Commentary
Don't Blame The Agency
- by Cory Treffiletti , Featured Contributor, June 22, 2016
It should come as no surprise that agencies have these kinds of practices around rebates and credits in place. Every person who has ever worked in an agency environment knows this to be the case — it’s not much of a shock, although the press is treating it as such.
I would go further out on a limb and say many brands have enabled things by permitting — if not creating — the situation that requires these kinds of practices: a climate of agency distrust and mistreatment.
For many years now, brands have been whittling away at agency fee structures by bringing in procurement to manage reviews, pushing ever-harder against the models for agency compensation while not valuing the work agencies provide.
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Media commissions used to be as high as 15% of spend; in recent years, they have been pushed as low as 1%. Many agencies now have a full-time-equivalent model or hourly rates like lawyers — but without the higher hourly rates lawyers demand.
All these situations have created a vicious cycle: Agencies are forced to hire less experienced employees, and the work falters. Brands put agencies in review, and the cycle of devolution continues as one agency loses an account to another who just lost a different account for the same reasons.
The definition of insanity is doing the same thing over and over and hoping for a different result. In this case, the model of client-agency relationships is insane.
Agencies have been forced to be creative in how they get paid. They have dabbled in technology, they have looked to trading desks, they have created rebate models. I am not defending the idea of rebates, but I am providing an explanation that this lack of transparency cannot be placed solely on the shoulders of the agency world – the blame goes all the way around.
To solve this problem, agencies need to be clear on the value they offer, and brands need to feel the value is measurable.
As a media professional in an agency, I would worry, because this shift toward transparency means it’s time to truly rethink how agencies work. If the model wasn’t broken before, it certainly is now. Agencies could open the books and become fully transparent, but they are going to have to clarify their role in the ecosystem and take a stand to be paid fairly for the work they provide, while being willing to put some of their compensation on the line for performance.
On the flip side, brands need to stop driving the dollar ever downward through procurement and pay a fair wage for the work they request. Brands need to empower their partners to do great work, able to make a mistake without fear of a review pending around the corner.
We need to look at the client-agency relationship like a marriage where not everything goes well all the time, but you are committed and you make things work (for better or worse!). If there are irreconcilable differences, you find a mutually acceptable means of parting ways. But brands shouldn’t angle this threat over agency heads on a daily, weekly or monthly basis.
And, no more pitting your agencies against one another in the hopes of “competitive spirit,” because that approach doesn’t work. You’re kidding yourself if you think short timelines and competitive pitches get you anywhere. It gets you backstabbing and cheating, creating the situation where agencies have to do what they can to survive.
Transparency is the name of the game at this point. It applies to technology, data, ad exposure, analytics — and even agency compensation models. Transparency is a good thing, but now that most of the skeletons are out of the closet, it’s time to fix the problem.
Many agencies are filled with smart people with a lot of integrity — but when you back an entire industry into a corner, what do you expect them to do to survive?
I agree with the overall premise of the article but what I would say is that it comes down to choice. Regardless of what Procurement is doing, an agency ultimately has a choice which is they can choose to walk away from the opportunity. No one forces the agency to accept a 1% media commission. If enough agencies didn't engage with the RFP, maybe Procurement would raise the media commission. Yet, most will take on a bad deal for top line revenue.
Also, the same thing that Procurement departments do to agencies is the exact same thing that agencies do to their vendor partners when it comes to selecting who will be on a plan. You can't have it both ways.
At one time, agencies said no, got rid of bad clients and did not accept less than what they believed what their value was. They were not as conglomertized as now either. Now, they are becoming so starved, any shiny dime looks good. On top of that, the complexity of the business has increased costs to outrageous (yes, the consumer pays in the end). Complexity hides costs, increases hidden profits and sucks the life out of agencies and even clients and certainly employees. Until or unless agencies are willing to walk away, nothing will change for the positive.
Cory - You make a lot of good points and agruments but my concern is that the conversations seems to be shifting from transparency to honesty. If there is going to be trust, everyone has to be truthful and honest about what they are doing or don't say anything at all. Just say it is none of your business.
Cory: welcome to the debate. Two things: while it is absolutely true that clients have been driving down cost, agency holding companies today are infinitely more profitable than 10, 20 or 30 years ago. So there's that side to the argument of those poor agencies having to look for funding alternatives. Agencies & procurement: whose the chicken, whose the egg?
The other point is that if you want to argue that those practices were born out of necessity, then why formally and consistently deny their existence? Why not play open book from day 1?
The ANA report, flawed as it perhaps is, at least forces the issue front and center. Now let's talk and solve (one can dream, right?).
Besides paying agencies a fair wage for the work they provide, consider providing the media a fair price for the value they deliver.
Pricing models are driven further and further to CPMs by the penny, rather than the business upside of the delivered audience. The targeting and the creative being delivered to those targets, are being driven downward into commodities -- ones that can be replaced and duplicated anywhere, to the point the value of this advertising is also driven downward.
The old cold war term was mutually assured destruction. But this time it's on 3 parties, agencies and publishers that measure and deliver on price, and brands with no value or loyalty.
Same as it ever was. There's plenty of blame for the current state of the agency/client relationship to go around for everyone.
Agencies have been slow to adapt to the kinds of workflow clients want in today's increasingly agile marketing environment. They continue to shuffle and downsize staffers like board game pieces in order to keep margins from shrinking more than they already have. The model is clearly broken but the industry still clings to the billable hour as their grail.
Marketers have done themselves a great disservice by using procurement to manage the agency selection process to the point where it's completely a price driven vs. what's truly good for the brand – to the point of being ridiculous (I'm looking at you, McDonalds).
The ANA report is certainly a catalyst for putting the conversation front and center (again) but it remains to be seen whether each side will truly take it's implications to heart and affect real change, or keep doing business as usual all the while bemoaning there has to be A Better Way.
One of the main reasons for hiring an agency seems to be---and always has been---to blame the agency if anything goes wrong. Why would we expect this to change now?
As an ex-media agency head I can say this article has great points, but the media side does not know how much the ad-tech side has rigged the game, so there is a whole rebate issue going on there with arbitrage that clients (and most media people) have no idea. Trading desks in the agency side are supposed to provide transparent transactions but building the hedge (or arbitrage) right into the software model with deals that are under the radar are how they make more money, for all the reasons above mentioned. So true, there needs to be a better agency compensation model, but at the same time, transparency should equal honesty.