Laws of Advertiser-Agency Relationships
This checklist brings together the laws of advertiser and agency relations based on empirical findings from ANA proprietary research.
Relationships with Various Types of Agencies
Agencies offering a greater diversity of resources such as full service capabilities [i.e., utilizing a range of people skills] will offer greater incentives for account maintenance.
The demand for full-service agencies is important in each and every market sector.
Advertiser and Agency Relationship Longevity and Vulnerability
Clients managing service accounts have a greater likelihood of early account mortality than for packaged goods and durables accounts.
Clients managing highly specialized accounts have a greater likelihood of early account mortality than for packaged goods and durables.
Clients managing retail accounts have a greater likelihood of early account mortality than for packaged goods and durables.
The larger the advertiser, the greater the likelihood of improved account longevity.
Agencies are relatively more vulnerable to account losses during the initial stage of relationships, as advertisers are testing out their agencies.
Agencies tend to enjoy better longevity rates with durable manufacturers and packaged goods companies than for those involved in either the services sector or those involved in pharmaceuticals, health care, B2B, petroleum, apparel, and retail that constitute miscellaneous industries. This reflects different agency switching costs for advertisers associated with each industry.
Agencies involved with advertiser industries associated with high switching costs (such as durables) will enjoy relatively more longevity than for those with lower switching costs.
Switching costs involve not only the cost to the advertiser of getting a new agency up to speed in their business, but the threat of proprietary knowledge transferred to potential competitors, and whether the value for advertising is sustainable, based on advertiser estimations of competitive imitation and role malfunctioning.
Agencies involved with relatively high technical product knowledge (required for durables) or high levels of marketing co-ordination (such as is required for packaged goods) will be associated with higher switching costs, improving account longevity.
Agency Compensation Arrangements
The highest proportions using performance-based compensation are in the packaged goods industry and in large companies, respectively.
Large companies are twice as likely to use performance-based compensation as are medium-or small-sized companies.
Agencies during the initial stage of relationships will favor outcome-based compensation schemes that are high risk propositions, such as tracking schemes.
Agencies during the established stage of relationships will favor outcome-based compensation schemes that are low risk propositions, such as fixed fee arrangements. Consequently, the prevalence of outcome-based compensation suggests that the risk of overcompensation to either side can be reduced to protect the relationship. Hence:
Advertising is treated seriously as a strategic resource; not just some bolt-on idea.
Advertisers will be encouraged to offer clear briefs and objectives, thus offering clear scope of work, clarifying work roles and reducing conflict from role encroachment [since they are more open to agency criticism if they don’t].
Advertisers are resolute in wanting to give honest feedback [a criticism often alleged at clients by their agencies].
Outcome-orientated compensation schemes motivates agencies to allocate strong creative teams to the advertiser’s account. This should encourage:
more stability of account teams [because there is less misunderstanding about the intended advertiser direction],
better service delivery and less re-work [due to clear connections between performance on strategy, creative ideas, and tangible agency rewards]
improved cost effectiveness, and overall perceived value to the advertiser
overall better relationships, more partnership-orientated styles of working, and better advertising.
Advertiser-Agency Relationship Issues
Strategic thinking remains an important issue throughout the full term of the relationship.
There is a significant difference between advertisers complaining about knowledge and sophistication (and especially ignorance of the business) at the initial stage compared to later stages.
Complaints about people-orientated issues are more frequent during the transition stage, shown by excess people rotation, feel they do not work for me, and go over my head to my boss.
Issues about co-ordination that reflect inadequate service quality are more prevalent during the established stage, with work taking too long, work not integrated, and poor work with IMC partners.
Lack of sales results are twice as high a concern during the early stages of the relationship compared to the established stage.
Large advertisers are generally more demanding than their counterparts, with few exceptions.
Issues concerning small advertisers are generally different from large advertisers.
Concerns about excess people rotation are lower with clients involved with packaged goods than for either durables or services.
Concerns about excess production costs and no best practices are significantly higher for durables compared to other market sectors.
What Advertisers Do to Strengthen Their Agency Relationships
Advertiser relationship strategies involve changes to the process of evaluation, strategies involving resources such as the caliber and experience of people, and strategies involving the terms or procedures of evaluation.
Large advertisers are more likely to take action to adjust agency relationships than are either medium or small advertisers.
The most popular actions across each advertiser-agency relationship stage are changing account team, changing process, and involving top management. Agencies do little in the way of skills re-training.
What Agencies Do to Strengthen Their Client Relationships
Strategic issues are of most concern to advertisers at the initial stage, people-orientated issues during the transition stage, and service quality issues during the established stage.
Complaints concerning accounts tend to be contingent on size of advertiser and type of industry.
The most popular actions of agencies across each advertiser-agency relationship stage are changing account team, changing process, and involving top management.
How Advertisers Resolve Troubled Agency Relationships
Advertisers experience more severe problems with their agencies during the transition period that can potentially lead to account dissolution, but this lessens by the established stage of relationships.
Small, durable industry advertisers are more likely to experience such problems compared to other sectors.
Advertisers adopt a variety of strategies in responding to serious problems, graduating in severity for the agency from making initial personnel account changes through to sharing out the business and finally giving notice of account termination.
Advertiser Needs for Agency Fulfillment
Advertiser needs may be grouped into product and work needs, people and relationship needs, and process needs, i.e. the way advertising is delivered.
The most important product and work needs of advertisers are in strategic counsel (reflecting strategic thinking) and in quality of the creative work, determined either in terms of delivering effective campaigns, developing outstanding ideas, or in implementation, suggesting creative execution.
Creative awards are of limited importance to advertisers, although somewhat more important for large advertisers.
The importance of account planning and integrated solutions feature more importantly with large advertisers compared to small ones.
While campaign effectiveness and strategic counsel (as product and work needs) are universally important across relationship stages, they become marginally more important during the transition and established stages.
In examining people and relationship needs, outstanding service is critical irrespective of relationship stage.
Top management should be introduced early on to signal to the client that they are seriously being looked after, and their presence maintained throughout each stage of the relationship.
A well-liked account team should be maintained. Liking is more difficult to establish in the early initial stage until several campaign tasks have been completed, so avoiding the intention to rotate personnel increases in importance during the transition and established stages.
When conflicts occur, agencies should begin to assert more authority in their convictions and beliefs about what is best for their client during the transition and established stages, but be more reserved during the initial stage, since this may be misinterpreted as a signal of creative arrogance.
Outstanding service is noticeably of paramount importance across all industries. Service probably acts as a pre-emptive factor, insofar as it is often taken for granted by advertisers, but when it is noticeably absent, advertisers become restless. Agencies can become complacent about service, since it is all too easy to become distracted in winning creative awards that are more transparently tied to agency careers, but agencies face a moving target of increasing advertiser expectations.
Process needs are the final set of needs that agencies seek for their agencies, with responsiveness of most importance across relationship stages.
Value for money from their agencies becomes more important to advertisers as the relationship develops.
Importance of Agencies for Advertiser Growth Objectives
Large advertisers are most reliant on their agencies for meeting their growth needs, and feel that share growth and profit growth are more important than is the case for medium or small advertisers.
Advertisers of all types feel that brand value growth is important and share universal confidence in their agencies delivering brand value growth. It would seem this is one of the main reasons for hiring agencies.
How Advertisers Evaluate Their Agencies
A majority of agencies are evaluated formally, including a significant number of formal two-way evaluations.
As relationships advance, formal evaluations increase, with the greatest number of formal two-way evaluations shown during the established stage.
Advertiser size plays a key role in how agencies are evaluated. Large agencies are more likely to use two-way evaluations than are medium or small advertisers, with small advertisers tending to use far more informal systems.
The type of evaluation method adopted reflects the purpose for which the agency was hired, and the type of advertiser in how they envisage the advertising to be used (ad hoc projects versus strategic partnerships).
Package goods advertisers and miscellaneous industry advertisers are more likely to use formal two-way evaluations than for advertisers of services or durables.
Agencies that receive performance-based compensation are far more likely to be formally evaluated compared to agencies whose remuneration is not tied to performance.
When agencies are viewed as good partners they are more likely to receive one-way evaluations, whereas outstanding partners are more likely to receive two-way evaluations.
Agencies not regarded as partners (such as suppliers of creative resources) are more likely to receive no formal system of evaluation.
As size of investment increases with advanced relationships, formal evaluations increase, reflected by the greatest number of formal two-way evaluations shown during the established stage with large advertisers.
Source:
Excerpted from “Inside Advertiser and Agency Relationships: A Hands-On Guide for Practitioners.” Melvin Prince and Mark Davies. New York: ANA, 2006.
Laws of Advertiser-Agency Relationships
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