Is the Client-Agency Model Dysfunctional
Marketing January February 2014
Marketing magazine’s The Futurist Live! was kick-started by a high-power debate on the topic: is the client-agency model dysfunctional?
Speaking for the motion was Richard Bleasdale, regional managing partner for APAC at The Observatory International, and against the motion was Veron Vazu, former director of corporate marketing and communications at the Health Promotion Board.
Moderated by Taru Jain, founder at Maxential, the debate touched on key areas of client-agency ties such as structure and remuneration.
Here are excerpts from the debate:
Jain: Would you say the house is on fire, that our industry is completely dysfunctional?
Bleasdale: A resounding yes. How many of you are “completely satisfied” with the quality of work you and your agency is producing? (asks the audience). We can see that a vast majority of you are dissatisfied with the quality of work you and your agency are producing. The critical issue here is the working relationship between client and agency.
Vasu: You can’t do a snap poll and consider those results final. What creative person or marketer is “completely satisfied”? I think it is the hardest motion to oppose because some of it is true, I agree. But the problem is not endemic. It occasionally happens because relationships occasionally break down. Now, I’ll tell you what Cosmopolitan (magazine) says about reasons for relationship breakdowns:
- Failure to communicate
- You are bored
- You pick fights
- You avoid future plans.
Jain: Thanks Vernon. Now let’s agree therefore, there are some changes needed. If you are given a chance to re-architect the model, would you make wholesale changes or small tweaks?
Bleasdale: The changes have to be fundamental. In this age of real-time marketing, most of you have too much data and there is massive pressure to deliver TOI and that pressure is driving caution. It’s not driving experimentation.
A CMO’s tenure is about only two years globally, and research into marketing projects isn’t positive either. Around 50% of marketing projects are costing double than what was projected and 85% of marketing projects are over-budget and delivered late. And nearly 30% of marketing projects are cancelled before completion.
On the agency side, standard agency contracts over 20 years have dropped to an average of about two years. Agency hourly rates over the past 10 years have dropped to about 20%. Agency income per work unit has seen a 40% decrease. This is on top of major issues such as holding onto the right talent. So all key drivers are changing and we have to bring a fundamental change.
Vasu: It’s very easy to take stats such as those that you have mentioned and cast the light on our industry as being sick. I would challenge you to take those stats and correlate them to any professional services industry. The results will be similar. I think there are structural issues, but as an industry we look at problems differently. We are working towards those issues. The problem is that as we achieve a goal, the goal-post moves due to some innovation or other and we have to revitalise ourselves again.
Jain: So, on one hand we see there are enough stats to support big change. On the other hand Vernon, you agreeing in part, but also saying let’s not hide behind the numbers as every professional services is bound to go through this cycle. So let’s talk about structure. As we look forward, do you think we are facing a future with fewer structural agencies on long retainers, or many specialist small boutique agencies?
Bleasdale: Obviously as marketing channels explode, there arises a need for marketers to specialise, and because they need to take risks in a lot of these channels, one of the things they are looking for is knowledge and experience.
And they are only really going to get that from the specialists, there are too many marketing channels now so it’s impossible for anyone to be a specialist in everything it’s just not feasible.
But that in itself is driving a huge issue of time management and having to manage all these different specialists and create a collaborative atmosphere. If we’re talking about professional services, one of the biggest issues for our industry is we are not treating our services as professionals.
Vasu: Having been on the agency side I always tried to sell the specialism. But on the client side I’ve become very circumspect, whether that specialisation truly exists or not, so I think it’s a sort of buyer beware thing.
Yes there is the lure of the boutique, you get a whole bunch of new people coming in, they have exciting ideas, you’re not vested with the work you’re trying to win something, and sure it doesn’t hurt too much to carve out a piece and give it to them and see what happens.
I thing the true dysfunction lies between marketing and procurement, not between marketing and agency.
I don’t think they are evil people in procurement but they are not in a position to make judgements because generally, even if they are used to purchasing professional services, for those such as a legal firm or auditors, they are not buying an outcome based solution, they’re buying an output based solution.
Lawyers aren’t allowed to charge on results, they can’t charge more if they win, they can’t charge less if they lose. Because they just charge you man hours.
So, procurement is used to looking at hourly rates and discount on hourly rates. That’s why they are not used to creative or digital agencies coming and selling an upside.
Jain: If we are willing to back ourselves on really good work, then should the remuneration models between agency and clients change? What’s your view?
Bleasdale: I think it should fundamentally change. We as an industry have gotten ourselves into the position where we’re paying on the fee-based model are rewarding quantity and volume, and not rewarding quality and value and if we are in the business of professional services, which I hope we all agree we are, we need to fundamentally rethink the way that remuneration in the industry is working. The fee-based model promotes inefficiency, so the more hours an agency works the ore it gets paid. That just doesn’t make sense.
We fundamentally think that the construct need to change. The business that we are in is consultancy, is ideas, and IP and the business should be driving remuneration based on the value it is creating for marketers.
Vasu: It’s not that easy. Let me raise another bogeyman, the audit department. And how many of you marketers have sat across auditors to justify the spends? Not the media spends, because that’s easily quantifiable, but the fees.
You know, it has to be a blended approach, you can’t qualify everything, there has to be some quantification. And it changes, depending on the clients, depending on the credential within client organisations. And that’s a cultural shift that extends to beyond just merely this dynamic of client and agency.
Jain: Richard and Vernon in closing, what’s the piece of advice you’d really like marketers and agencies to take away from this?
Bleasdale: There are probably four key things that need to be focused on. If you want to maximise future success, relationships between marketers and agencies have to be a marriage of collaborative equals. The terms for the relationship have to be fair and there have to be clear responsibilities for both parties. You need to measure the relationships regularly, and both ways and you have to incentivise and reward performance, if you want marketing to work.
Vasu: I think Richard is as good as sketching out dystopia as he is sketching out utopia, neither of which actually exists. This perfect dichotomy, it doesn’t work, it‘s a continuum, a process.
My position is that the momentum is in the right direction. Because why, it’s in our business interest to get it right. And so let’s go back to Cosmopolitan which elicits five points. So what makes a good relationship work? Respect, honesty, genuine attraction, similar views about money and corresponding long-term goals.
Jain: Excellent, sot thank you both for shedding light on two very different perspectives. I think we have touched philosophy, history, Cosmopolitan, industry and finance, all in half an hour. I thing both of you are passionate in your different opinions, but ultimately in agreement, change is necessary.