Agency as Agent? That’s Where The Word Comes From.

My friend and former client Dave Morgan tackled a subject near and dear to my heart in a recent Online Spin column – ad agencies’ loss of the coveted role of ‘agent’ to their clients.  In that column, Dave correctly identifies a few aspects of the agency-client relationship that, once threatened, cause agencies to abdicate that role.

First, there’s the pervasiveness of what Dave calls “cost-center thinking” when it comes to media and agency services investments.  Then there’s the reason Group M CEO Irwin Gotlieb gave in a recent interview – the expectation that agencies will share in a client’s risk by guaranteeing performance.

Advertisers are supposed to think of their agencies as marketing consiglieres.  That is, a trusted partner with outside perspective whose economic interests are directly aligned with the client’s.  It’s hard to be a trusted partner, though, when your client is pushing to deconstruct every aspect of your compensation model, looking for a means to drive greater value while paying less.  Indeed, the approach itself erodes trust.

To me, though, the shared risk excuse doesn’t hold water.  I don’t think I’ve ever lost a piece of business by refusing to adopt a compensation model that doesn’t ensure my basic costs are covered.  I’d question the negotiating and business skills of anyone insisting that performance-based compensation is some sort of overriding prerequisite of operating in this business.

Nope, that’s not what’s altering the landscape of the agency-client relationship.  Here are a few other factors that need to be added to Dave Morgan’s list:

Ignorance of An Agency’s True Value

Remember that consigliere role I mentioned earlier?  That’s the ideal one for an agency.  Problem is, I’m encountering people on the client side of the business who don’t understand the value inherent in an aligned and trusted partner.  Rather, they envision the world as a level playing field, with all players having their own profit agenda and looking to sell products to the client organization.

In looking at things this way, two big things are lost.  First, it’s the capacity to trust an outside organization to represent the client’s interest and collaborate on a comprehensive view of the marketing opportunity.  Secondly, it’s a whole lot of time and effort, as clients move from the strategic role of looking out for the brand and the business, and into the reactive and tactical role of assessing all the program opportunities being pitched to it.

It’s a full-time job to know the range of opportunities available, and to be able to apply them effectively.  Having internal marketing resources doing this not only short-changes the brand due to an inability to adequately cover the range of opportunities, but it also can result in catastrophes when more pressing matters pull people away from assessing and implementing programs.  For instance, how likely are you to vet and approve that vendor program when the FDA delays your product claims for eight months, or Wal-Mart threatens to pull your product off shelf?

This focus on the right programs and the right business-building activities should be the focus of an agency.

Experience and Training

In talking to some of my agency peers, the sense is that we’re all starting to run into people on the client side who are inexperienced at working with agencies, and lack the internal training and mentorship programs that normally would teach them how to deploy agencies effectively.

It used to be that marketing organizations trained young executives on how to work with their agency partners.  Increasingly, agencies have had to invest their own time and resources into developing this training, rather than having it come from the client side.  This is unfortunate, because for many of the clients I’ve worked for, the role of an agency as a trusted agent was cultural – pervasive throughout the entire client organization.

Agencies aren’t sure why training programs are being held back in many cases, but they’re increasingly seeing inexperienced clients being put in the position of managing the relationship from the client side.  Sometimes, new clients are “rotated in” from other areas of the organization in order to get exposure to the marketing side of the business.  Contrast that with a seasoned client-side marketing or brand management professional, who already knows what to expect and what inputs an agency typically needs in order to do its job effectively.

Public Money

Let’s stop pretending that being asked about performance-based compensation is the catalyst for devaluing the agency-client relationship.  It might be a small contributor, but the real culprit here is agency profit margins.

Yes, the procurement-driven “cost-center thinking” continually erodes agency profits, but there’s something else systemically wrong.  You see, when you’re big and publicly-traded, Wall Street doesn’t tolerate service company profit margins of a few points on media buys, hours-based fees and markups on production.  They want higher margins.  So in order to grow as a public agency, you have a choice – abdicate your role as trusted advisor and use your relationships to sell in ad products at a higher (or undisclosed) margin, or let the markets punish you.  Guess which route many agencies take?

Indeed, it’s a deal with the devil.  While pursuing higher profit margins, agencies have given up their consigliere role.  Regrettably, that role seems to be one that many clients would rather stay in-house for now.  Is it any wonder that the traditional agency-client relationship is eroding?

Tom Hespos is the Founder and Chief Media Officer of Underscore Marketing, an integrated media agency focusing on health and healthy brands.