Why Advertisers Will Never Ditch the Agency

Agencies act like wasted sorority girls giving everything away for free.  From a sustainable business model perspective, it seems ridiculous to give free services to clients, but in actuality they’re retention rate and ability to win business depends on it.  And like sorority girls – agencies are very good at looking desirable in what seems like a low barrier to entry industry.

Talking heads within the space are talking about the role of agencies, their value, etc. which has led to people suggesting that Advertisers will bring more and more functions in-house.  One of the most overlooked arguments against this theory is given the fact that agency folk work for peanuts compared to Advertisers and procurement teams they represent incredible financial value.  The value of an Agency Junior Media Planner on a sub $40k salary is worth more to an Advertiser than an in-house Marketing Manager making twice that.

On top of the pennies for dollars executional work Agencies do for Advertisers, much of the negotiations to retain Clients come down to last ditch efforts by Agencies, resulting in giving Creative and Strategy work for free.  The asks pile up: “Resize this. We’re doing a HPO – we need a reskin.  Our intern handles our social pages so we just need you to send over a few social ideas.”  I’m not trying to say Advertisers bark orders to Agencies, but Agencies have less friction internally to do these asks for Clients.  Major global deals of most of the holding agencies are still reliant on how much they give for free to seal the deal rather than their differentiated and specialized offerings.

For all my avid readers, you’re semi-correct in asking yourself, “Isn’t she contradicting herself from her previous post highlighting the inefficiencies of agencies?”  My last post touched on Agencies being bloated and too focused on execution instead of strategy.  However, the previous post supports the theme in this post whereby highlighting that Agencies do it to themselves.  It’s like the drunken bathroom talk you give your drunk sorority sister, “Sugar, men will appreciate you more if you aren’t so easy – trust me,” while wiping smeared mascara off her cheek.

Agencies shouldn’t start a war of attrition against Advertisers, but rather solidify their currency.  Value Add, Makegood (J), etc. are all negotiation tactics that in the long term cheapen the Agency currency.  Even if Advertisers bring Search and Social (to some extent) in-house, they’ll likely still need resources in order to execute the strategies that the handsomely paid Marketing Director of Company X creates.  Regardless of whether the future of a digital agency will shift to focus on just technology, execution, or just strategic work –Agencies did it to themselves to leave their future so uncertain.

It is not inconceivable to suggest however that Advertisers start being in more control of what execution happens. Let’s face it, executing *can* be a low margin business and the majority of advertisers aren’t going to absorb the capital expense to do this. What they will start doing is being more involved in the brand direction through the digital channels; being more involved in data management / distribution; creative / brand messaging etc. Whilst performing this role in-house, the agency model could then be under threat if you see a wave of specialized vendors doing the executing.  Managed services from tech companies should start sending shivers down agencies spines.  But given these companies are leveraged to the tunes of double digit millions, don’t expect their investors to let them work to the same margins as most agencies.  The question becomes can good quality execution be managed by agencies in the future when continuing to work to sliding margins?

  • Anonymous

    That was a lot of words to say nothing.

    • Jayne Pimentel

      I do what I can 🙂 Light heartedness & humor breaks up the industry reports – thx for reading!

  • Nathan Levi

    Hi Jayne, great article. I think agencies are increasingly thinking about the balance of what they bring in house versus what they give to agencies. No advertiser wants the headache of delivering many of the executional tasks you mention like ‘resizing a banner’. However, as more media buying becomes more automated, it will be easier for advertisers to bring more media capabilities in house. Many brands already manage paid search, SEO and social media in house, and this number is increasing year on year. The advent of biddable media, where the buying element is commoditized means more brands will consider bringing all their media buying in house. It’s a natural evolution where technology takes over what people currently do. However, you’re right that clients will always need agencies. Clients always need great ideas and creativity, great project managers and strategists and great bits of technology that can make their budgets work harder. Clients will also always need additional headcount to manage tasks that they can’t do in house, or don’t want to do. Clients also use agencies to manage cashflow and headcount, these incentives won’t go away any time soon.

    • Jayne Pimentel

      Totally agree with most of your points Nathan. However, I think you’re thinking about it differently than I as the UK has a totally different model than the US. In the US, agencies are cheaper – merely for the fact that US agencies aren’t on the TV buying model so we don’t add the 15% kickback from the get go and then commission. So for Advertisers in the States it still is a very worthwhile executional resource for them regardless of tech because agencies can get a licensing fee to go around and use it on all their clients and clients don’t have to pay for the upfront cost of buying it themselves, staffing, training, etc. I understand your points though and I think more programmatic media buying is going (to some degree) in house, but not as much as one might think…even with the savviest of marketers in house.