Danger of a 'tipping point in media agency business
Our world is changing. Our friend Mr Google advises that on one day recently, the tag-line ‘Advertising trends for 2013’ received more than 228 million hits.
More than ever it would seem that everyone is trying to make sense of what the future holds in the fast and ever-changing world of media and advertising.
Despite this uncertainty, however, we are all still dealing with a basic set of media challenges. They are: continued audience fragmentation, waning attention levels, media proliferation and the need to demonstrate media return on investment – all within static budgets and increasing client expectations. Can there be any doubt that our jobs are becoming harder every day as clients expect us, rightly so, to deliver more for less?
In this climate, it does not help that, as an industry, we have done ourselves a disservice over a long period of time by underselling the value of our strategy, planning and buying abilities. We did this purely in an attempt to win pitches irrespective of the cost.
It also doesn’t help that clients often do not meet their spend commitment (on which remuneration structures are based) and their expectations have become increasingly unrealistic in terms of value (discount) delivery improvement year-on-year. Simple logic dictates that in the absence of any real increase in investment, even the best negotiators will not be able to deliver continuous value improvement as, ultimately, that can only result in totally free media space – hardly a sustainable business model for our industry.
The truth is that in this never-ending chase after reduced fees, increased output and enhanced value, there is a real danger that we will reach a ‘tipping point’. Beyond this point, it will become either too unprofitable to service certain clients or the quality of service on offer will have to be reduced significantly to bring output in line with what is being paid.
We are very close to that tipping point. Clearly, something needs to give; something needs to change. But what?
The answer is that our own concept or definition of value needs to change. Value can no longer be just about discounts and free space. Rather, it has to embrace the depth of insight, the quality of strategy, the efficiency of implementation and buying, the extent of stakeholder collaboration, the level of client service, and ultimately the sustainability of long-term partnerships and relationships.
In order to survive, agencies should charge according to the value of the expertise and the level of service they deliver, rather than charging on the basis of blanket commissions and a fee schedule that covers everything they offer. This would include traditional media planning, out of home media co-ordination, digital integration and, inevitably, any number of schedule revisions. Obviously, they would have to take into account the appropriate resources required when they consider what they charge.
Following this approach, the basic commission would apply still – but only within a narrowly defined range of basic ’in-scope‘ services. These include traditional media planning and buying – those services that media agencies have honed over many years and can deliver in an effective and efficient way.
However, these services should constitute only the basic building blocks of a multi-layered remuneration model. Subsequent layers should be focused on tailored, or task-based, solutions incorporating new media, ever-evolving digital and technological change, expanding out of home media solutions, the increasing need for consumer insight research and product innovation expectations. All these ‘out of scope’ things require more time, more thought and additional resources.
Such an approach to remuneration would allow for appropriate resources to be allocated to ensure that those jobs, which are out of the ordinary or which require an above-average level of co-ordination, are done properly and delivered to expectation.
Assuming that we confine our efforts to the current business model that tries to promote traditional value or discount targets, agencies should be allowed to explore alternative ways of leveraging collective spend and group trading to the benefit all parties involved, including the media agency itself. By increasing input and aligning effort an agency can expect a better output – an increasingly necessary component in delivering to stringent Performance Related Incentive Bonus targets favoured by global clients in particular.
Group trading is not an anti-competitive practice, but rather something that has become the standard in many parts of the world. It also isn’t the foreign concept some local clients, and even media owners, seem to believe. Group trading needs to take place within an open, controlled and transparent framework that is governed by solid agreements and clear client contracts.
Lastly, the future should be about partnerships and achieving collaboration between all stakeholders – an approach that always delivers better communication solutions. The focus should not be on squeezing the last cent out of your business partners. Rather it should be about achieving a balance between cost containment and the realisation of sound strategic objectives. That is the only sustainable way of working and the only way of delivering better quality results and overall growth.