operating structures all the time, it’s more critical than ever to secure access to the benefits negotiated throughout the agency supply chain, including agency affiliates, subsidiaries, legal media buying entities, partners, barter companies, digital trading desks, brokers, aggregators, admin companies (financial intermediaries), holdings companies, and any other entity involved in handling your media buying practically or financially. A word of warning; it’s much harder to gain full access throughout the web of companies without the relevant contractual T&Cs, hence appointing a third party auditor in this conversation.
5. Maximize central vs. local opportunities
Once the definitions and the scope are clear, it is time to enter negotiations either centrally and/or locally. Based on our experience, and due to the complexity of the rebate issue, we generally recommend that clients handle rebate negotiations centrally – and return of cash/value happens locally. Agencies are more open to this approach so it helps get everyone aligned (which is critical on such a delicate issue). Handling negotiations centrally also gives all parties involved the opportunity to pro-actively manage any gaps that may occur between what’s being offered by the agency and what is really being received locally. Also, for the few markets where rebates cannot be returned to clients (half a dozen worldwide), then a centrally managed system will help circumvent this issue.
6. Recovering the cash/value on time
The old concept of “we pay back in April after we’ve received the full amount from vendors” doesn’t always reflect what happens in local markets. Return dates vary by media and by market, so make sure your contract is clear on repayment frequency and dates.
7. Allowing for budget and media mix changes
With rebates varying by vendor and volume, it is important that clients and their agencies establish a clear start point on a per-medium, per-market basis at least. A simple excel sheet stipulating budget and rebate levels for each media (sometimes down to vendor basis) is often sufficient here. From here-on-in, clients should make sure that the rebate calculation system is flexible enough to accommodate and (fast) track both budget and media mix changes on an ongoing basis.
8. What’s the best currency?
Going beyond black and white “100% returned in cash” mentality remains the single biggest opportunity for clients to improve the value due from rebates. Our experience shows that integrating other valuable assets in the negotiation can really bring massive additional value to clients’ media budgets. From a contractual standpoint, clients should make sure that both cash and value add is identified and quantified, and it should be clear how all value is accounted for financially and admin wise.
9. Local gentlemen agreements
When conducting rebate recovery projects, central clients can discover that local clients have over-ruled any international contract arrangement and put a local gentlemen’s agreement in place (often linked to exchanging rebates with free space). Unfortunately, unless this agreement is monitored down to the smallest detail, free space received from such arrangements is inherently much worse quality than “paid for” space – plus when an agency is asked to justify the delivery, the value is often blown up to 2-3 times what it’s really worth. The best way to get around this eventuality is to stipulate in the contract that any local arrangements affecting transparency and free space will have to be squared off with the central clients (and/or the external third party).
10. Reporting value back into the organization
One of the hardest jobs for client Marketing and Procurement is to report cash and value add back to risk adverse corporate management. To address this, clients should work with their agencies on addressing this specific issue, with the outcome being a clear and detailed plan showing how recovery will take place, and how much is owed. The reporting should happen on a quarterly basis to ensure potential gaps/opportunities are identified and corrective action is agreed and implemented.
Over recent years, high-profile cases related to mismanaged rebates have made headline news, most noticeably the Aleksander Ruzicka/Aegis/Danone cases in Germany. IPG UK, VivaKi China, and more recently Posterscope US have also appeared in the news as a result of a mix of accounting irregularities, malpractices, and personal enrichment – all associated with opaque media trading systems. However, there should be no doubt that this is only the top of an iceberg, and we are yet to see the full extent of increasing AVBs.
Agency consolidation will carry on, and with that, the holding groups will continue to nurture a system where kickbacks and rebates are an integral part of their business model. If advertisers want to stand a chance and maintain impartiality and transparency, they will soon need to start putting their foot down more than they have done until now. This means that procurement will have to go well beyond the easy (short-term) solution of cutting fees and receiving (poor quality) free space. But then again, improving transparency is right for so many other reasons than just lowering costs; first and foremost rebuilding the trust between advertisers and agency.
To do all this, advertisers will need to get much more acquainted with the ins and outs of today’s media trading system; meaning no “false” ignorance, no more complacency, and certainly no more monkey business.
For a PDF version, please click here
The "7 deadly sins" of media agency pitching
We live in an imperfect world.
It’s a simple enough realization that most agency reviews miss, with far reaching consequences.
Google the terms “Media agency pitch best practices” and you’ll instantly get over 8.7 million results; each one created to help you solve a series of issues through structure, clarity and standardization – yet, none of them sets out the main reasons why pitches fail to deliver. So put those ivory tower best practice methodologies back in the drawer and come back to the real world.
When it comes to media agency pitches, there are only 7 key things that will make your pitch stand out; 7 opportunities to make or break your review. The question is, will you be a Saint or Sinner?
Fail #1: Not dealing with the past
How you deal with the incumbent throughout the process is a key risk area that most likely will cost you big time if you get it wrong. For a start, if you don’t have visibility over what you are getting from your incumbent agency, then forget launching a review!
Secondly, agencies are smart and mostly come well prepared. They pitch to an average 7 clients at any time, and know a lot more about your business than you think (for instance, your track record with incumbents and likelihood of change).
They can also spot a hotshot new CMO looking to make their mark at 50 paces. So establishing trust early on is key… and it all starts with being upfront and honest about your motives with all competing agencies.
Fix #1: Make a brand new startPrepare a full exit strategy from the incumbent agency, setting out the data points you need to collect (and by when). It is critical that you only inform the incumbent agency about the review once you have 90%+ of the data on your checklist.When you talk about your reasons for a pitch, be clear – why are you reviewing your business? Is it purely financially driven, to capture new market share, is it part of corporate policy? Never be economical about the truth, you’ll never get the best from them.Be clear on whether you want the incumbent to answer the brief – or merely fix the cracks of the existing relationships. It will help them immensely when they construct their pitch strategy.Reduce friction between the incumbent and any new agency by agreeing a transition plan prior to appointment. And get separate transition teams from the day-to-day account teams. It will make everything go easier.
Fail #2: Underestimating the challenge
Advertisers generally underestimate the disruption a review can cause, and it can result in unnecessary tension between various client parties (particularly in Marketing and Procurement).
What often causes problems are misjudged/non-aligned ambition between stakeholders and a lack of data. Pitches need a business case, but when that is lacking, the process gets less focused and too many areas are left open to interpretation. And this, my friends, can make even relatively simple projects feel cumbersome and more difficult to manage than they have to be.
Fix #2: Come preparedSet up a pitch steering committee to help with the preparation and the decision-making process and criteria throughout review.Secure alignment on the agency model and scope of work you want the agency to cover before you launch the process.Create a baseline and stretch targets before issuing anything to the outside world (covering softer issues like strategy and planning ambitions as well as more commercially oriented areas).Identify and agree commercial negotiation levers and walk-away positions before entering negotiation (approved by the sponsor)Remember, everything can’t be solved in Year 1. In fact, strategy and operational benefits most likely kick in in Year 2 and 3. This is part of managing expectations of your team.
Fail #3: Choosing the wrong pitch consultant
A major reason for agency complaints is that clients don’t have the necessary in-house experience to run a seamless pitch – and a consultant is called upon. The problem here is that too often, the consultant is chosen on the wrong assumptions and hence ends up doing more harm than good. For instance, many consultants are simply self-appointed experts, others operate in the ‘grey zone’ where they also earn good money from servicing agencies, small wonder that lack of integrity and impartiality is something that needs to be confronted up front.
Fix #3: Choose wiselyAlways go through a due diligence when you select a pitch consultant, getting references from at least 3-4 similar-sized clients who have been through a comparable type of project with the consultant.Take time to meet shortlisted contenders face-to-face in order to reduce risks and get to know consultant’s philosophy and commitment to your success.Check they have the skills you need in the review. For instance, if the incumbent consultant is expected to run a media review, do they actually have deep knowledge of media trading?Never hire the pitch consultant firm who structures your review to serve their own purpose post-review (i.e. with media auditing, service reviews, etc.) Choose the one that puts your short and long-term interests first.
Fail #4: Not appreciating the politics
There are many reasons why client/agency relationships can run deep within an organization – the challenge is to ensure they do not stand in the way of a successful pitch outcome. If you fail to deal with, or at least understand, these ties before the pitch is made public, you risk key, business relevant decisions being undermined by personal preferences, legacy myths and nostalgia. It quickly becomes an uphill struggle entirely of your own making.
Fix #4: Form strong and early alliances
It was Plato who said: “one of the penalties for refusing to participate in politics is that you end up being governed by your inferiors.” Securing a sponsor at the very highest level in both client and agency organizations, makes everything run smoother.Brief your most senior people on them helping manage expectations internally and with all of the pitching agencies. Make them part of the process.Keep score sheets of absolutely everything that happens, from start to finish. This will make your case stronger, it will help when giving feedback, and it will make the ultimate decision much easier.Share top-line evaluation criteria and decision process with pitching agencies (winning or losing) – too often this is a lost opportunity to learn how you can improve.
Fail #5: Not knowing who to talk to
Talking to the wrong agency people will slow down the process and ultimately end up by sending wrong messages to senior agency stakeholders. Furthermore, operating agencies have less and less power when it comes to dishing out extra value (this mostly comes from the holding group level or the trading group). You really need to engage with agency people who can make key decisions and address problems immediately.
Fix #5: Start talking to the right agency peopleIssue the brief to the holding group (including for the incumbent), and let them determine which operating agency to put forward. But keep the contact at holding group level; you’ll need that when talking commercials.Having the agency new business person running the project makes a lot of sense, at least until tougher decisions need to be taken; after which, the operating agency CEO/COO and holding group should take over.Media trading, rebates and value-adds sits above operating agencies, so getting access to the appropriate trading specialists requires top level engagement in the agency food chain.
Fail #6: Best practice overload
We’ve already mentioned the issue of best practice overload, but many clients still opt for what they see as the ‘safe’ rather than the ‘sensible’ approach. For sure, it is tempting to go by a document written by someone else, but ultimately you will be pinning your own review to the experience of a stranger, with no knowledge of your circumstances. Neither will best practice or budget alone make you stand out. In real life, the agency’s best people, work and value have to be coaxed out – and this you have to do for yourself.
Fix #6: Show some personalityReality is, by far, the strongest foundation to a successful review – so stick to getting relevant answers to the real challenges your business faces.Agencies want to work on exciting accounts, so be proactive in the process, offer feedback and encouragement – but never forget that it’s a contest (and a negotiation from start to finish).Put massive effort into every single piece of documentation and agency feedback. Start with the RFI – bringing it back to life by asking relevant and future-facing questions. The RFP should then bring your specific situation to life and create a tangible business advantage (amongst other things).Be available 24/7. It’s partly your responsibility to get the agencies to shine on that big presentation day when it matters most.
Fail #7: Fear of the contract
As mentioned above, negotiation is a continuous process that may end with the contract. Unfortunately, too many clients leave it to the last moment to negotiate these commercial terms. This allows agencies to use that magical signing window to cement their advantage. Don’t let them.
And don’t let your side of the negotiation be led by juniors (or seniors), unfamiliar with the ins and outs of the media industry. You’re up against specialist agency negotiators with decades of experience in some of the most complex types of negotiations (due to the multitude of variables and value points in media). The pressure to deliver the optimum deal is always on you, not the agency.
Fix #7: Think of the pitch as a commercial opportunityGo in with the ambition that “everything” can be negotiated, simply because it can.Design an itemized negotiation strategy, with clear roles and responsibilities, timelines, key milestones, and anticipated outputs.Set up complete post-pitch reporting systems and templates that reduce the risks for misinterpretation, covering both financial and non-financial items.If possible, surround yourself with people with proven commercial negotiation skills in the media space – creative and other agency disciplines simply wont cut it here!And lastly, but perhaps most importantly: forget the idea of legacy pricing – it doesn’t exist when you’re pitching.
So there you have it – 7 scenarios to prepare and positively influence your media agency review outcome. Remember, best practice may seem to reduce the risk of being a Sinner, but it will never knock your pitch out of the park or elevate you to a Saint. Don’t say I didn’t warn you!
For a PDF version, click here
Marketing budget: Have you sense-checked yours?
CMOs can’t win – but can they do something about ROI?
Some advice on how advertisers can anticipate the doom and gloom of 2013, and what actions can be taken to ensure a successful marketing outcome.
With almost 2 decades in marketing and media, covering 400 brands and over $25Bn global media spend evaluated, I believe that creating marketing success has never been as difficult as it is today. No matter how long we look, we will never find a magic wand, a shortcut, or a golden rule that, with certainty, dictates how consumers react to advertisers marketing and media efforts.
Will 2013 be any different?
In one word: yes (but not in a good sense). Moving into 2013, we predict that Marketing professionals (and CMOs in particular) will come under more strain than ever before. A few key contributing factors, predominantly macro-economic justify this line of thought, including:No major regional or global sporting event to support ad market in 2013, hence no giant budget increase in sightThe extended Euro zone crisis leaves companies more cautious, resulting in cash going into company balance sheets and not into consumer facing spendingIrrespective of the outcome of the forthcoming US presidential elections, 2013 tax policies will impact consumer spending negatively, hence wild marketing and communications spending plans will be killed before they see the light
In summary, where markets have shown minor growth in ad spending in 2012 (vs. 2011), we are not expecting this to continue. For marketers, 2013 may even be a year to forget before it has begun.
The CMO has lost control
In addition to the market-driven challenge, Marketing (and everything that sits hereunder) is now under even more scrutiny than they have ever been. CMOs of today need to prove that they can be accountable and “deliver the goods”, and they need to do so irrespective of having lost control over how consumers respond to their activities.
Many CMOs scream “it’s not fair”, and they are probably right on some accounts. But you can’t really blame CEOs for asking questions, considering that the general perception is that Marketing “wastes” half of their budget.
Look inwards and outwards
Nonetheless, despite so much doom and gloom lurking over the CMOs’ heads, they will still have to find ways to respond resolutely, and go out with a smile and generate that sought-after incremental value for their companies and brands.
To achieve this, they will have to instigate both internal and external change. Internal because they will have to streamline marketing operations even further, make budgets work harder, and justify plans for every dollar spent. And external, because they will have to learn to listen more to what consumers say about their brands and their marketing activity, and then apply this learning when briefing agency partners.
Need for bigger picture thinking
When agencies pitch, I keep getting surprised about how quickly agencies want to get stuck into the creative part; the part where they show how a particular strategy or concept will be implemented using specific sports sponsorship, digital campaigns, or bespoke content creation.
For sure, it’s colorful and emotional to talk about the trend of the day, certainly more fun than analysis and insight for many. But it’s symptomatic to see how much time and effort is spent getting short-term “smaller” things right, all at the expense of the bigger picture, e.g. nailing that 3-year strategic plan (for more on pitch management, read our article on the GLUE2020 website).
Regaining control means new rules
Whilst each marketer and brand owner has very different challenges ahead, our experience tells us that all major change will have to be driven from the CMO’s office.
Sometimes change in specific areas will happen on an ad-hoc or fluid basis. However, streamlining and structuring efforts within a pre-agreed framework unsurprisingly helps focus minds and hard work, whilst maintaining a functional relationship with both internal and external parties.
Experience tells us that the following cover the most important areas, and at the same time helps built a framework for managing marketing budgets.
1. Sync with your colleagues
If the CMO hasn’t already reaped the benefits of independent social media monitoring tools and analysis, it is high time to catch up. There are many benefits, but above all, live input from consumers (and those of competitors) helps identify and discover unmet customer needs or segments. Furthermore, digital listening can help re-design how brands interact and engage with consumers, and it can helps inform brand performance metrics – ultimately all things that help the CMO make smarter decisions on marketing budget allocation (and helps putting marketing money where the mouth is). Done properly, the CMO will also have the perfect answer next time the CEO asks about why any money at all is spent on social media fads.
2. Use your digital ears
If the CMO haven’t already reaped the benefits of independent social media monitoring tools and analysis, it is high time to catch up. There are many benefits, but above all, live input from consumers (and those of competitors) helps identify and discover unmet customer needs or segments.
Furthermore, digital listening can help re-design how brands interact and engage with consumers, and it can helps inform brand performance metrics – ultimately all things that help the CMO make smarter decisions on marketing budget allocation (and helps putting marketing money where the mouth is).
Done properly, the CMO will also have the perfect answer next time the CEO asks about why any money at all is spend on social media fads.
3. All aboard
The risk associated with internal fighting, politics, and poor decision-making is accentuated considerably more if everyone is not singing from the same hymn sheet. If agencies are briefed piece meal, the CMO cannot expect them to work together, let alone deliver the business outcome he/she is looking for.
Separately, agency remuneration should justify the resource allocated (and vice versa), and an incentive should be in place to ensure collaboration and integration across disciplines (research says that a staggering 2/3 marketers experience poor integration across agencies – source: Horn Group).
In short, it is the CMO’s job to ensure that the agency eco-system employed is geared financially to deliver the best possible marketing ROI (from revenue growth to bottom line savings).
4. Improve the briefing process
Everyone knows that agency briefs should be done in writing using a comprehensive and bespoke template. Briefs should be done on time, they should include tangible targets, be task-led (not budget led, hence only give an indication on budget available), and they should be shared amongst all agencies to ensure everyone has the opportunity to provide input.
Unfortunately, only the budget part seems to happen consistently (and dictatorially), hence agencies are obliged to do a lot of guesswork when preparing recommendations.
So if briefs and agency recommendations and plans look like last year’s, it’s probably about time for a review of the process, starting with an agency meeting where the biggest issues are ironed out, and a better process identified.
5. What if scenarios
For any advertiser, preparing for budget cuts should be as normal as asking kids to do their school homework (both have a high level of predictability). Furthermore, if it is the desire of the CMO to ring fence marketing budgets, he/she would need to know the impact an eventual 10%, 30%, 50% budget cut will have on individual brands’ exposure, buying efficiency and ROI. A highly useful bi-product of going through this effort is that it helps the CMO prioritize and cut the fat out of any existing plan.
6. Innovation framework
To stand out, agencies need to be briefed to deliver on creativity and innovation – but this rarely happens systematically. So to properly embrace innovation coming from agencies (as opposed to being an annoyance), the CMO needs to set out the rules of engagement with each agency. This means having a clear framework establishing under how and when agencies can submit ideas, what supporting information is needed (i.e. the business case), how ideas are selected, and at what stage will selected ideas be developed and commercialized.
Agencies also need to be prepared for ideas coming from within the client’s organization, so the framework would need to address the issue of co-creation, co-development and co-ownership.
7. Media commitments
If the CMO hasn’t already quantified the financial impact of short, medium or long-term commitment for 2013 media buying, doing so now may be one of the smartest business decisions he/she will make.
Even if media buying is predominantly made on annual calendar year, agencies will allow for renegotiations in case demand is slower than anticipated (which is the case for 2013).
In addition, it’s worth assessing if any non-used value from 2012 deals can be transferred to 2013 activity, or if this is lost forever (e.g. lower-than-anticipated inflation, non-used free space, credits, etc.).
8. Are you getting what you pay for?
When assessing the financial impact of short or long term media commitments, the CMO also need to seek reassurance from agencies that the company will receive the full value of the paid-for media space.
Transparency is a massive area of concern, not least because it potentially skews any strategic recommendations and plans that brands receive from agencies (due to some media demand higher kickbacks).
Secondly, reassurance on transparent production costs needs to be sought, including clarification on how production houses are selected, what mark-ups and margins they operate on, and what payment terms they benefit from.
9. Data management
Data has unquestionably become the single biggest contributor to campaign effectiveness and consumer insight. But this is still a new area, and clients often pay for data which a) has little value to the specific brand in question, b) has been skewed to reflect a better-than-reality picture, or c) has been manipulated to serve the agency’s books more than the client’s strategic goals.
Moving ahead of the pack means investing time and money in a strategy that covers data purchase, access, analysis, management, and ownership.
In many cases, we recommend that client contracts stipulate that all data used during the agency’s tenure should be shared in raw format with the client (as he/she ultimately pays for it).
10. Performance reviews
The last valuable action is to prepare for measurement. A CMO needs to know how hard marketing and media money has worked, and they need to know if it is competitive.
Performance reviews should be done against both internal KPIs and external benchmarks, enabling the CMO to understand if his/her agency is delivering to the best of their ability.
The CMO may also want to consider looking in more detail at areas where the largest share of spend is allocated (often media), to gain an independent view and recommendation on where to look for even further value.
Spending some time on establishing the most appropriate framework for marketing and media budget allocation has never been as important as it is today.
The fragmentation of customer segments and media channels available means that getting it right has become unbelievably difficult, compared to even 5-10 years ago.
The devil is still found in the detail, but it is now more important than ever to know where to look for the opportunities that can stretch marketing budgets even further.
For a PDF version, please click here
Market outlook 2010-11
Get ready for the revolution!
Some insight into the most important changes that we will see in Marketing and Media in 2010/11 (Released July 2010, yet still valid).
With monies starting to come back into Marketing and Media, there seems to be an avalanche of relief and relative calm going through the ad industry – but what if the calm is here to announce another storm?
Going back just a few years, client-agency relationships were largely determined by Marketers who believed in having an ‘entente cordiale’ with their agencies was the best way of doing business. Yes, of course there were occasions where rapports were tested, such as the misjudgment of the 1st internet bubble - or even more recently, the scanty efforts of integrating social media into the mix. On the whole, it’s fair to say that the coziness surrounding the business has remained unchallenged for some time.
But the past 18 months seem to have changed this dynamic dramatically, and agencies are suddenly being questioned from all sides (from clients in particular) about how they run their businesses. Many agency executives continue to air their frustrations about this, letting everyone know of their feelings of being treated unfairly (to say the least), yet it’s still surprising that so few bring new solutions to the growing client disgruntlement.
For sure, each agency has their own demons to fight (client retention still being pretty high on the list), and no-one should underestimate the managerial and financial strain agencies are under as a result from the increased scrutiny. The problem is that issues like accountability, transparency and value-add will stay on top of the clients’ agenda in their quest for effectiveness and efficiency gains.
Moving forward, it is important that agencies are clear to clients on how they will respond to shifting needs, including what agency models will ensure specialist resources are always available. Also, new performance-based fee structures need to be pioneered, and agencies should re-think how they integrate, train and nurture Marketing Procurement – surely further alienation is in nobody’s best interest?
In 2010/11, we are going to face major changes, and some will be easier to adjust to than others. Yet, bottom-line is that we all have to do more with less to survive - but more importantly, our industry as a whole has no other choice but to provide much greater evidence of relevance, innovation and thought leadership, in order to survive the imminent marketing revolution we are standing before.
Enjoy the read and feel free to contact me for further information or to share any questions or comments you may have.
1. CMO accountability
The biggest change that we all have to get used to, is that CMOs will become under ever more pressure from their executive colleagues to show accountability for every penny they spend (including how they select agency partners). Gut instincts will no longer be enough, and they will have to prove how (and by how much) they drive business results through revenue growth, customer retention and brand equity.
Adding to the complexity is the ever changing environment in which marketers operate, high-lighting the need for multi-facetted management platforms that take every element into consideration. Those who succeed in linking their efforts and leadership with bottom-line results will without a doubt survive the next marketing revolution – but those who fail to evolve will face a very terrible tough time, and they will distance themselves even further from the boardroom.
2. Customer monetization
Cost-cutting, media proliferation, and constant plan changes are all part of the job of today’s marketers. Unfortunately, in the name of short-termism, many brand stakeholders have truly lost customer focus, including how they consume advertising.
With the help of technology, I predict a surge in companies wanting to go back to basics of identifying and analyzing customers, to better quantify the impact advertising really has.
Some marketers already fully integrate customer monetization into the planning phase, but a tidal-wave shift towards much more accountability in marketing strategy and planning will push the boundaries even further.
3. Client exasperation
Few advertisers are convinced about the tangible benefits received from 10-15 years of agency consolidation. Moreover, with accounts being handled by juniors (often with a one-size-fits-all philosophy), and specialist digital skill-sets merely integrating with other services (a pre-requisite for offering integrated solutions), it’s no wonder why clients are unhappy.
In the coming years, agencies should prepare for even more analysis by clients and other third parties, and they will need to substantiate much better what new (tangible) value they bring to the table. If they fail, it is only normal that clients continue to take much tougher views on their agency relationships.
4. Transparency and distrust
Adding the impact of the recession to the increasing demand for accountability, agencies (and their holding companies) are under ever-greater pressure to substantiate due diligence and to prove how agency deals benefit clients. Many clients use SOX to support their demands, but things are never that simple as many have let themselves down by having unclear terms in their agency contracts.
Sooner rather than later clients will start appreciating better what value up-to-date contracts and fee arrangements have, including the financial impact that transparency, Agency Volume Bonuses (AVBs), and other agency group benefits have on individual client performances.
Make no mistake; transparency is a worldwide issue that needs to be addressed in order to avoid distrust.
5. Redefining KPI measurement
A recent study conducted by our team showed that old-fashioned performance benchmarking models are being met with increasing skepticism from both clients and agencies. Feedback included ‘non-transparent’, ‘inflexible’, ‘price-focused’, ‘self-serving’, and ‘disregarding business strategy, brand equity, campaign priorities’.
Looking forward, we will see new, much more collaborative and multi-discipline measurement models emerge, where both the client and agency plays a more active role than today. This will have to go hand in hand with the way external consultants go about doing business, and in particular how committed they are to achieve that end-to-end accountability, which is so vital to move brands and client-agency relationships forward.
6. New agency models
Despite many similarities, today’s business context is very different to that of the 20th century, and gone are the days where exorbitant overheads were the price advertisers paid for working with a high-profile agency. Focus has turned onto execution as much as the big idea, and with technology making it possible to ‘stay live’ 24/7, and with clients looking to drive further improvements, agencies will have to start adjusting, and offer leaner structures, on-demand specialist services.
Although the start-up business will remain somehow uncertain, many new boutique agencies will pop-up everywhere, offering resource on project-by-project, free-lance or even crowd-sourcing basis - models that many clients are already use extensively.
7. Value-based remuneration
Surprisingly, many trade publications seem to support the idea of value-based remuneration becoming part of best practice. I think this is a mistake mainly because companies and agencies need to work much closer to define value before engaging they can engage in any value-based compensation conversations.
Secondly, all parties need to commit long-term to each other, which - in these risk-averse times - is much less of a certainty.
Instead of the full-on value-based remuneration model, I do however expect to see the already proven performance related incentive schemes (where only a part of the fee is based on performance) gain ground as this shares the responsibility of results more reasonably between clients and agencies.
8. Poor agency branding
Lack of differentiation between agencies combined with increased Procurement power has left many clients with the belief that they can get equal service around the corner, but for a lot less (and they probably can in some cases). What is striking still, is the blandness of the agency business, where only a few company executives actually do internally what they advocate to their clients i.e. invest in the brand and the people in the business.
Naturally, lack of training and poor agency branding are not the only reasons for the vague of pitches, but having strong brand positioning internally and externally, in an industry becoming increasingly commoditized, does seem like a sensible strategy - in particular for those who want to protect client relationships and also out from the crowd.
9. Talent dry-out
With headlines talking about lay-offs and well-known agencies closing down or being bought up, it is no wonder young talent see the ad business as an unsecure, unrewarding and maybe even hostile place to work. Long gone are the days when self-obsessed senior executives groomed new-comers to reflect their own (and their company’s) thinking, ready to break the rules to get recognition.
I think we are at a crossroads where agencies need to start thinking seriously about how to attract fresh talent, but equally important, how to keep the good ones we already have, in our business for the long run. Part of this task will go through investment in bespoke training, but even old-fashioned mentoring may have a key role to play.
10. US media buying
Historically, US media buying negotiations has been client-volume led, and sequential liability covered media vendors and media buying agencies. But with the major agency buying groups getting their act together in the US, this is all set to change.
Agencies are now increasingly proposing contracts in which they become the principal party (as opposed to agent). In practice, agencies will now negotiate group deals, using all of their clients’ volume, and then allocate inventory to meet their clients’ requirements.
Sure, we can expect end-prices to be better, but the risk of agencies ‘plan the buy’, as opposed to ‘buy the plan’ will inevitably impact how plans are optimized.
Whether buying benefits (i.e. $) are passed back to the clients, fully or partly, is also yet to be seen (but this is far less certain using well established international trading practices as benchmark).
The Internationalist: Trendsetter Newsbrief
TRENDSETTERS: GLUE2020's Morten Pedersen talks about the need for innovation and entrepreneurialism in the marketing and media industry.
Morten Pedersen, Founder & Chairman of marketing and media consultancy GLUE2020 believes that marketers have lowered their expectations when it comes to hiring external consultants.
Yet, he still believes that experienced consultants are ideally placed to help them move the goalposts for media performance. "Today, clients really don't ask media auditors and consultants to provide anything more than a validation, showing how last year's activity faired against a data pool. The problem is that the data pool or panel is often so opaque that audited clients and agencies don't pay much attention to the results themselves. Marketers need a framework that addresses strategy, planning and buying challenges in a forward-looking fashion, and one which delivers significantly higher ROI than any traditional media audit tool."
Pedersen also believes the agency pitch process needs reinventing so that agencies have the opportunity to create additional untapped value: "Nowadays, clients will predominantly hire a search consultant to take them through a straight-forward process, without asking them to add much value. There may be some minor differences whether the pitch concerns Creative, Digital, Retail, or Media, but the consultant's job is to take client and agencies through an often unchallenging, yet pre-agreed, linear process starting with RFI, going to shortlist, RFP, planning and buying exercise, which ends with negotiation and appointment of the lucky winner."
"Six months on," he adds "a similar process will then be repeated for another discipline with the same or another consultant, and after 3 years the musical chairs start again. The ￼￼￼￼￼client ends up without much revenue growth to show senior client ends up without much revenue growth to show senior management, and in most cases too little savings to really notice in the bigger picture."
According to Morten Pedersen, it is time that the pitch process is reset with expectations of what can be achieved through strategically relevant pitch briefs. He believes that retuning to the once prevailing full service pitch should be considered again by many brand owners, simply because it is the only way agencies will commit to delivering on both the top-line and the bottom line. He says, “you need an agency that can move your business forward on all fronts and generate new revenue before procurement imposes further rules."
Before setting up GLUE2020 in 2009, Morten Pedersen spent 15 years in the media auditing and agency scene in London and Paris. Today, his company has offices in Europe and the US, but he expects that more will be added: “We are in no way trying to compare ourselves with or even try to outperform the big auditors with fully owned offices in every market. We really want to remain focused on delivering to our clients, while continuing to invest time and efforts into developing new and exciting services that responds to the companies and brands of tomorrow.”
He adds, "Developing a novel high value, strategically driven performance management model needing day-to-day involvement from industry heavyweights is something we're really proud of. I’m not saying that our high-value approach works with every client. It takes quite some courage and imagination for a client to accept that better and smarter solutions are out there—especially ones fit for purpose.”