Marketing Procurement

Why getting the commercial relationship right between advertisers and agencies is critical

Relationship Performance

“Pull Quote”

In this way marketing and procurement have the metrics to work with the agency to improve the commercial performance of the relationship and not simply focus on the cost.

Don’t get me wrong, measuring and monitoring the client / agency relationship is important. It is in fact the most basic activity both parties can invest in. Be that a two-way assessment, or a NPS type feedback, or a client scorecard. Anything that provides a vehicle for regular reviews and relationship feedback is positive.

My experience is the larger the client team and the bigger the agency account, therefore the more important a formalised and regular feedback process. It is far better to invest the time and money monitoring the relationship than simply crossing your fingers, wishing for the best.

But, when it comes to the success or failure of the relationship, it is important you go beyond perceptions and opinions and start to measure the commercial performance. Perceptions and opinions are good indicators, but then politicking and ‘group think’ can often mask the real issues lurking below.

Likewise, there are many examples where the relationship surveys define a happy and perceived high performing relationship, only to have it taken to a formal tender to test the commercial performance.

This is when a more rigorous and quantifiable commercial relationship review is required and in fact necessary.

Plenty of Advertisers / Agency Relationship Surveys

There are as many Advertiser / Agency Relationship survey systems as there are consultants in the field. Everyone appears to have one. (TrinityP3 has a system called Evalu8ing, which measures collaboration in an agency roster).

Some of these systems are incredibly detailed and ask 100 questions or more and take almost an hour to complete. The justification being if the relationship is important it is worth investing the time and effort.

Others have reduced the whole relationship measure to one Net Promoter Score (NPS) type question. The rationalisation here is that convenience and simplicity play to the needs of time poor marketers.

Then there are literally hundreds in between that are variations of the above. Five to twenty-five questions, some with consultant interpretation, others with AI (Artificial Intelligence) analysis to help identify emerging performance issues. The point of these surveys is so the agency can then take remedial action to improve and extend the tenure of the relationship.

Are Advertiser / Agency Relationships Getting Longer

You would think with all of the effort and attention being invested in the agency / advertiser relationship, they should be getting more productive, more rewarding for both parties and longer in tenure.

But even the most cursory review of the advertising and marketing trade media and the research undertaken on the industry will show the complete opposite is true. Firstly, the Agency Of Record (AOR) relationship is in decline with many advertisers moving to project fees for their roster of agencies. Secondly, others are moving many of the agency services in-house. Thirdly, agency fees have decreased in real terms, while agency outputs have increased exponentially. And finally, agency tenure is in free fall, with some reporting that the average tenure is something just more than three years.

You would have to question the claims that these relationship surveys are effectual. Yes, they can be a bellwether to issues that need addressing. But is the real problem these perceived issues, which are rarely addressed, or the issues are often deeper than the surveys identify?

The agencies face a direct financial cost not addressing the issues identified, such as losing an account. But it could be that many of the issues are actually created or impacted by the advertiser behaviour and therefore the agency has little leverage in addressing them directly.

The other problem is that often agencies can be getting an excellent relationship score only to be taken to tender and invariably losing the business to another agency in the process. This suggests that either the results these relationship systems produced are flawed or that the perception of the relationship is not the driver of agency tenure.

The need for Advertiser / Agency Commercial Reviews

Increasingly we have had marketing teams request that we provide a commercial review of the current advertiser / agency relationship, rather than taking their agency to tender. The reason is that advertisers are increasingly aware of the cost of the tender process including the increased disruption, often loss of continuity and the invariable loss in agency quality when based on price.

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The driver for a tender is the demands by the CFO and procurement to take all contracts to market at the end of the contract period as perceived ‘good governance’. But if the relationship is high performing, this is not good governance and ends up simply being cost reduction at the expense of quality and continuity in the advertiser / agency relationship.

Instead of waiting for the decision to be made on whether to take the agency to tender at the end of the contract period, we are increasingly seeing the need to do more than just a relationship and performance review on an annual basis. As we have highlighted above, the relationship measures are proving largely ineffectual and irrelevant to the commercial relationship.

But beyond these measures there are ways of measuring more commercially relevant metrics such as productivity and identifying inefficiency in the commercial relationship. This is a process of looking beyond the cost and the number of resources and looking at what the advertiser / agency relationship has produced, and the efficacy of the time and resources required to produce those outputs.

In this way marketing and procurement have the metrics to work with the agency to improve the commercial performance of the relationship and not simply focus on the cost. While it considers the perception of the relationship performance, it goes deeper to identify the underlying commercial consideration, that impacts these perceptions.

Addressing Deeper Advertiser / Agency Issues

Many times, we are consulted either because the advertiser / agency relationship is perceived to be underperforming or because the advertiser wishes to take the agency to tender because the relationship is failing.

Often when we take an even rudimentary review of the commercial arrangements, we will find issues impacting the performance that no amount of relationship management would solve. These issues include under resourcing by the agency due to under payment by the advertiser, often driven by significant increases in the scope of work outputs and contractual arrangements that are unsustainable.

Who is at fault? Rather than focusing on fault, we work to address the commercial arrangements to make the relationship sustainable for both parties, using a qualitative and quantitative approach. We call this a Commercial Review, which is far less disruptive than a tender and much more effective than a relationship survey.

About the author

Darren Woolley is Founder of TrinityP3 a global marketing consultancy. With his background as analytical scientist and creative problem solver, Darren brings unique insights and learnings to the marketing process. He is considered a global thought leader on agency remuneration, search and selection and relationship optimisation.

The views and opinions expressed are solely those of the contributor and do not necessarily reflect the official position of Marketing Procurement iQ or imply endorsement from the publisher