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2008 ANA Agency/Client Forum, Getting the Best From Your Agency, by Nancy Hill 

I realize that the only thing keeping you from your lunch break is me, so I promise to keep my remarks brief, and leave enough time for Q&A at the end.

First, a little background: Before I joined the 4A’s this past February, I built my 25-year career in advertising at a variety of agencies of all sizes, on both coasts—and in the middle, as well—leading work for clients ranging from automotive and consumer packaged goods to interactive gaming, telecommunications and financial services.

I spent some of my most formative years on the frontlines of the dot-com boom—and subsequent bust—so the marketing efforts for consumer and business technologies hold a special place in my heart.

In fact, some—many—of my colleagues and former clients would say that I am a consummate technologist, possibly even a bit of a geek, which is a description I happily accept.

Since I began my new role as the head of the 4A’s earlier this year, I’ve spent a lot of time with the management team at the association wrestling with the questions of how to make the 4A’s even more relevant to agency businesses in the 21st century.

From the beginning, I knew that the most critical task for me would be to bring the 4A’s up-to-speed—especially in the arena of digital technologies—in the fast-changing world of marketing communications.

Helping to transform what some have said is an old-school group like the 4A’s into a highly relevant, digitally savvy association for the present—and the future—has been great fun for me, but it’s a lot of hard work and we have much more work ahead.

I think there are some parallels between what the 4A’s is dealing with, in terms of seeking more relevance with our membership, and what our agencies are addressing in their relationships with their clients.

Marketers—rightly—are demanding that their agencies totally understand their needs; that agencies provide deep data, insights, and analytic know-how; and deliver true, quantifiable ROI for their marketing spending.

Whether it’s providing holistic communications strategies that penetrate the already crowded content options of busy, multitasking consumers, or simply creating beautiful, thought-provoking and effective ads, an agency’s role as a marketing-communications partner has evolved over the past few decades—and continues to transform.

Given that the topic of my remarks for today is the agency’s perspective on how to maximize the client-agency relationship, I’d like to start at the beginning and talk a bit about the 4A’s view on the agency search and selection process.

For decades it has been customary practice for marketers that are contemplating an agency search to circulate questionnaires and request capabilities, credentials, financial, and other background information from advertising agencies.

Historically, this information tend to flow only in one direction, with agencies submitting information to marketers, while—all too often—very little, if any, operational and relationship information flows back from the marketer to prospective agencies.

The truth is, this traditional search process is not optimal for either agencies or marketers. Imagine if a social networking site like Facebook or LinkedIn allowed others to see your entire profile, but denied you access to seeing any part of theirs. Not very cool, I’d say… Would you date or marry someone under those circumstances?

So, rather than a one-way exchange of critical information, a better, more mutually beneficial approach to agency search and selection is to establish a dialogue up front that’s geared toward helping marketers and agencies discuss business goals, marketing objectives and service expectations.

The process also should foster a two-way assessment of capabilities, compatibility and economic expectations.

This courtship—and indeed, the agency selection process is just that—benefits all parties immeasurably when the dialogue is honest, robust and fair, from the very beginning.

What the search process should not be is a mechanism for marketers to generate a bank of ideas and materials from agencies participating in the search process. Which again, isn’t very cool, but more on that later…

I believe that the client-agency dialogue process is a critical—and transparent—first step to align business interests between marketers and agencies.

In fact, it’s the 4A’s recommended best practice and a cornerstone of our “Standardized Marketer New Business Questionnaire,” which is available as part of our “New Business Toolkit” in the Agency Search Information Center on our Web site.

Last year, at this conference, the results from the “ANA–4A’s Value Survey” were released, and the findings showed a high degree of interest among both agencies and advertisers in aligning business interests.

However, despite the high interest in economic alignment, the survey also identified a handful of barriers, which for clients included:

  • Consensus on measures of success
  • Getting agencies to accept risk, along with reward
  • And reluctance, on the part of advertisers, to share proprietary data and results.

For agencies, the barriers included:

  • Agreement on metrics for value
  • Too thin margins for agencies to experiment with compensation
  • And client unwillingness or inability to share performance metrics

While these barriers are real, they are by no means insurmountable. The ANA and the 4A’s should work individually and collectively to discuss and attack these barriers.

For example, marketer reluctance to share performance metrics and results was identified as a barrier for both agencies and advertisers. This is a transparency issue that can and should be resolved.

Indeed, it’s time for the industry to stop focusing on the transparency of agency salaries, overhead rates and margins—which are not foundational to aligning our economic interests and producing business-building results—and start focusing on transparency of performance-based marketing information that does drive business results.

I have to say that the ANA has done outstanding work and provided significant thought leadership in the area of marketing accountability.

The foundation of the ANA marketing accountability guidance has been to encourage marketers to develop a “culture of accountability.” That organizational culture of accountability, though, can and must include your strategic marketing-services partners.

Again, it’s about fostering a two-way exchange of information, not simply a one-way delivery.

And really, if you—as a marketer—do not have the confidence or capability to share your performance metrics with your agencies, then you should either reassess your processes or reassess your agency—or both.

Let’s consider another barrier identified by the ANA–4A’s survey…

Advertisers indicated that getting agencies to accept risk (along with rewards) is a real issue—and it is! It should be noted that this client-identified barrier is directly linked to an agency identified barrier…

Agency respondents said their margins are too thin to start experimenting with compensation models.

How so, you ask?

Let’s look at agency reluctance to accept risks, and then let’s discuss agency margins.

If you were the agency and your key client-side advocate—the CMO—was only likely to be on the job for 24 to 36 months (or less), how much would that influence your decision to invest in the relationship?

If you were the agency and your contract with the client indicated that you could be terminated at any time for any reason (or for no reason) with only 90 days separation pay, how much would that influence your decision to invest in the relationship?

And if you were the agency and your client was not transparent about its business goals and marketing objectives or it was inconsistent in framing success metrics and thresholds, how much would that influence your decision to invest in the relationship?

As you can imagine, for agencies, the answer to these questions likely would be “highly influenced” not to take the risk. Would you be willing to make the same leap of faith?

When the industry began to gravitate away from commission systems, we collectively moved compensation methodology in the wrong direction. We moved in the direction of cost-based arrangements, rather than moving in the direction of value- and performance-based arrangements.

The shift to cost-based arrangements, which are predominant today, is not optimal for either agencies or advertisers. Cost-based arrangements have resulted in an inappropriate and counter-productive client focus on agency salaries, overheads and profits.

The reasons why cost-based arrangements are counter-productive should be obvious, but let me state them for the record:

  • Premium salaries attract and retain premium talent
  • Growth lets agencies reinvest in technology and R&D
  • And agency operating processes and cultural practices represent at least part of the reasons why an agency was selected by a marketer in the first place.

So, when clients unduly meddle in agency processes, business methods and operations, it’s disruptive and, more often than not, counter-productive.

Perhaps the most chronic limitations associated with cost-based arrangements is the significant amount of time, energy, cost and focus that are involved with administering cost-based arrangements.

And because cost-based arrangements do not align advertiser and agency interests, many agreements try to patch the wound with a band-aid in the form of an incentive overlay.

The reality, however, of most incentive overlays is that they don’t provide real material opportunities for rewards over time.

4A’s surveys indicate that the average incentive compensation arrangement “target” payout represents approximately 5 percent of the compensation agreement. Is 5 percent a sufficient carrot to change behavior and meaningfully influence agency resource investment?

I’m not sure I know of any agency that would say, “Yes.”

If an agency helps catapult a client’s business to new heights and if that gain is sustained over a number of years, does the agency benefit solely during the period of the initial growth surge or does the agency receive proportional rewards over time the same way that a marketer’s business does?

I know I’ve asked a lot of questions, and some of them are meant only to be rhetorical. But if there’s a main theme that I’d like to have emerge from my remarks today, it’s that the client-agency relationship needs to be honored as one among equals, where there’s constant and honest dialogue (and feedback), and transparency is a given, not an after thought.

Legitimate two-way, 360-degree assessments and the attendant conversation between client and agency are vital components to maximizing client-agency relationships, but the truth is that this approach to a rigorous relationship management process isn’t being broadly adopted in most client-agency partnerships. And that’s a shame.

I realize that this could be perceived as a cumbersome and difficult method, but I think it’s important, and will go a long way to maintaining a healthy relationship with your agency and allow you to get the most and best of out them.

As many of you know, the ANA, IAB and 4A’s engaged with Booz & Company to conduct a comprehensive, multidiscipline study on the “Marketing & Media Ecosystem 2010.”

Chris Vollmer, lead of the U.S. media and entertainment practice at Booz, gave the 4A’s board a preview of the latest findings—from the agency’s perspective—last week at the 4A’s fall board meeting.

While the complete report will be unveiled at the ANA annual meeting next month, I wanted to share a few highlights that I think are relevant to our conversation today.

Agencies in the future will be required to expand beyond once traditional roles and services, and some—in fact many—are already doing just that.

I don’t think this will come as a surprise to anyone in the room, but what’s notable about this is the degree to which agencies will necessarily need to redefine their scope of services, especially in digital, as well as redefine the ownership of the intellectual property they create.

Yes, agencies will still produce ads, but that’s only the tip of the iceberg. Agencies today are increasingly serving as business consultants, content providers, deal brokers, intellectual capital distributors, technologists, and data analysts, on behalf of their clients.

Within the media and marketing ecosystem of the near-future, the blurring lines between "service-slash-content" offerings from agencies and demands of clients will result in some fundamental changes in advertising, and I for one, am very excited about the possibilities.

Indeed, integrated service offerings are rapidly becoming the norm, and while integration continues to vex agencies, according to the Booz study, integration is also marketers’ number one issue.

From my own experience, there are three predominant models of integration that are in practice today. Two of them work, one does not.

In the first model, you—the clients—lead integration. You take responsibility for seeing that all of the pieces fit together. You set the tone and vision for integration with your agency partners.

In the second model, we—the agencies—take the lead on integration. The client and agency identify someone on the agency side who manages the process, and has ultimate responsibility and authority over integration.

With the third model, a marketer hires a bunch of agencies and forces everyone to play nice, and to just integrate, by sheer force of will.

Guess which model doesn’t work. And guess which model is the most prevalent in the business today…

Integration works when there’s an identified leader—a visionary—whether he or she is you—the client—or it’s someone at your agency.

And by the way, by “agency,” I don’t mean creative agency only; your agency integration guru could be in media, data analytics or digital, etc. My point is: Someone needs to be in charge.

Yes, agency silos can be a problem. But so are client silos.

The bottom line is this:

We are on the threshold of massive change, and the 4A’s believes that there are significant opportunities to advance client-agency relationships and improve the performance of both parties by aligning economic interests, candidly and up front.

We need to refocus the dialogue away from costs and saving pennies, and move in the direction of growth and earning dollars—after all, that’s why you market your brands in the first place.

And the best long-term marketer-agency relationships always involve an open dialogue on goals, priorities, processes, and economics. Marketers and agencies will both benefit from more robust mutual sharing of information, whether it’s during the selection process or during the relationship management period.

And finally a few parting thoughts about the future of advertising…

What it is about…

  • Is about changing mindsets and skill sets (for agency people, marketers and consumers)
  • Is about co-creation and collaboration (again, with agency people, marketers and consumers and in an open-source environment)
  • Is about innovation and accountability
  • Is about transparency and dialogue

What it isn’t about…

  • Is not only about technology or digital (important tools, but tools nonetheless)
  • Is not about controlling the message (this is a challenge for control-minded marketers and agencies)
  • Is not about brands persuading consumers; it’s about consumers persuading each other
  • Is not about advertising at all, it’s about total communications.

So what will this mean for marketers and what main take-aways would I like to impart to all of you? Marketers need to consider:

  • Output from agencies is more than simply a creative idea or campaign
  • Output from agencies is about solving business problems through innovative strategies that deliver the right message at the right time in the right place and environment to the right audience
  • Collaboration is critical to get the best out of your marketing-communications partner

And last, but not least, marketers need to care…

  • About the idea
  • About the execution
  • About the output

I know that as marketers, you often have to wear multiple hats. You are responsible for everything from advertising, marketing and sales, case volume, distribution … the list goes on and on…

But working with your agency should be the most fun part of your day. If it isn’t, you may be working with the wrong agency. Or, conversely, you may need to look in the mirror and ask yourself if it isn’t you.

By caring about and understanding what your agency partner can provide, marketers will get the best work out of them, and ultimately, that’s how you’ll become famous.

 

Nancy Hill
President-CEO
4A's

2008 ANA Agency/Client Forum

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