Navigating the ad agency minefield

In Confessions of an Advertising Man, David Ogilvy quoted John Wanamaker as saying, “Half the money I spend on advertising is wasted, and the trouble is, I don’t know which half.”

Like it or not, marketers today have to defend brands and build franchises in an extremely tough, cautious and cynical marketplace — and advertising has a critical role to play.

It stands to reason, therefore, that choosing the right advertising agency, and working with it in the most productive way, has never been more important. That is unless, of course, you decide to take the agency role, including media, in-house. Such an initiative is certainly not without precedent, and in some cases it has been shown to cut costs by as much as 20 per cent. Nonetheless, the strategy is at odds with contemporary business trends, which have seen corporations shed non-core business so as to enable them to concentrate on their key areas of expertise.

Over any length of time, companies have generally found that their bottom line has been adversely affected, rather than improved, by the acquisition of satellite industries — such as agency creative and media — in which they have no professional expertise.

Furthermore, before making a decision with such potentially far-reaching ramifications as taking on the agency role, businesses need to seriously question whether the earning of media commission and the cancelling out of a service fee are going to adequately fund the move.

Books have been written about how to find the right agency, but when all is said and done the advice of ad guru David Ogilvy is probably still the best:

“Start by leafing through some magazines and watch television for three evenings. Tear out and make a list of ads and commercials you enjoy, and find out which agencies did them.

“Meet the head of each agency and his (or her) creative director. Make sure the chemistry between you and them is good. But don’t ask to meet the working-level people who would be assigned to your account. You may find them congenial, but have no way of judging their talent. Or you might find them repulsive — some of the most talented people are. Pick the agency whose campaigns interest you the most.”

Generally speaking, advertisers with smaller budgets are better off with smaller agencies. Because big agencies have big overheads, it is in their interest to make a big splash on television and quickly pocket the commission, rather than tie up staff over an extended period on, say, a $2-3 million account.

Of course, a short-term, high-impact television campaign might well be the right strategy. But although big agencies will deny it — and in some cases quite justifiably — the structure of small- to medium-sized shops is usually more conducive to the needs of clients with limited budgets. Big agencies still tend to think in terms of main media and are not particularly interested in finding other solutions, because that’s how they generate the majority of their revenue. And besides, with a smaller agency you will almost always get to deal with the principals.

It may be that no relationship can last forever, but the ad industry has always been bedevilled with a high client divorce rate. Bed-hopping is endemic, but whether it’s a case of marketers conducting witch-hunts in the pursuit of scapegoats, or agencies copping a long overdue comeuppance for creatively indulgent but cash-register-ineffective campaigns, is open to question.

The onus, though, is on marketers to place their accounts with agencies that are going to spend their money — frequently millions of dollars every year — most productively. You will not get value for money if the relationship is fatally flawed before you even start, and founders soon afterwards.

So, what sized agency would you prefer? Do you need interstate or even international branch offices or affiliations? What potential is there for account conflict? What type of specialist services are you going to require: strategy and planning, research, media-buying clout, outdoor, print, radio, television, internet, production? Exactly what types of experience are you looking for in the agency’s personnel, and from which product/service categories should the bulk of that experience ideally derive? Remember, at the end of every day the sum total of any agency gets in the lift and goes home.

Clients, the saying goes, get the advertising they deserve. Communication in any relationship is vital, and to avoid an enormous amount of debate and argument after the event, clients owe it to themselves to write a thorough brief to the agency.

You cannot enter into a marriage by thinking about divorce, so a fair amount of trust is required. This means giving the agency the information it needs — however competitor-sensitive — to understand your business. In order to create strategically sound campaigns, an agency needs to be embraced as a business partner. It also requires a clear-cut channel of reporting and authority, not a confusing hierarchy in which layers of management make conflicting decisions.

Be clear about your company’s competitive positioning, the reasons you want to advertise, what it needs to achieve and how you are going to judge it.

Of particular importance are the terms of business you want. Historically, the usual rate has been a 7.5 per cent service fee and 10 per cent commission on media expenditure. Special projects have always been subject to negotiation, but increasingly so too are the service fee and commission. Although most agencies still try to hold to the standard rates, it is worth noting that those which don’t, and which are prepared to cut down on their service fee, will almost invariably have to cut down on the service they can afford to provide.

The problem with performance-based remuneration is that it is exceedingly difficult to isolate any single component of a marketing strategy and determine whether it is the factor to which any increase in sales can be attributed. On the other hand, the traditional remuneration structure doesn’t make much sense when, for example, the creative work has already been done but the client decides to extend the campaign by spending more on media. The agency doesn’t have to do anything more, so why should it receive full commission?

The answer may lie in sliding scales of remuneration that have nothing to do with billings, but regardless of the method you agree upon, the agency must be totally accountable for what it does.

Former Toyota marketing supremo, Bob Miller, worked on a principle of rewarding achievers and over-rewarding over-achievers. There is no reason why this philosophy cannot be extended to advertising, thereby shifting the remuneration focus from a cost-based to contribution-based structure. But if the motivation is simply to sap agency revenue you will soon finish up with high agency turnover, low productivity and no campaign cohesion.

Central to the idea of accountability is measurability, and although in situations other than direct response it can be difficult, it is nonetheless vital that some form of performance measurement be put in place.

Alarmingly, many marketers do not have a formal review document — one which specifically sets out needs and against which the agency’s performance can be judged and its management advised of areas needing improvement.

The evaluation process needs to be structured, above all objective, and formally conducted at least every six months. It should, of course, also happen day-to-day. Sitting around a table and assessing an agency’s strategies and creative is one thing, but to be truly effective an agency’s responsibility should not end when the commercial goes to air.

To produce effective communication, agencies need to become involved in every aspect of your business, and as such you need to look closely at how well your agency is managing the entire process of making that communication happen. This inevitably comes back to the ability of the agency to establish an incisive understanding of your business and industry, and to build on it.

It should go without saying that marketers need to do the same with agencies and the advertising industry.

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