We all know that agencies often give their thinking away in the hope of making money later. Sure, that’s not great business, but you’re the buyer, so… meh.
But here’s a thing. As Mark Ritson recently wrote, marketers “often favour volume over value when it comes to pricing… they set prices too low because they look at the unit sales chart too much and ignore the profit chart on the next page”.
Looks like agencies’ skewed take on SKUs extends to marketers too. Awkward.
Everyone’s falling into the trap of knowing the price of everything, but the value of nothing. As self-delusion goes, it’s like wearing a novelty hat and quaffing champagne, but failing to realise that you’re at a party.
In short, our industry has a messed-up definition of ‘value’ that serves no-one. So what’s to be done?
To illustrate just how out of whack we are around value, creative agency Initials’ co-founder Richard Barrett told me about a version of the IT company Acer’s classic ‘smiling curve’: “Marketers’ value perception of agency work is high at the outset, when strategy and concepts are developed, then dips in the middle for comms production and distribution, before increasing again for measurement and optimisation. Unfortunately, the agency revenue curve is the reverse – they make money in the middle but struggle to monetise strategy at the start or optimisation at the end.”
This fundamental misalignment leaves agencies – figuratively and literally – with a sad face. But that shouldn’t leave you smiling as a marketer.
Beware dysfunctional agencies
The hard truth is that agencies lack the commercial nous found in other sectors – and this is bad news for you too.
Compared with other professional services companies, their level of commerciality is chalk and cheese. Agencies usually need to have been bought by a management consultancy before they’re exposed to the formalised, risk-savvy sales machine that they so sorely lack.
The reality is that while brands are professional buyers, agencies are amateur sellers. So often brow-beaten yes-men and -women, many are even allergic to the word ‘sales’. No wonder management consultants are the more trusted advisors, taking home a far larger slice of the pie.
But even if you wanted to buy all your marketing services from Accenture or Deloitte, do your budgets run that deep? Thought not. You need agencies to raise their game.
Telling agencies how to price
Unfortunately, many agencies equate being commercially savvy with taking a risk. Years of commoditisation have embedded a don’t-rock-the-boat mindset and a dangerously myopic perspective on the word ‘no’.
I put that to Tracy Allery, director and marketing procurement business partner at Nestlé, and she didn’t pull her punches: “The better agencies aren’t shy about saying ‘this is what we do and this is what it costs’ – they’re not in the bargain basement space, so they’re confident about the impact their work will deliver. When agencies don’t have a clear perspective on selling their work versus selling hours, then procurement, through a competitive review or other assessment, will tell them how to price.”
Agencies will read that and rightly wince, but as a marketer you should too. Allery is describing a seriously dysfunctional marketplace.
Changing a broken market
Of course, marketers want to buy low and agencies want to sell high. And, ordinarily, that would lead to constructive compromise. But in such an unbalanced market, that’s not happening.
You have too much buying power and they have too little pricing power. So agency wins are pyrrhic and yours are self-defeating. No wonder ISBA and the IPA have launched their Pitch Positive Pledge to improve mental health, reduce advertiser wastage and produce more effective work.
To create a more effective and sustainable agency marketplace, marketers must be the ones to accelerate change.
Tom Lewis is a long-time agency finance director and former director of the IPA. He put the necessary change in stark terms: “As bespoke service providers offering innovative, value-adding solutions to complex abstract problems, agencies need to shift from a high-efficiency, low-margin, long-hours culture to one of high effectiveness, high margin and moderate hours.”
This current race to the bottom is bad news for your brand. Agencies are struggling to shift from a commoditised model to one that better meets your needs. So what can you do?
A new commercial conversation
The opportunity is to shift the client-agency dynamic from generic vendor-and-buyer to specialist expert-and-partner. This creates the space for both parties to better explore what mutual value means.
For example, by moving from the traditional buying of time to a more collaborative solving of problems, both parties can embrace a case-by-case definition of value, adding much needed substance to hackneyed rhetoric about being ‘partners’.
Robin Skidmore is CEO of performance marketing agency Journey Further. We discussed how their value-based sales model tailors unique solutions to subjective client needs, not just traditional business metrics. That then helps enable performance-related pay.
“We go beyond simply saying ‘be a partner’ and proactively define what that looks like. So our remuneration is tied to the behaviours that will help both parties. Everyone’s mindset shifts from avoiding getting screwed, to scoping out a bespoke collaboration.”
This approach replaces risk with a mutual focus on win-win. It demonstrates why ‘value’ is so nuanced – and how a genuine partnership can combine pricing and process, alongside behaviour and culture.
Time to be the grown-up
These peer-to-peer conversations about value are transformative all round. Most importantly, well-run, commercially savvy agencies make more money and they’re less of a shitshow to work for, so they can attract and retain the best talent to work on your business.
Broadening scoping and commercial conversations also creates a far richer base from which to optimise your relationships and reduce the likelihood of a costly repitch – and starting the same dysfunctional dance with a new so-called partner.
But here’s the kicker – most agencies flounder between efficiency and innovation. They’re too unfocused to make good money and too margin- and time-poor to meaningfully invest in innovation. So you’re going to have to be the grown-up.
Offer more face-time in pitches, more encouragement for innovation and more flexibility around different commercial models.
Be a willing audience for the progressive few and encourage the rest to step up and meet you at a more collaborative place.
Be the client that smart agencies aspire to work with – a talent magnet, not just because of your brand and budget, but for your ethos too.
Be the client that your business and the wider industry needs.
Robin Bonn is the founder of agency management consultancy, Co:definery.