Is the agency model broken?

We hope that you will find the following article to be helpful. If, after reading, you would like to explore our thought leadership on a deeper level, please contact Jane Bedford at bedford@bedfordgroupconsulting.com.

The following article was featured in PRWeek in October of 2015 by Rose Gordon Sala with insights from Jane Bedford

The headlines earlier this year announcing $30 billion worth of business suddenly up for media review could not have been more depressing for the communications industry.

The Wall Street Journal quoted an analyst calling it a “tsunami” of reviews and a tech site dubbed it the “new normal.” Others were more playful, preferring: “reviewmaggedon.” Even the industry’s most battle-tested operatives were stunned. Omnicom’s John Wren and WPP’s Martin Sorrell both labeled the wave of account reviews “unprecedented.”

Advertising stocks sagged midsummer as nervous investors put the screws in further. Complicating matters for media agencies in particular was a renewed debate over rebates and kickbacks between agencies and sellers of media inventory, prompting a respected analyst, Brian Wieser of Pivotal Research, to urge investors to ditch the advertising sector at one point.

Clients say mounting growth pressures, combined with a fast-changing consumer and media landscape have forced their hands, making new agency partners essential to success.

“Just look at the market swings and you see what volatility there is,” says Jane Bedford, founder and principal at Atlanta-based management consultancy The Bedford Group. “Our clients are driven by the belief that they can be a higher performing institution. They are pressured to tell a harder story than before.”

‘Inconsistent service’
Marketing firms, natural storytellers, appear poised to remake themselves once again.

The head of marketing at Sherwin-Williams’ diversified brands division had plenty of agency support, more than seven firms, for a portfolio of brands that includes household names like Thompson’s WaterSeal and Dutch Boy. But he wasn’t happy.

“Chasing that many agencies and understanding what they’re doing, what value they’re providing and staying close to their work, was very cumbersome to manage,” says Ian Gresham, SVP of marketing for the 40-plus brands that make up the division at Sherwin-Williams. “I want to have good visibility into each of those brands. We had PR agencies, digital and traditional agencies for different brands. The service we were getting from agencies was inconsistent.”

An RFP led to consolidation under one firm, Deutsch New York, late last year. The agency handles all creative and media buying, and serves as the point of contact for Gresham for any other marcomms work, including the marketer’s PR firm, DeVries Global.

Consolidating can offer a clearer view into a complicated marketplace and create efficiencies at a time of intense cost-cutting pressures in myriad industries. So after years of tacking on agency after agency, many marketers are once again trimming rosters.

“It’s not that marketers are trying to cut the legs off agencies,” says Bedford, whose agency led the Sherwin-Williams search. “What they’re trying to do is find a way to be smarter in managing their agencies.”

In the media buying space, arguably the sector hit hardest by that “tsunami” in mid-2015, consolidation offers clients another advantage. Now when the Cleveland-based paint purveyor enters the TV upfronts, or any media buying space, it speaks with a more unified voice and bigger wallet, giving the company another way to find efficiencies, command better rates, and improve its ad strategy.

“We were spending in a very fragmented way and not getting a lot of leverage,” says Gresham. “Now we come to the table as one media buyer, not as 10.”

An internal reorganization to centralize PR at General Mills led it to consolidate a roster of about a dozen communications agencies working on an “ad-hoc” basis down to two AORs last spring: Ketchum and Fast Horse.

“We were in a good position to reassess and make it more of a central part of our strategy,” explains Kirstie Foster, director of brand and corporate communications at General Mills. She says an AOR relationship made the most sense going forward.

“We want them to come in and get to know our consumers, what resonates with them and what doesn’t. That takes time,” Foster says. “Having consistent agency partners gains efficiencies when you don’t have partners who have to get up to speed on your business.”

Efficiency now key
The maker of Cheerios and Yoplait is undergoing a companywide cost-cutting initiative, like many of its competitors in the CPG space. And while “efficiency,” or time and money matters everywhere, including in agency selection – and the statements issued by numerous marketers in recent reviews peppered by that word, including P&G, Citi, Kraft, Mondelez and others, show it does – clients are willing to spend with firms whom they often view as relentless idea generators and knowledgeable guides to a fragmented media landscape. But increasingly that agency must work harder to impress – and in new ways.

Foster says Fast Horse’s knack for integration with creative firms and a smart social media execution by Ketchum caught her attention.

“We launch 150 products every year. It’s not always going to be through traditional media,” she notes. “That takes a new way of thinking.”

That ability to work across disciplines, if not in them, is vital today, say marketers.

“They have to be experts at whatever their primary discipline is, but clients are looking for a level of agility where you can do multiple things,” says Kelli Ramey, VP of advertising at H&R Block, who oversees its work with AOR Fallon and digital partners Razorfish and 360i. “When you have partners that can work very well together, it simplifies things on our end.”

And, clients say firms must learn to measure and think in business terms and deliver results in a unified way.

“My job is to put together creative, but I have to draw results from it,” continues Ramey. “If we’re not getting the results, certainly we would want to review options.”

“Twenty years ago the CMO’s problem was that their advertising wasn’t good enough, but today it might be the stock price, profit, or revenue, and they want to have conversations with people who can help them solve those problems,” explains Steve Boehler, founding partner of Mercer Island Group, a management consulting group that runs agency reviews and assessments. “More reviews and consolidation are going to continue because of the underlining theme of agencies not meeting the CMO’s needs.”

Revamping the system
Not everyone continues to believe the AOR model works best. GE’s Jennifer Erickson, senior director of external communications, calls agencies “core to furthering our commercial strategy through comms and marketing,” and yet the organization keeps much of its messaging and brand storytelling in house and “close to our chest.”

“It’s key to have best-in-class partner agencies that work together in propelling our brand,” notes Erickson, who works with Edelman, The OutCast Agency, and Group SJR, among others. “We believe the AOR model no longer works in today’s environment – we need multiple voices.”

Reviews are a way of life at any agency, but the recent upheaval has put them on notice, particularly in the media sector where the digital evolution is not only once again upending services, but business models, too.

“The last 10 years have been very turbulent for the agency industry,” says Kerry Kielb, senior consultant at The Bedford Group. “Obviously media has taken the biggest hit, and a lot of it is impacted by programmatic. It’s a lack of trust and an increase of audits. Sometimes the agencies don’t even know where the money is going.”

Now, they suspect that figure is even lower. The downward trend is impacted by a number of factors, including the economy, but ultimately by a dissatisfaction
with the marketing services being provided.

“What’s always behind reviews is the expectation that there’s something better out there and more efficient,” explains Gail Heimann, president at Weber Shandwick.

But with the advent of digital marketing, which seems to introduce a new tool, a different shiny social hub every day, that pace may have sped up the reviews.

“There are new players, technologies, and distributors out there. It’s a brave new world, and people often think, ‘maybe I should get into it,’” she continues.
“‘Maybe there’s a holy grail that I could find in this brave new landscape.’”

Bedford says her team looks for firms that are “naturals for horizontal expansion” across disciplines, which is often spotted at agencies that understand how to leverage data and harness loyalty and the sales channel.

And that may be the holy grail for marketers, an ability to work seamlessly across disciplines and to flex up and down as need be. It also seems to have led agencies to try to be all things to every marketer, with everyone claiming expertise in what was once the domain of another.

“Everyone has rapidly expanded their capabilities,” adds Gareth Jones, chief brand and content officer at DigitasLBi. “There’s a soup of confusion and lack of differentiation, and that is what’s prompting reviews.”

Dominic Proctor, president of GroupM, which houses WPP’s media buying firms concurs.

“There’s so much confusion and noise out there that clients want to know if they’re spending the right amount of money in the right kind of ways,” he notes. “There’s a lot of questioning going on.”

And the “questioning” spans disciplines.

“Clients want to know how you fit into their mix. Are you collaborative? Do you have experience working across disciplines?” says Barri Rafferty, senior partner and CEO of Ketchum North America.

But that blurry “soup” of services is also a boon for marketers in other ways.

“There seems to be no specialized agency anymore,” notes Helen Limpitlaw, director of brand communications at Southwest Airlines. “It’s terrific from the client perspective. You’ve kind of got an all-you-can-eat buffet, and you get great work from it.”

Southwest isn’t alone in sensing new possibilities. Coca-Cola made waves when it invited a creative agency – WPP’s Ogilvy & Mather – to join its media account review earlier this year. A more traditional media firm, UM, part of IPG Mediabrands, ultimately won the review, but the option was left open for creative agencies to work on media planning and buying going forward.

That blurring can favor agencies, too, such as Grey where the advertising shop’s PR and activation division has “almost doubled in size year on year” in the last four years, says Claudia Strauss, CEO of the division.

“The rate of speed of change is huge,” she adds, making people who can identify “a blurry opportunity and know what it means” valuable to firms. In other words: “You need a lot more magical unicorns,” Strauss explains. And proving you are one of those “magical unicorns” at an agency is getting to be more difficult.

“There’s less margin for error and higher value placed on speed to market pace,” says Matt Jarvis, partner and chief strategy officer at 72andSunny, which boasts clients including Google and Carl’s Jr.

Pressure to perform
When parent company MDC Partners asks Jarvis which of his clients “is a threat” to walk in the coming year, he says his answer is always “all of them.”

“We are paid to perform,” he says. “It keeps us hungry and helps push us forward.”

Those firms who don’t manage up, demonstrating results, are more routinely shown the door – and faster. “The onus for some time now has been on agencies or you’ll just get to procurement,” says DigitasLBi’s Jones.

“What we can do is further demonstrate what we bring to the client beyond the straight buying metrics, beyond strict CPMs,” adds Proctor. “If we can’t do that, we will encourage the market to go into a price-driven spiral.”

Some firms such as Golin, which revamped its company structure a few years ago, are even tweaking the billing model, shifting from the entrenched hourly rate. “It
became a priority for us this year,” says CEO Fred Cook. “We need to start selling our ideas, not just our hours.”

Bedford predicts a settling down soon – if agencies can prove they really understand this new world order. “There are firms that will get they are selling building businesses,” she says, “not just words and pictures.”

Read more at www.prweek.com

About The Bedford Group

The Bedford Group is an Atlanta based Marketing Management Consulting firm that has been in operation since 1986. It has built its reputation on marketing organization support, agency search and relationship management and strategic marketing consulting.  Unlike traditional advertising consultants, The Bedford Group looks beyond traditional marketing disciplines to solve complex, enterprise-wide issues for efficient resource management and improving marketing ROI.

CONTACT:
Kerry Kielb
(404) 237-4565
kkielb@bedfordgroupconsulting.com