The past two years have been undeniably tough for advertisers and their agency partners; compelled to rapidly adopt a digital-first mindset, evolve marcom plans, to audiences with mixed motivations and confusing signals, following the most disruptive change to consumer purchasing habits in a generation.
Consequently, this has led to a re-evaluation of the advertiser/agency relationship, contracts, scope and remuneration models to deliver increased transparency and efficiency and ensure every dollar enables advertisers to navigate effectively this evolving consumer landscape.
So what are the key factors that will have the most impact on relationships over the coming months?
1 The right agency with the right skills
The priority for advertisers will be to ensure they have the right agency partners with the right capabilities and expertise to navigate this fast-changing marketing landscape – in some cases, this may mean changing agency partners. In a recent study we carried out in the US, almost 63% of brands planned to review their agency capabilities in the next 12 months and in 2021, 15 of the largest advertiser accounts totalling $16Bn of ad spend was up for pitch (*Convergence).
However, advertisers need to ensure the disruptive pitch process does not leave them with the same systemic problems they already have. A total of 86 agencies were swallowed up by just 20 companies in 2021 (*Convergence), 31 of which were by management consultancies increasingly competing in the advertising space.
The big six agency holding groups swallowed up 26 agencies themselves, together with absorbing 21,000 employees around the world. Advertisers must continually ask themselves does their agency have the right talent, expertise, values, future vision to suit their needs and is the contract clear?
2 Ensure everyone knows costs and what’s in/out of scope
Contract negotiations are never the most exciting part of a marketer’s life but they are nonetheless essential to understanding responsibilities. Whether it’s a multi-territory deal for media placement, creative development, or retail merchandisers – in every case, there should be a clear and easy to understand the contract. This should dictate the scope of work, intermediaries used, how third-party suppliers are selected and costs agreed. It should also determine whether billings are transparent, whether rebates or discounts are offered by third parties, and whether all jobs are reconciled correctly against the original project plan, with all costs clearly detailed and all jobs correctly closed.
It may seem common sense but marketing is a patchwork of different agency commercial models (there are at least 30 creative agency commercial models alone) that advertisers must understand if they are to get their bang for a buck. Complex contracts shoehorned to fit different marketing activities lead to misunderstandings and can result in the relationship breaking down if one party thinks the other is taking advantage.
3 Define the KPI metrics to uphold quality
Selecting the right skillset and putting in place governance that is equitable and transparent is only part of setting up successful advertiser/agency partnerships. Ensuring the consistent quality of these people-based services is a priority.
Both parties must understand what success looks like and incentivising the activities that matter is one way of doing this. Performance-based remuneration, savings tracking, payment by results, as well as penalties to discourage poor performance all help maintain the highest quality in the partnership. This can be 1% of media spend based on buying activity or savings recovered vs market benchmarks. Feedback and regular assessments of each other can root out unproductive behaviour by both parties.
4 Audit to identify corrective actions
Once the foundations are in place, advertisers should consider auditing their agency contracts on a regular basis as it ensures effective stewardship of advertising spend and tests transparency and governance. Often contracts are signed and filed away and the people responsible for negotiating them have moved on. Advertiser and agency needs may have changed meaning the scope of work and terms are no longer fit for purpose.
Auditing allows advertisers to build strong, trusting relationships with their agency partners by identifying misunderstandings of the contract terms, limiting erroneous spend and making essential changes to interpretations and the ways of working as the scope rarely remains the same through the life of the contract. Conflicts will occur but an audit allows both parties an unbiased impartial view by identifying issues and resolving them in a non-contentious environment as referenced in our audit guide.
As with all mutually beneficial relationships, they require equality, understanding and respect and must be continuously managed and nurtured to build trust. Loss of reputation by either party can destroy that advertiser/agency trust which may never recover. Changing agencies is rarely a good experience for anyone involved, as well as being time-consuming and costly.
