This bylined article appeared in AdWeek.The Trouble With Agencies
April 28, 2008
-By Andy Fletcher
The last time I expressed my views on our industry to our industry was at the 2006 American Association of Advertising Agencies' Management Conference. In my speech, entitled "The 5 Percent Solution," I encouraged holding companies to allow their agencies to retain one-fourth of their individual operating profit for growth through investment, incentive or reward. My feeling was and remains we are unable to get bigger if we are unable to get better -- and that requires money.
I'm sure you'll be shocked to learn that nothing happened. Nothing changed. Not with my holding company or anyone else's that I am aware of. A hindsight reality check reveals the near impossibility of that goal. Was a guy who runs a midsize shop in Atlanta really going to convince a half-dozen companies that control our entire industry to voluntarily sacrifice a quarter of their short-term profits to invest in the agencies that actually earned it? Please.
So, I have launched a new cause: the agency business model.
I believe there are just three things wrong with being an agency today: 1) How we are selected, 2) what we are asked to do, and 3) how we are compensated. Other than that, sheer perfection. I am still a midsize agency guy, so I accept I will never change the industry. I'll settle for changing the way I do business.
Selection
Do you know why marketers think agencies are interchangeable? All of us tell all of them that each of us is perfectly qualified to do anything for anybody. If it doesn't matter who the client is, it must not matter who the agency is. RFPs, cattle calls and credentials presentations have become ill-fated attempts to merely tell us apart. It has become so difficult you need "trained professionals" -- search firms -- to eliminate those agencies that refuse to eliminate themselves. They have leveled the playing field and eliminated almost all of us except a chosen few that apparently are perfect for everyone.
There are clients who still bear the burden of finding their own agency. Legions of agencies will withstand countless review rounds, and provide broad recommendations and multiple creative executions. None of this enhances their stature nor reverses a rapidly shrinking tenure in agency-client relationships. Our agency no longer participates in these reviews. The odds of success are too low, the costs too great and the potential relationship too short.
Assignment
Countless companies will decide to hire a new agency this year. They will determine their lack of market success is a direct result of their advertising. After all, their pricing, product line, R&D, channel partners, quality assurance or customer service is beyond the realm of marketing. While I couldn't know what real problem is prohibiting their success, I am almost certain it is not their advertising. And if it is not the problem, it is most surely not the solution. Yet agencies will jump at the chance to create an even funnier way to say the exact same thing that the last three failed agencies did.
We believe in one empirical truth. It doesn't matter how well you say the wrong thing. Our new clients must allow us to at least confirm "what" should be said and not merely focus on how to say it. We now decline client opportunities when strategy is predetermined prior to engaging our agency. Too many companies are going to market with a bad message, not bad creative. That all-important shift to alternative media will merely help you find an elusive customer who still doesn't care about your offer.
Compensation
Why is it that companies want to pay less for success than they did for failure? It's because they have to pay the same for failure as they do for success. And when you fire your agency an average of every three years, failure seems to be a safe bet. Agencies should not be paid based on how many hours they work or on how much of their clients' money they spend. And giving away your thinking for the right to get paid to execute it is backwards and silly. Our new compensation is simple. We have to start with strategy and they have to pay for it. The client then owns the strategy and can put it in review (see above). If they want us to execute that strategy, we will place at risk all of our execution compensation. If the client doesn't achieve greater results than with its previous agency, we don't get paid any more money. If they achieve a little more, we get paid a little more. But if they win big, so should we.
There is no such thing as a partnership with your client. One partner never actually pays another and clients don't "buy their agencies out" of their relationship. We can, however, share their risk and invest in their success.
Andy Fletcher is president and CEO of Fletcher Martin in Atlanta.
10 comments:
How would you suggest charging clients for the strategy? Is it a one time fee whether they like the plan or not? Or do they only pay if they agree to move forward?
The problem, as I see it, is reconciling the subjectivity that's inherent in the way ad and PR-related messages are received with how people should be paid. It amazes me that some still call "pay for performance" PR revolutionary, when by most accounts, all that does it cheapen the profession and strip away the value of a PR pro's expertise, counsel and planning. By that I mean, if a company has a bad idea, doesn't follow through on an agency's recommendations on a plan, etc., then there's no amount of genius that would save the campaign.
I don't see top-tier law firms going around and promoting pay for performance, so I'm not sure why so many are dropping all over ourselves to call this revolutionary.
--Cyrus
Thanks for sharing this! I wholeheartedly agree with Andy's comment that "It doesn't matter how well you say the wrong thing."
The most "strategic" PR agencies have always focused on getting a seat at the management table, to have greater input into the strategy development process. If, as communications pros, we start with the business strategy and work down through comms strategy, the comms messages are more likely to be aligned with business goals (and less likely to be wrong).
Today, I still think it’s more realistic for that seat to be given to a PR professional than an ad professional. I have no doubt that there are ad professionals out there that can provide strategic input to business and comms planning – but I don’t see many clients giving ad agencies that opportunity.
No agency should execute on a strategy that doesn’t make sense. But I also think it’s our job as communicators to counsel clients on why a strategy or messaging won’t lead to the results they expect. I think it benefits both the ad and PR professions when we work together to provide counsel on strategy – most of us are moving toward integrated communications anyway, and this model supports integration of all communications functions from strategy to tactics, across all channels of communication.
Amy
Very interesting perspective. I believe the new model should allow PR minded experts to lead Ad agency activities. Of course, this is coming from someone with a PR background. :-)
This is a GREAT article! Every agency owner and client should read it.
Does anyone know of other ad agencies who are doing this? AdWeek should do a follow up on how many clients adopt this model and what kind of return Andy gets on it.
RFPs are the biggest waste of time and money. Any company judging agencies by a cut-and-paste dog and pony show gets what they deserve. Here's a good blog post from The Agency Blog on the top reasons to hate RFPs.
http://www.theagencyblog.com/2007/10/10-reasons-why-.html
Good luck to Andy and his team!
But, how difficult was it to change the entire agency model? And, Andy sais "new clients" must us to at least confirm "what" should be said and not merely focus on how to say it. What about existing clients? How are you reconciling that?
Hi Andy,
It all sounds quite interesting and of coure new to my way of thinking. change can and will take place but it needs people to realise why they should follow your choice... I do beleive you can make a difference even as the little guy, you have a voice and it will be heard if you shout in the right places, this is a start - so good luck and keep posting.
What Fletcher is ultimately saying is that agencies tend to "prescribe" messaging as opposed to developing those conversations with the consumer. There really is no "right" message; affinities, interests and engagement all constantly change as each brand evolves, and for different skews.
As Amy points out, it really is key that all types of communications divisions or firms are given direct access to senior management so that strategies are developed and executed properly. Hence the ongoing debate over creative vs. media, and the great need for those disciplines to synergize.
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