Agency remuneration: scary stuff from ISBA

When ISBA says Agencies are in a bad place, you listen. And when it comes from their Director of Consultancy, you definitely listen. Debbie Morrison has some fascinating views on Agency business models and remuneration – and if you’re an Agency, it won’t make for comfortable reading.

ISBA (the Incorporated Society of British Advertisers) is ‘The Voice of British Advertisers’. They have recently combined with other prominent UK Trade Bodies – the IPA, MAA and PRCA – to launch a new Agency Remuneration Best Practice Guide.

The launch coincides with fascinating research from the MAA (Marketing Agencies Association) showing that Clients are paying Agencies almost 20 per cent less in fees than they were ten years ago, as reported in Campaign. This is big news and I’m surprised more wasn’t made of it.

Why are Agencies being paid less?

So what’s behind this startling shift? A lot has changed in those ten years – including the front-row centre positioning of Technology in the Marketing process. And are Clients doing more in-house? Is the money being spent on new kinds of Agencies? Are budgets simpler scarcer?

The reality is that it’s probably all of those things and many more besides. But what’s most important now is how well Agencies are adapting.

Agencies: cover your ears

Given Debbie’s unique perspective on Agencies, I asked for her views… and she didn’t hold back.

With reference to major blue-chip clients like Nokia, Diageo, Sainsbury’s and Coca-Cola, Debbie said:

They’re just not getting what they need from Agencies, so many of them are bringing certain services in-house… Services like comms strategy and content creation are being done internally (because) Agencies just aren’t broad enough in their vision

Wow. Scary stuff.

The future role of creativity

Does this marginalization lead to the Agency Doomsday scenario whereby creative is seen by Clients as a commodity, bought only as and when required? Or as Debbie put it: “Creative is being bought by the yard.” That doesn’t sound like the ‘top table’ to me.

Also CMOs are investing heavily in the Enterprise Architecture of Marketing, the infrastructure needed to maintain brand consistency in this complex, ‘always-on’ world. In certain circumstances, could ‘Marketing’ be a machine that gets refreshed with a new creative idea as required? Of course it could and, for certain sectors, it already is.

So if creativity is no longer the driving force behind Marketing campaigns, does that mean traditional creative Agencies are scuppered?

In defence of Agencies

Let’s keep some perspective. The more ‘traditional’ Agencies will always flounder, in as much as any business that stands still will struggle. And regardless of how you define creativity, the ability of innovative people to harness the new and intelligently recycle the old will always create enormous value.

So the big Agencies have always needed to innovate to stay ahead. The hot Agencies of the day have always faded as quickly as they’ve come to the fore. And smaller Agencies have always needed to be smarter and nimbler to compete. Plus ça change.

But there’s no room for complacency, particularly with new competitors waiting in the wings. The old cliché about Agencies only being three phone calls from disaster is truer now than ever before.

Remuneration opportunities from Technology

So what about the remuneration question, particularly with respect to Technology? Unsurprisingly, there are both opportunities and threats, with a need for Marketers, Procurement and Agencies to adapt.

The obvious opportunity for Agencies is that Clients are forming Marketing Technology teams with a new set of requirements. So there’s revenue to win there.

There’s also a lot to learn from the software world. For example, Agencies are often rather pleased when we help them earn a margin on license fees. But how many Agency CEOs could credibly explain to a Head of Procurement how standard models like SaaS are built into their business models?

Even the threats are opportunities

As for threats, Technology is already diminishing what Agencies are being paid for. For one, if all this Technology is being bought by CMOs and it’s not coming from them, then there’s less money in the budget for what Agencies can do.

But hold on a sec, that’s not so bad – as above, just expand your service offering.

More worrying for Agencies is the changing Marketing production model. By using automated production / MRM platforms (including our own, adZU – described as ‘Visionary’, no less) to implement their Marketing, Clients are preventing Agencies from giving their best ideas away in exchange for the implicit promise that they’ll ‘make their money back on the implementation’.

But, again, it’s not all bad. This just highlights the need for Agencies to charge a fair whack for thinking. This issue has been around forever, from Magic & Logic to any one of dozens of other contributions to the debate, but it still needs addressing.

Besides, if it’s the Agency who puts this Technology in front of their clients, they can also win back the revenues lost to the traditional manual decoupled production companies over the last ten years (hang on, weren’t we trying to explain lost revenues over the same period?).

But be quick – ISBA’s Communications Procurement Action Group (Compag) recently invited us in to talk about the future of decoupling. So better for Agencies to provide production automation than to wait for Clients to go direct.

Go forth and diversify

So for Clients, it’s as exciting a time as there’s ever been. You can be more focused on effectiveness and accountability than ever before, and less burdened by the endless admin of marketing in a complex world.

As for Agencies, with a mastery of Marketing Technology, the opportunities are there for the nimble, optimistic and forward-thinking. You can recoup the last decade’s lost revenues and make the next decade a golden age of top line growth and better margins.

But a word of caution, by way of a final comment from Debbie:

Agencies aren’t run by business people

Coming from ISBA, that’s a particularly frightening wake-up call for Agency CEOs. If you can’t plot a route through all this change, then you’re in trouble.

To paraphrase a recent post from MDC Partners’ Chief Innovation Officer Faris Yakob, Agencies need to be clear about the business they’re in. If it’s the ad game, that’s a problem. But if you’re in the client growth game, then the world is still your oyster – particularly if you embrace the Marketing Technology opportunity.

One Response to Agency remuneration: scary stuff from ISBA
  1. [...] it’s not all doom and gloom. Code Worldwide rightly points out that technology brings huge opportunity – specifically since clients are forming marketing [...]

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