Alberto Ferrer Blog » Agency Business

Does Recession Beget Consolidation? When myopia displaces reason

Alberto Ferrer — Sun, 29 Mar 2009 00:36:20 +0000

In trying economic times like the ones in which we now find ourselves, knee-jerk reactions abound. The power of the mighty dollar (or better said, the might of saving dollars) makes many generally-reasonable people make unreasonable decisions. Some people purchase failing financial institutions. Some others slash marketing budgets. Yet others take money out of their bank and put it in a coffee can in their fridge. And of course, there are those that take multicultural marketing business from multicultural marketing agencies and give it to their general market shops. I don’t know which of these examples makes the least sense.

While I can speak to the marketing budget slashing issue, that’s been done to death. There is ample evidence that the marketers with the stomach to power through a downturn and maintain (or increase) their marketing investments in times like these are the ones who profit handsomely when the business environment improves.

The other issue that gets my goat is the myopic shifting of multicultural business to a general market agency. I believe that generally to be a misguided decision that will backfire.

When making such moves, the marketers generally cite the savings that they will realize by combining multicultural and general market activities in the same agency. Some openly acknowledge that the quality of the work will suffer but still opt for the short-term savings in order to relieve the pressure put on them by their finance folks. Some others have been led to believe that the quality will be the same as it was with the multicultural agency (in some cases better!) and so to the marketer it seems like a no-brainer. What folly!

For the uninitiated, this is generally what happens:

Step One: The client finance people issue an edict requiring marketers to reduce their expenses in agency compensation (some clients do that in parallel with overall budget cuts, while others do so as a “share-of-budget” exercise, keeping budgets flat year-over-year but reducing the percentage that is dedicated to compensating agencies.)
Step Two: Marketers contact their agencies to let them know what will be required. Some contact all agencies, others start off with their “lead” (read: general market) agencies, where the bulk of the agency fee expenditures occur.
Step Three: General market agencies, facing the prospect of revenue reductions, opt instead for manageable margin reductions and thus offer to take on the multicultural work for the same agency fee as in the previous year (or perhaps a bit more). It goes something like “Hey, instead of cutting our fee, how about we keep it flat to last year and instead we take on the multicultural work for no additional fee (or a very small fee)? That way, you save all those fees you’re now paying the multicultural shops.”

Now the client looks at the option of streamlining his or her life by working with one agency, having one scope discussion, paying one fee, having one meeting, etc. And on top of that, they save a bunch of money! It sounds like a dream. But it is more like a nightmare. Here are a couple of thoughts for marketers contemplating such a move.

Ask yourself how the general agency can do the multicultural work for no incremental fee (or a very small one). The work that was being done still needs to be done. If the work can just be absorbed by the general agency, that’s a tell-tale sign that either they have been overcharging or they will put a junior person with the appropriate last name or skin color on the multicultural portion of the business and call it a day (after all, the objective is a lower price tag, not good multicultural marketing). Maybe both.
Ask the general agency to provide proof of the quality of the work they say they’ll deliver. Have they done multicultural work before? Are they a leader in their space? Is that their specialty? Would they know good multicultural work if they saw it? Don’t discount the importance of quality work in trying economic times. Remember that alienating a multicultural audience will cost you dearly and for the long term.
Don’t cut the multicultural agencies out of the conversation. Share the issues openly with all stakeholders and get everyone working together to arrive at a workable solution that achieves your cost reduction goals without gutting any one area in your marketing plan. If you have to reduce overall compensation costs by X%, see how the whole team can share the burden. (Perhaps efficiencies can be achieved by consolidations in production or by sharing resources, instead of reducing intellectual capital).

All this notwithstanding, should you choose to follow the silly notion of moving business from agency to agency, do the right thing and offer the option to everyone. That is, if you’re considering moving your multicultural work to the general market agency, also entertain the option of bringing your general market work to the multicultural shop.

It wouldn’t surprise me to see the multicultural agency, experienced in working with constrained budgets and compensation, being the best option for the overall account. They can provide the same assurances of quality on the general market work as the general agencies do on the multicultural work, and they will certainly do it for less.

Account Management or Client Service

Alberto Ferrer — Wed, 01 Aug 2007 23:04:58 +0000

You say “toh-MAY-toh” and I say “toh-MAH-toh,” the song exclaims, suggesting that it’s the same thing simply pronounced a little differently in each instance. Does a similar dynamic apply in the ongoing debate of Account Management versus Client Service? As I understand it, this is not a matter of simple semantics. It is a deeper discussion about what we do as agency folks.

Client Service is the older of the two terms and has been used for generations. I was part of the Client Service department when I started in the agency business many years ago. The term is easy to understand (“it’s the people who work with the clients”) and tried and true. It focuses on the client.

At the same time, there are those who see a more negative meaning here. They feel that the term connotes subservience (the “service” part of the term makes many an account person bristle) and a “jump!” “how high?” mentality that is not the reality in business today. They believe that today account managers lead client businesses and thus they need a term that more accurately reflects that: Account Management.

Account Management is a newer term that focuses on the account versus the client. It drives home the point that account people manage the client business rather than servicing anyone or anything. It’s perhaps a stronger term.

However, some people believe the term suggests that it’s taking the people out of the equation and that account managers are all about the business and not about the softer side. They feel the term connotes an arrogance about the account manager (we know what’s important, the account) versus giving clients their due.

And of course there’s the hybrid Account Service term, which perhaps means that we provide service to an account. Not loving that one.

To me, it really isn’t about the name. It’s about what’s behind it. In my opinion, we need a little account management and a little client service. My view, and what I tell my teams, is that we need to do both.

We need to do Account Management. That is, we need to manage the client’s business. We need to manage their account, get the work done, lead the process, etc. That’s the nuts and bolts part.

We also need to do Client Service. At the end of the day, agencies are in the service business where clients pay the bills. And by clients I mean human beings. These are the folks with whom we interact every day, the folks who approve (or not) our briefs, our work, and our fees. We need to provide service to them, to be a resource to them, to be nice and engaging to them, to be accommodating and sympathetic. You get the point.

Clients hire and fire agencies both for the quality of the work and for the human element of the relationship (among other factors). Therefore, having a strong relationship with both the account (the business) and the client (the people) is critical.

The best work done by arrogant jerks will get you fired just as crappy work done by the nicest most accommodating people in the world will. The challenge is balancing both in a way that the client feels listened to, understood, and valued as a person and contributing member of the team, while managing the business as passionately as if it were your own.

Agency Compensation Based on Value Generated?

Alberto Ferrer — Mon, 02 Jul 2007 22:32:18 +0000

We’ve all heard the discussion about agency compensation issues and how the current model of basing agency charges on costs (hours-based fees) has several problems. For clients, paying fees based on how much effort an agency expends falls short of aligning the interests of the client with those of the agency. For agencies, getting compensated based on hours does not take into account the actual value that it may create for the client.

An article that appeared in the 06/11/07 issue of Advertising Age, authors Tim Williams and Ronald Baker call for a new value-based compensation model, arguing that the current model is not in the best interest of either the agency or the client.

The article, which is available here (heads up: subscription may be required), provides some interesting findings from a research study the authors conducted on behalf of the ANA and the AAAA. One of those is a pair of lists of how each group (agencies and clients) believes the other creates value.

How Marketers Believe Agencies Create Value

Working in a collaborative way with the client by creating an environment of mutual respect.
Ensuring that agency functions are integrated and agency divisions collaborate on behalf of the client.
Developing and producing creative ideas that are fresh and unexpected.
Developing ideas and programs that can be integrated into multiple communications channels.
Developing solutions that go beyond traditional approaches and reach consumers in new ways.

How Agencies Believe Marketers Create Value

Giving the agency the necessary time and resources to do its best work.
Working with the agency in a collaborative manner that puts a premium on mutual respect.
Identifying and articulating the outcomes the agency’s work is expected to produce.
Providing clear, complete direction to the agency.
Providing constructive, timely feedback to the agency.

Those categories were chosen from 24 possible areas given by the researchers.

The authors state that clients are looking for “campaign integration, media [channel] neutrality, creative innovation, and ‘holistic communication and marketing plans independent of any agency discipline.’” That’s interesting, sure, but hardly news. Anyone who’s been working with clients for some time can recite those client desires more or less verbatim. That’s why we’re all here (to deliver that for clients), isn’t it?

The article later discusses what agencies are looking for from clients (clear direction in regards to timing, strategy, and objectives, as well as being engaged early as an extension of the client team). Again, nothing new here. But what about agency compensation?

The article, while informative and interesting, failed to address the crux of the matter. We can all complain about the current compensation model we use, but until there is a better way to do it, we’ll have to stick with what we have.

In the area of compensation, the authors discuss the necessary shift from efficiency to effectiveness as the focus of new value-based compensation models. As they put it, “a compulsion to increase efficiency—doing things right—reduces the firm’s effectiveness at doing the right things.”

Still, Williams and Baker fall short of telling us how the new value-based model should be, should work, should be structured. They mention a few general and broad comments that describe such a model, but they don’t materially advance the creation of a new agency compensation paradigm.

Newer agencies (for example, Anomaly) are developing new ways to get paid. Some take a small stake in the client company (the ultimate in aligning your interests with those of your client). Some others get a percentage of business generated from their work (ditto as above). But one usually hears of these when the work being done is far from traditional (designing a new mascot for the brand, for example, that gets turned into a toy that is sold at retail). It’s certainly not happening in the more traditional world of marketing communications, at least not yet. For example, McCann-Erickson did not get any incremental compensation for the millions of dollars in sales that the “easy button” office push button toy generated for client Office Depot.

What is the answer? How do we align our interests with those of our clients? How do we get compensated for the value we create? And do we want to leave the relative safety of hours-based compensation with its ease-of-use and predictability benefits to shoot for the higher-risk and higher-reward of value-based compensation? What do you think?