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Marketing MathTM

Category Archives: Advertising Agencies

Scam Ads? You’ve Got to Be Kidding.

01 Apr

scam adsMany of you are by now familiar with the recent scandal which has embroiled Ford and JWT India with regard to a series of “Scam Ads” for the Ford Figo.  The ads were created for entry into an awards show and were accompanied by tear sheets and a client letter allegedly vouching for their authenticity.  Much has been made about the actions taken by Ford which led to the dismissal of two JWT creative representatives and a member of the client’s marketing team for the offensive nature of the scam ads.

What is interesting are the revelations which have come to light regarding these faux ads and the extent to which agencies around the globe invest the time and money in creating these ads for the sole purpose of demonstrating their creative prowess.  One might ask; “Are awards really that important to the agency community?”  So much so that their actual work on a client’s behalf is deemed to be too pedestrian to be entered into competition?  In commenting on this practice to Ad Age, Susan Credle, Chief Creative Officer of Leo Burnett observed; “Sometimes, we (the industry) are so consumed with winning awards that we forget how public our work is.”

Much of the feedback has rightly been on the potential negative impact these ads can have on a brand when they inadvertently become public, as in the case of Ford.  But there is another aspect to this practice beyond who bears the risk and it is related to the issue of who bears the expense of this non-sensical pursuit of creative recognition.   The answer to this question should come as no surprise to anyone… the advertiser.  Interestingly, according to Nancy Hill, President and CEO of the 4A’s; “Clients don’t know that this happening.”

Not only is there the time-of-staff spent on creating these ads, the production costs and potentially the award show entry fees and even travel to awards shows such as Cannes (if not in direct expenses, overhead allocation) but the opportunity cost related to the diversion of client-paid agency resources being diverted away from brand building and demand generation advertising support. 

Given all of the good work done by agencies and advertisers alike, it is a shame that a sophomoric practice such as the creation of “scam ads” exists and serves to detract from the perceived level of professionalism attributed to the entire advertising industry. As the old proverb goes;

Don’t do what you’ll have to find an excuse for.”  

What can be done?  The Ford – JWT firings of those responsible for the Figo ads are one thing, others have advocated for creative award show reforms such as banning faux ads from entry combined with a more thorough vetting process.  From our experience, advertisers who employ contract compliance auditing, with detailed fee/ time-of-staff monitoring and expense reconciliation can further enhance the controls necessary to insure that agency behavior and financial stewardship decisions are consistent with expectations. 

The Value of Consistency in Building Brands

11 Mar

brandingMarketing pundits the world over have long championed the role of consistency when it comes to building great brands.  When citing examples, we frequently here about creative expressions of that consistency ranging from Budweiser and the Clydesdales to Nike and their “Just Do It” slogan to McDonald’s and their “Golden Arches” or Coca Cola’s iconic red can. 

Rarely do we tout the generation’s long relationships between advertiser and agency which have contributed mightily to building so many of today’s top brands.  Chevrolet and Campbell-Ewald, Ford and J. Walter Thompson, Exxon Oil and McCann, Kellogg’s and Leo Burnett, Met Life and Young & Rubicam or Unilever and Lowe + Partners are but some of the examples of long-term collaborations.  And yet, sadly, even some of these unions are no more.

Great advertising is the result of proven methodologies and sound processes, which guide talented professionals steeped in brand knowledge and keenly aware of the needs and desires of the brand’s target audience to produce compelling work.  This doesn’t happen overnight.  Great advertising requires a commitment between an advertiser and their agency partners, a culture which values brand building and the vision to be able to balance that with the need to generate sales and build share today.  Importantly, it requires a resource investment on the part of both client and agency and a deep level of respect between those organizations which allows for a robust, long-term relationship in which both parties can challenge and feed off of one another.

So why then has the length of Client/ Agency relationships shrunk so dramatically over the course of the last thirty-years?  Why does it seem that when an advertiser changes CMO’s that an agency review is but a few short months behind?  Why do so few corporate CEO’s take the time to get to know their organization’s advertising agency partners? 

An advertiser’s agency network, which can number dozens of agencies across disciplines, geographies and brands, is a corporate asset which is at the heart of the organization’s ability to create near-term demand generation and long-term brand value.  Thus, the agencies which comprise this network should be afforded the requisite level of respect and attention which a valued strategic partner would warrant. 

Advertising agencies are not the property of, nor the sole purview of a CMO.  This is not to diminish the importance of a CMO’s agency stewardship responsibilities or their contribution to deftly managing the outputs of an organization’s agency network.  It is the realization that enduring, effective collaborations must be anchored in a culture that values long-term relationships.

At its low in 2006, the average time-in-position of a CMO was 23.2 months according to research conducted by executive recruiting firm Spencer Stuart.  The good news is that CMO tenure has climbed to 43.0 months in 2011.  However, 3 ½ years is but a blink of an eye in the context of some of the Client/ Agency relationships referenced earlier.

It is a truism that “great clients, get great work” when it comes to advertising.  So what makes a “great” client?  It begins with an organization that respects their ad agency and the agency personnel which work on their business and values the work that is done on behalf of their brands.  This is augmented by the willingness to integrate the agency into the broader marketing team and to work seamlessly as one unit, while understanding the division of roles and responsibilities.  Importantly, it involves a commitment to the relationship.  Agency CEO’s are much more willing to invest in adding resources, developing personnel and building infrastructure to elevate the caliber of work on a client business when they can do so with a long-term perspective and the opportunity for a return.

David Ogilvy once shared his perspective on the role of his agency and the investment required to implement his vision in a memo to his board of directors in 1978:

“I have a new metaphor. Great hospitals do two things: they look after patients, and they teach young doctors.  Ogilvy & Mather does two things: we look after clients, and we teach young advertising people.  Ogilvy & Mather is the teaching hospital of the advertising world.  And, as such, to be respected above all other agencies.”

Needless to say there are a myriad of processes, controls and performance monitoring tools which come in to play to maintain focus and to incent all parties to engage in the proper behavior and motivate each member of the team to achieving in-market success.  These include everything from a properly structured letter-of-agreement, a fair remuneration system which rewards superior performance, annual 360° relationship reviews, proper client briefing processes, independent performance assessments and access to key decision makers within both the Client and Agency organizations.

It is safe to say that with the passage of time and repetition, the ability to improve these processes and tools… and their outputs, becomes infinitely more doable than when changing agencies every few years.  Perhaps Leo Burnett had it right when he intoned:

 “I have learned that you can’t have good advertising without a good client, that you can’t keep a good client without good advertising, and no client will ever buy better advertising than he understands or has an appetite for.”

Agency Remuneration Poll

05 Mar

How Do Agencies Do It?

13 Feb

ad agency profitsEarlier this month the Japanese agency holding company Dentsu announced quarterly financial results.  For the nine-months ending December 31, 2012 revenues were up 4.5% and net income was up 48.1% year-over-year.  Impressive?  Certainly, but not inconsistent with other players in the ad sector; WPP achieved a 43.3% increase in net income on a 7.4% revenue gain and Omnicom Group reported a percentage net income increase which was twice that of its revenue growth. 

A healthy advertising sector represents good news for clients and agencies alike.  Growing, profitable advertising agencies are able to invest in; infrastructure, personnel and research which ultimately allows them to better serve their clients.

There are two interesting observations with regard to the aforementioned agency financial reporting; 1) the recent results fit a pattern of extraordinary net income growth for the category, relative to revenues. 2) In a professional services business, the ability to generate net income growth of 2X to 10X that of revenue can only be achieved through a combination of significant expense reductions and or dramatic increases in direct margin.

Let’s be clear.  Like most other professional service providers whether in the financial, legal or consulting sectors, payroll makes up a disproportionately high percentage of an advertising agency’s expense base.  The publicly traded agency holding companies break out salary expense within their financial reports, allowing for a review of this cost center.  In a 2010 review of agency expense structures, Adweek reported that for the top five agency holding companies, expenses represented between 83% and 94% of revenues.  Salary expenses ranged between 59% and 72% of revenues.  The difference between the two is largely made up of real-estate and overhead costs.

Thus it is unlikely that agencies are relying on expense reduction as the primary source of net income accretion.  This would have a dramatic, negative impact on the caliber of work, service levels and ultimately, client retention and would be unsustainable over any prolonged period of time. Therefore margin growth would appear to be the primary contributor to the extraordinary net income gains.  But how you ask?  After all, industry compensation surveys consistently report that the average agency profit level identified within client/ agency agreements is 15%.   

Unfortunately the answer is clear, while not altogether transparent to advertisers.  A portion of the improved margin is tied to the provisioning of agency-owned services such as in-house studios, trading desks, poster specialists, barter firms and production companies. These services have tremendous margin upside for an agency because there is limited disclosure to the advertiser of the rates paid to the ultimate media seller and or the fees earned by the agency in the form of incremental commissions, spread between planned and purchased costs or volume rebates paid by the media.  Then there are sources of agency revenue which are seldom discussed and rarely audited which contribute to an agency’s bottom line profits.  These include but are not limited to AVBs, interest income from float, earned but un-processed discounts, rebates and no-charge media weight.

These practices are neither good, nor bad they simply represent the nature, albeit murky, of the global advertising industry today.  In the end, knowledge is power.  For example, the agencies that have been smart enough to vertically integrate and to leverage non-transparent income “opportunities” have generated solid bottom line performance. 

For advertisers the answer is simple, extend your knowledge of what is clearly a dynamic and often opaque marketplace: 

  1. Revisit your agency contracts to make sure that the requisite legal and financial controls have been incorporated to protect your interest. 
  2. Make sure that your agency contract extends to the parent company and any sister divisions which may be engaged as part of your agency’s service offering.   
  3. Examine your agency performance evaluation process and remuneration methodology to ensure that you are incenting the behavior and outcomes which you desire.
  4. Engage an independent auditor to assess your marketing service agencies contract compliance and performance to make sure that the requisite level of transparency is always maintained.

In the words of Sir Edward Coke, the renowned seventeenth-century English jurist;

Precaution is better than cure.”

If you’re interested in a second opinion of the soundness of your client/ agency agreement or would like to discuss the benefits of an agency contract compliance audit, contact Cliff Campeau, Principal at AARM via email at ccampeau@aarmusa.com.

When Agencies Become Resellers

26 Nov

agencies as resellersEase of access, streamlined delivery, cost-efficiency and enhanced profitability are all viable bi-products of vertical integration.  There is no arguing that businesses can realize value by minimizing their own costs, while simultaneously influencing market rates and their competitors’ costs. 

But what if that business is an advertising agency?  Viewed through the eyes of an agency holding company and its shareowners, vertical integration is quite intriguing.  On the other hand, from the perspective of the clients they serve, the concept raises some moral and fiduciary concerns that should be addressed in the context of a client-agency agreement.

Some would argue that it is never appropriate for an agency to become a reseller of goods and or services.  Others might suggest that as long as it allows the agency to deliver better-than-market values or efficiencies, why not, the client is the beneficiary.  Where one stands on the issue is no longer material.  Why?  The proverbial “train has left the station” as agency holding companies have continued to rely on vertical integration strategies as an important means of driving agency revenues and profits. 

From a client perspective, the phrase; Caveat Emptor or Buyer Beware comes to mind.  When an advertiser hires a full-service advertising agency, media, digital or creative services shop or a specialty agency, they do so with the implied understanding that the agency will always act in the client’s best interest.  Is this a realistic expectation for agency holding companies whose acquisition strategies have directly fed vertical integration strategies that often generate significant below-the-line revenue opportunities? 

Unfortunately, too often there is a lack of transparency regarding how an agency holding company deploys certain services, their ownership position in those resources and or the nature of the remuneration they receive from “owned” or independent sellers.  It’s been our experience, that transparency is the fundamental issue when it comes to advertisers’ rights and agencies’ fiduciary responsibilities.  What has been divulged can be discussed.  In turn, these discussions can form the basis for negotiating terms of use and responsibilities that can then be laid out in the client-agency agreement, providing the requisite levels of transparency and control to protect both parties.  In the words of the German philosopher Friedrich Nietzsche, who wrote critical texts on morality:

“There are no facts, only interpretations.”

Surprisingly, too few contracts address the reality of agency brand and holding company inter-connectedness or the mode and level of compensation derived from the reselling of goods and services.  At a minimum, the following protections should be built into a letter-of-agreement:

  1. Advertiser “right to audit” clause
  2. Extension of contract terms and obligations beyond the agency brand to include the holding company and its subsidiaries along with wholly and or jointly owned entities
  3. Clear language regarding agency remuneration, sources, amounts and limits
  4. Assertion of advertiser rights to its pro-rata share of any and all discounts, rebates or incentives earned by the agency on the advertiser’s behalf
  5. Require agency to fully-disclose any commitments made to parent/sibling agency resources or to sellers offering agency incentives beyond commission
  6. Assertion of intent with regard to the agency’s obligation to competitively bid all creative, production and or media services
  7. Require agency to fully-disclose when services covered as part of a retainer or commission structure are sub-contracted to a parent/sibling agency or third-party.  To protect an advertiser from paying an agency for services it is not performing or is only partially performing, clear contract language needs to be established to address the circumstances that either reduce agency remuneration or reallocate unearned funds to other areas.

It is important to bear in mind the extent to which agencies have extended their supply chain “reach” with their vertical integration efforts.  These include ownership in: in-house studios, barter firms, broadcast production companies, ad exchanges, ad networks, media rep firms, staffing firms, original content production companies, and the like.

From an advertiser’s perspective, the goal is to establish contractual responsibilities and controls that will shape agency behaviors and performance in a manner that insures a level of objectivity and resource investment desired by the client.  Simple.  Right?  Not so much.  In the words of M.C. Escher one of the most renowned graphic artists of the twentieth-century:

Are you really sure that a floor can’t also be a ceiling?”

Interested in learning more about the benefits of compliance auditing as a means of improving transparency into your marketing investment and control over the stewardship of those funds?  Contact Cliff Campeau, Principal at Advertising Audit & Risk Management at ccampeau@aarmusa.com for a complimentary consultation on the topic.

 

Do Performance Incentives Have a Place In Agency Remuneration Systems?

01 Oct

Agency Performance CompensationThe direct answer is “yes” bonus compensation systems can be a viable means of incenting proper resource allocation decisions, behavior and performance among an advertiser’s agency network… just as they are with driving employee performance within an organization.

Perhaps a better question is; “What type of outcomes should be recognized?”  While the answer to that important question will vary by advertiser, as Stephen Covey wisely stated:  “Begin with the end in mind.”

This is clearly the case in designing performance compensation systems for marketing services agencies.  Properly structured, incentive compensation systems are an excellent tool for aligning an advertiser’s agency network partners with the organization’s long-term business goals.  Yes, that’s right, long-term goals.  That is not to minimize the importance of the near-term sales and profit needs of the business and the role that marketing communications can play in successfully realizing those goals, but those outcomes should be the focus of the “base pay” portion of an agency remuneration system.  A solid base compensation program is a requisite first step toward insuring that an agency makes the appropriate investment in staffing, consumer research & analytics, market insights and efficiency enhancing technology tools necessary to achieve next quarter’s demand generation goals. 

Securing agency “buy-in” and participation in supporting the broader strategic objectives of the organization are essential for long-term brand health and market share success.  This is where we believe a performance compensation program should be focused.  Too often we have seen incentive programs focus on tactical or executional outcomes at the expense of tapping into an agency’s strategic reserves as a means of upping the value of their contribution to an organization’s long-term success. 

One of the keys to success in this area is to involve the top management of both the advertiser and the agency.  Bringing senior management together to discuss the client’s vision for success, business goals and the performance criteria that should be put in place to assess progress has a dual benefit.  One, it can elevate the perspective of the agency from “vendor” to “partner” status in the eyes of the client’s management team and gain their appreciation for the agency’s strategic capabilities.  Secondly, the opportunity for a broader level of “strategic engagement” with a client can be an incredibly compelling proposition for senior agency management.  In turn, the combination of the respect exhibited by the client for the agency’s ability to contribute and the corresponding financial reward tied to their mutual success will fuel an agency to make the desired resource investment.

When structuring the performance criteria for an incentive compensation program, the need to blend both quantitative and qualitative measures is very real.  While written in the context of organization’s incenting their employees to take a long-term perspective, we were intrigued with a recent article in the McKinsey Quarterly and its relevancy to this topic.  Entitled; “Encouraging Your People to Take the Long View” authors Gibbs, Heywood and Pettigrew surmised that “over time, traditional hard performance metrics can encourage short-term success at the expense of an organization’s long-term health.”  However, they recognized that both measuring and strengthening the “capabilities that help companies thrive over the long haul” can be challenging.  Their answer?  Structure an evaluation process that effectively assesses contributions to “corporate health” by embracing the following principles:

1) Root-Out Unhealthy Habits 

2) Prioritize Values

3) Keep it Simple

We would certainly echo the notion of “simplicity.”  Too often in our contract compliance auditing practice, we encounter incentive compensation systems that are confusing, overly complex and metric laden to the point that they may incent very little in the way of extraordinary performance.

Finally, we would recommend integrating an annual client-agency 360° evaluation process that involves the same senior managers that were party to constructing the terms of the performance compensation program.  The ability to mutually assess progress and to identify areas for refinement in the coming months can boost the chances for successfully achieving the client’s goals and for building the client-agency relationship. 

Interested in learning more about the role of performance compensation programs in agency remuneration systems?  Contact Cliff Campeau, Principal at Advertising Audit & Risk Management at ccampeau@aarmusa.com for a complimentary consultation. 

What’s Fueling Agency Holding Company Profit Growth?

27 Aug

agency holding company profitsAccording to a new report from Marketing Services Financial Intelligence, agency holding company profits for 2011 were up almost 30% on an 8% revenue increase.  The firm tracks publicly traded holding companies such as WPP, Omnicom, Interpublic, Havas, Publicis and Aegis along with some smaller organizations.  Of note, it was reported profit margins also rose for the group, “averaging 15%.”

Clearly, in spite of what has been a tough global economic climate, the agency holding companies continue to perform well from a financial perspective.  In addition, they have continued to expand their footprint via a robust level of merger and acquisition activity as well.

So what can we make of the stellar results?  Certainly, life is good for the holding companies.  Perhaps more intriguing is to ponder how a collective of holding companies managed to achieve a 4X multiple on profit growth vis-à-vis topline revenue.  On the surface it’s easy to understand, control expenses and boost the margin yield on incremental revenue.  However, the agency business falls into the “professional services” category.  Their primary expense is direct labor.  So as revenue increases, so do direct labor costs.  Right?  If not, how do you add business without expanding staffing coverage at the same rate?  Wouldn’t this negatively impact client service levels or the caliber of the work?

So if agency staffs are growing commensurate with revenues, what is the source of the extraordinary profit?  While the answer may be complex and varied there are certainly aspects of the agency holding company model that likely have contributed to this growth:

  • Increased utilization of agency owned resources/affiliates on existing client business ranging from in-house studios to trading desks, barter firms and production companies.
  • Improved employee utilization rates, whether in the form of associates working longer or devoting a higher percentage of their time to billable activity.
  • Non-transparent revenue growth on existing client business including but not limited to interest income associated with float, growth in agency volume bonification (AVB) revenues along with other vendor discounts and credits.

Let’s be clear.  There is nothing wrong with an agency holding company making money.  Further, there is nothing wrong with the aforementioned practices as a means of driving profitability.  The issue that advertisers should more clearly understand relates setting transparency standards and clear financial rules between themselves and the agency.

As a first step, to understand the current state of affairs and use it as a basis for improvement going forward, it is a best industry practice for the any advertiser to implement a detailed contract compliance audit.  This initial review boosts the advertiser’s understanding of the agency’s billing practices, and their basis, to assess time value of money treatment, fees vs. agency time-of-staff investments, AVB calculation methodology, adequacy of financial terms, manual vs. system treatment and the like.  The advertiser can then answer the questions – “where are my financial risks?” and “how do we mitigate them?”

Once accomplished, then perhaps the advertiser won’t have to “ponder” agency holding company profit growth rates and can join their agency partners in celebrating their hard earned financial success.

If you would like to gain the benefit of what we’ve learned first-hand through our agency contract compliance auditing practice and would like to schedule a complimentary consultation on “Transparency in Action,” please contact Don Parsons, Principal at Advertising Audit & Risk Management at dparsons@aarmusa.com.

It’s Your Money and Your Reputation

26 Jun

advertiser's reputationDo you know what happens to your organization’s money, once it has paid the advertising agency?  If you’re like most advertisers you probably don’t know and may not even care.  Perhaps you should. 

Advertising agencies, regardless of the contractual definition of their role (agent vs. independent contractor), act on an advertiser’s behalf to procure and pay for services, space, time, etc… purchased from third-party vendor organizations that are related to producing and distributing the client’s advertising and communications messaging.  In turn, the advertiser is billed by the agency, typically upfront on an “estimated” basis for those goods and services with payment due to the agency in 15 to 30 days from receipt of invoice.  Terms between agency and client are usually set to insure that the agency has the client’s funds prior to the time third-party vendor invoices are presented for payment. 

For most advertisers, there is little transparency into the financial transactions between their advertising agencies and their third-party vendors, which number in the hundreds, if not thousands.  This lack of transparency results in diminished advertiser control and increased risks associated with third-party vendor reconciliation and accounts payable management.  Risks typically fall into four areas: 

  1. Clear and unambiguous title to any and all intellectual property/ work product
  2. The advertiser’s reputation among 3rd party vendors
  3. Treasury management “opportunity” costs
  4. Exposure in the case an agency became unable to pay its creditors 

AARM conducts agency contract compliance and financial audits of advertising and marketing agencies on behalf of advertisers.  In our experience it is rare to see a client-agency contract that identifies clear terms and conditions for the agency’s handling of third-party vendors or in establishing processes and controls to allow the advertiser to monitor performance in this area.   Don’t advertisers want to know if and when third-party vendors have been paid?  If vendors were paid at the agreed upon rate or something less?  If the reconciliation process resulted in credits, discounts or rebates that are due back to the advertiser?  Who are the vendors being utilized? 

Based on our financial audit experience, there has been a clear trend in recent years of agencies stretching out disbursements to third-party vendors well beyond their payment terms, as measured by “Days Payable Outstanding” or the time lag from vendor invoicing to agency payment to the vendor.  There can only be two reasons for this performance and neither is particularly sound.  Firstly, the agency may have flawed vendor reconciliation processes and or they are putting inadequate resources against this “non-revenue generating” area of their business.  Secondly, the agency is seeking to maximize interest income from float.  Simply defined, “float” is the amount of money that the agency has collected from the advertiser but has not yet disbursed to a vendor.  In almost all instances, agencies both earn and retain the interest income on this float. 

Within the agency community it is often joked that interest income (from float) is an agency’s best client; “It pays on time and never complains.”  However, when it comes to the advertiser’s reputation the risk of being labeled a “slow pay” is no laughing matter.  Whether deserved or not, such a reputation can carry both opportunity costs and economic costs in the form of vendors charging higher rates to compensate for their “carrying costs” or not offering preferential treatment.  Nor do many client-side CFO’s find much humor in lost interest income opportunities, aged vendor credits or delayed earned but unprocessed discounts and rebates.   

When the size of an advertiser’s budget is considered and the fact that this investment is being managed through a small group of agencies, who in turn handle purchases and payments on behalf of the advertiser with hundreds of diverse third-party vendors ranging from media property owners to production studios to third-party ad-servers, it may be time to perform an independent assessment of performance in this important area. 

After all, we’re all familiar with the adage: “What is inspected is respected.” 

Interested in learning more about the financial portion of an agency contract compliance audit?  Please contact Don Parsons, Principal at AARM at dparsons@aarmusa.com for a complimentary consultation.

 

Who’s on First? Advertisers Want to Know

01 May

agency freelancersAd Age recently published the results of discussions it conducted among agency executives, freelancers and staffing companies with regard to the growth in agency utilization of freelance talent.   If you’re an advertiser their findings may serve as a wake-up call for you.

First and foremost, we understand the fast-paced nature of the advertising marketplace and the important role that variable labor plays in helping agencies meet short-term labor demands.  That is not the issue.  What is of concern is the growing reliance on independent contractors versus permanent staffers by ad agency executives.  Ad Age coined the term “permalancers” to reflect this trend of engaging freelancers for extended periods of time, in excess of 100 days.

Why the concern?  Consider Ad Age’s primary conclusion on their investigation into this practice, that agencies “are not attracting and managing freelancers appropriately.”  This perspective is supported by an executive of Redscout Ventures a division of MDC who was quoted in the Ad Age article stating that; “our current system of sourcing freelancers is incredibly inefficient.”   Sourcing and managing of freelance talent aside, there are numerous risks and costs to an advertiser that are often not transparent.  For example, do advertisers even know which agency representatives serving on their account are permanent staffers or freelancers?  Is there an established procedure that defines how the advertiser is being billed for freelance time (i.e. pass through cost or incorporated into agency fee/ direct labor cost calculations)?  What is the impact on agency time-of-staff investment tied to the learning curve associated with rotating in freelance help?  Does this practice impact the quality of the work or the level of re-dos?

At Advertising Audit & Risk Management we conduct both contract compliance audits and agency fee reconciliations which consistently highlight the financial impact and risks confronting advertisers regarding the lack of controls and limited transparency around an agency’s use of freelance talent.   Audit findings have identified risks ranging from intellectual property ownership to violations of the non-compete clause to inadequate time tracking of freelance talent.  Unbridled, an agency’s use of freelance talent shifts the legal and financial risks associated with the advertising industry’s lack of sufficient controls in this area from the agency to the advertiser.

There are mechanisms which an advertiser can implement to mitigate this risk without affecting their agency partners’ ability to tap into variable talent pools to supplement the account team if and when needed.  Advertisers interested in learning more about how to assess the prevalence of the use of freelance talent by their agencies and what can be done to introduce the requisite protections can contact Don Parsons, Principal at AARM for a complimentary consultation at; dparsons@aarmusa.com.  For more on this issue, read the article; “Freelancers’ Stock Rises on Madison Avenue” in Ad Age.

Do Agency Brands Still Matter?

27 Aug

agency brandsTimes have changed. In 1984 the average client agency relationship lasted 7.2 years. Ironically, while that may seem like a short duration, by 1997 it had declined to 5.3 years. Where do you believe it is today? Gone are the days when the advertising agency relationship was so esteemed that advertiser CEO’s were often on point for managing what was viewed as an invaluable resource. Advertising agencies once measured the span of their client involvement in decades and prided themselves on the longevity of those relationships. Unfortunately, transience has supplanted stability as the law of the land.

CEOs are seldom involved with the organization’s agency network, the Marketing function has lost some of its luster within the executive suite and according to a 2010 Spencer Stuart study, CMO’s turnover every 28 months on average. On the agency side, as holding companies greatly expanded their collection of traditional agency brands and specialty shops many with overlapping and often indistinct resource offerings the cache of the individual agency nameplates began to diminish. Add to this the trend that has emerged in numerous high profile agency reviews of the holding company offering to assemble a team of subject matter experts from across its network to serve up a “Best in Class” solution to the prospective client. While this approach certainly has appeal, on paper, aggregating professionals from companies with different cultures, philosophies, perspectives and processes has seldom proved to be the elixir advertisers and agencies alike have sought. Remember Enfatico?

Agency brands should matter, perhaps more so in today’s environment than at any time in the past. Whether they do or don’t is not what is at issue. The asset value of a strong agency brand to its diverse stakeholders can be significant. It starts with instilling a sense of belonging with the agency’s associates, which in turn leads to a feeling of pride and a passion for the work which they do, which drives employee satisfaction and reduces turnover.  Enhancing agency employee tenure is an important component in acculturating associates into the agency’s philosophy and belief systems, driving familiarity with advertising planning and development processes and creating a level of comfort and confidence among the client facing representatives with the agency’s solutions offering.  Stability and consistency in this area can greatly enhance the agency’s ability to achieve in-market success for client brands, which can transcend the environment of change and emphasis on short-term results that often permeates client-side organizations. Importantly, strong brands attract buyers.

Brands attract buyers based upon a known set of attributes which help to shape buyer expectations of what they’re getting, minimizing unexpected surprises and reducing buyer remorse. Clients that are satisfied with the agencies that their organization has bought into will invest the requisite time, energy and resources into those relationships, thus heightening the odds of success.

In the end, success, however each party in the client-agency relationship defines it is the key to rejuvenating individual agency brands and helping to stabilize a somewhat unsettled marketplace. As David Ogilvy once said; “The pursuit of excellence is less profitable than the pursuit of bigness, but it can be more satisfying.” I would contend that once excellence is achieved, profits will follow. One needs to look no further than average agency direct margins today vis-à-vis ten, fifteen or thirty years ago to prove that point.

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