Value for Money

Reading about Pfizer and Deutsch’s confrontation over agency compensation, one senses that this is the tip of the iceberg in a sea of discontent. It’s unfortunate for the client/agency relationship that agency costs have become such a core issue. Where is value for money in all this?

That is, how can clients and agencies align themselves in ways where quality and productivity prevail, where the client’s marketing and purchasing people are in alignment, where agency costs go down while profit margins go up, and, most important, where client brands prosper in the marketplace?

Advertisers face performance issues today. Too many products clogging too many channels of distribution, traditional advertising losing its way, agencies reeling from a decade of uncertainty and reductions in remuneration. Add to this the recession and the geopolitical crisis, and you have a toxic stew. Collaboration—not confrontation—is the only answer.

Agencies continue to suffer from the residual history of high commission rates and hourly rate systems that led to high profit margins, undisciplined resource allocation and high overhead. For example, advertisers and their agencies have yet to adopt collaborative management models, global management protocols and ISO 9000 quality standards. (These are in place in most other areas of global marketing today.) New research tools allow advertisers to leapfrog retention, persuasion and consideration by going directly from exposure to sales. All of this is for naught if client/agency dialogue focuses on agency costs rather than process improvement and metrics for measuring the relationship.

Here are some suggestions:

Agencies must inform clients on how they account for resources and costs. The backdrop is reasonableness and collaboration. It is “best practice,” for example, for a client to have its agency confirm, in confidence, salary per grade level to ensure both sides are speaking the same compensation methodology. It would be unreasonable for a client to ask for profit margins on other accounts but reasonable to ask for the overall profit margin as a basis for comparison to the profit margin on the client’s account.

However irksome they may appear to an agency, purchasing and sourcing people are a valuable part of a client’s team. It makes no sense to push back on them rather than seek common ground. Likewise, clients have a responsibility to have their marketing and purchasing goals in alignment. Agency services, like other professional services, are ultimately about value for money. Agency costs are part of that, but so are agency resources and work practices.

Clients need programs that require each party to be accountable to the other. Two-way, 360-degree performance programs. A good place to begin is for both sides to acknowledge that there is inefficiency in their work practices that can be corrected. Unproductive work practices cause more waste than inefficient agency costs.

A client’s stewardship objectives and an agency’s profit objectives must become aligned. The agency is “investment manager” of much of the client’s marketing budget. But it is the client who must make sure a) client and agency work practices align; b) a comprehensive agency scope of work is designed; c) the correct mix and number of agency resources are allocated to the account; and d) client and agency are evaluated on a common basis. “Doing it by the numbers” (i.e., costs only) will not nurture the relationship.

“Correct” costs will prevail if “correct” work practices prevail. For example, client and agency can now assess the cost impact of agency rework rates or of having too many creative teams per brief, too high a ratio of client service salary dollars to creative salary dollars, an inadequate scope of work and briefing process, or an inefficient approval process. The primary solution is to focus on work processes and work practices, not agency costs. Beating each other over the head doesn’t do anyone—or the client’s brands—any good.