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The Agency POV
As clients are re-evaluating their compensation practices and insisting on cost-cutting measures, the American Association of Advertising Agencies (4A's) offers agencies advice about how to improve their position during client negotiations (paraphrased below):
1. Offer a reduced fee in exchange for a multi-year agreement with meaningful performance incentive provisions.
2. Increase your share of wallet and show clients how they can cut costs by consolidating more business with your agency.
3. Help clients drive costs out of the marketing supply chain (PromoAid can help) while de-coupling agency compensation from cost so the agency profit margin isn't reduced.
4. If fees are reduced, provide clients with exclusive usage rights in their category, but retain agency rights to re-purpose design elements or software code.
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The economic downturn that forced many marketers and their agencies to re-negotiate their compensation terms may be drawing to a close. Yet many industry insiders believe that even as the economy rebounds, there won't be a return to business as usual.
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The Evolving Client-Agency Relationship
''My friends,'' the U.S. chairman of Ogilvy & Mather said, ''you'll never grow a business by cutting the resources which produce much-needed innovation, ideas, imagination, initiative, perspective and so forth.''
Reduced Compensation
Though Graham Phillips spoke those words 21 years ago at an annual meeting of the Association of National Advertisers in 1988, the subject couldn't be more relevant today. Agency compensation and the client-agency dynamic became one of the burning marketing issues of the past year as both sides grapple with the current economic recession. Today, even as economists suggest the worst may be over, cutting agency compensation is a frequent occurrence. Last week, a survey released by the Association of National Advertisers revealed 56% of marketers are considering reduced agency compensation, compared to 32% a year ago.
More For Less
The dismal economy may have accelerated change that was already underway. For some time marketing companies have looked for ways to cut costs and gain greater agency accountability. Or from the perspective of the agency, "The reality is that clients want more for less," as Maurice Levy, chief executive of Publicis, recently said.
An Ad Age article forecast fundamental shifts in the client-agency relationship. Cast as "The New Normal," the article suggested that client needs and changing consumer behavior have necessitated dramatic and permanent changes in agency staffing. Driven both by cost concerns and the desire for a rapid response to Internet based incidents (like a negative YouTube video about their brand) marketers want leaner, more nimble account teams.
Not everyone agreed with the Ad Age thesis. Martin Sorrell, CEO of WPP, said "I don't think the change will be permanent," though "it will take a long time to get back to where we were," he predicted.
Fundamental Change
Regardless of how well overall advertising spending rebounds over the long term, most believe that the agency compensation model is fundamentally changing. In the last several months American Express, General Motors, Kraft Foods, Anheuser-Busch InBev and others have reportedly cut agency compensation. Others like Coke and Procter & Gamble have switched from hourly fees to performance based payments.
The 4A's advertising association predicts that in addition to mandating staffing and compensation cuts, clients will also seek competitive bidding among vendors (see Sidebar).
As the demand for cost cutting and competitive bidding grows and a "new normal" emerges, PromoAid, which helps companies identify and evaluate marketing service vendors, can provide an invaluable service for both marketers and their agencies.
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More Than Just A Marketing Directory
Since launching five months ago, PromoAid has offered a one-of-a-kind marketing directory data platform containing comprehensive information on 1,200+ marketing service vendors across the country. Backed by decades of experience in marketing and sales, the PromoAid team has put together a user-friendly, searchable database. PromoAid compiled the most sought after information - reporting up to 30 data points of information for each vendor, enabling detailed evaluation and comparison across programs.
PromoAid also provides a custom application, where clients get the benefit of 24/7 online access to the vendors and suppliers database combined with specific internal data & communication necessary for organization-wide dissemination.
For more information visit PromoAid or call: (847) 425-1580.
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