How clients and agencies can improve their relationships

In this edited version of his address at the IPA annual lunch, Mark Hunter spells out his vision for transformational change in the relationship between advertisers and their agencies

My hypothesis is that transformational change is required in the marketing communications industry, – and I am not alone. For example, on the agency side, Rory Sutherland's President's Foreword in the 2009 Annual Report offers great insight, anchored in the need for a better understanding and modelling of human behaviour.

And on the advertiser's side, Jim Stengel, the former global marketing officer at P&G, has said: 'I believe today's marketing model is broken. We're applying antiquated thinking and work systems to a new world of possibilities … The traditional marketing model is obsolete.'

So with those perspectives as a backdrop, let me run through 13 opportunities for transformational change: eight for agencies and five for clients. First, the agencies.

1. Responding to change. The generation now reaching adulthood has an expectation of instant gratification and quest for control well beyond the reach of previous generations. Add to this the rise in groups bound by shared interests rather than geographies, or segmented by common demographics, and the whole approach to engagement needs to be reworked.

Marketers need to be more fleet of foot and agencies need to help them: by experimenting with content and creative, tracking, feedback loops, and reworks to get optimum return on investment.

2. Ownership of the strategic agenda. In the past, advertisers looked to their advertising and media agencies for an understanding of both the world of communications and the lives of consumers. But recently client companies have stepped into this space, which they feel has become increasingly vacant.

How, then, can the agency world demonstrate leadership that connects the power of brand ideas at a consumer, category, shopper and customer level?

3. Irrelevance of above, below and through the line. The concept of 'the line' came from a financial model that no longer exists – production funded from commission – yet it is still in use today.

If consumers do not recognise the segmentation of different types of brand touchpoints, why do we have an agency structure that continues to reflect silo thinking and production which increases the pressure on brand owners to act as the lynchpin in holding together often warring parties?

4. Open sourcing for ideas. While still in its infancy, open sourcing is raging through the social media and, in terms of innovation, we are seeing a sharp rise in the number of companies offering co-creation services.

Technology has provided an effective aggregate service, allowing individuals to post briefs to and view solutions from a multitude of problem solvers. As eBay and Amazon fight to own the 'marketplace' for goods, who will emerge as the winner for services?

The appeal to clients of paying only for ideas they love is huge. That this conflicts with the agency compensation model is no reason to ignore its potential. So how can open sourcing be effectively developed to provide a viable financial model for agencies?

5. The impact of digital. This has permeated all aspects of people's lives but none more so than communication. Yet creative and media agencies have been slow to pick up on the change. Still focusing on creating great TV ads and buying mass-media slots, they have left the areas of content, search, wireframes, social media, gaming and mobile to new – but often very narrowly defined – 'speciality' players.

so, what is the optimum resource model for developing and delivering content to run across many channels? how do we avoid advertisers picking up the bill for overheads fattened by specialists?

6. Outcome-based compensation. With client companies and media owners financially dependent and accountable for results, the payment model of agencies which still focuses on hourly rates and manpower seems out of sync. Outcome-based compensation involves risk sharing between parties, but is only successful if both parties share the same goals and have similar risk preferences.

The recession and the pitch frenzy of last year did a lot to tip the balance towards a focus on media pricing and commoditisation. Throw in a need for greater transparency, and the increasing role of procurement departments and specialist auditors. If space is becoming commoditised, surely an outcome-based model offers both parties the opportunity for financial wins?

7. The new advertiser-media owner relationship model. To maximise their revenues, many media owners are starting to forge direct relationships with advertisers. They have a lot in common: their revenue stream is based on outcome rather than hours spent so they are able to provide clients with seemingly 'free' resources to support brand and marketing teams. They also share many of the same pressures from procurement and overhead challenges.

Google has led the way in this 'direct-to' model – but with major advertisers investing in funded programmes and/or innovative use of the ad break. We have also witnessed agencies taking a spectator role while media-owner creative divisions develop content.

In the USA, Johnson & Johnson, Kimberly-Clark Corp, Hewlett-Packard and P&G have all called upon media to serve as 'co-creators of programs'. In the UK, Channel 4's creation of bumper breaks and ad-funded programming all result in creative agencies potentially becoming a hindrance in the development of more cost-effective content.

This direct relationship offers great value to advertisers, with media owners taking a lead on training and development, and the presentation of innovation and case studies to stimulate creative thought, at little or no additional cost.

8. The ever-increasing pressure on overheads. The economic climate has accelerated the pressure on marketing budgets and resources. The revenue models for advertisers do not monetise 'talent': their income is based on transactional relationships, where the purchase of goods and services drives economic growth. Annual operating plans tend to focus on two key areas: increasing revenue growth and margins.

The need to reduce costs has resulted in a focus on the revenue spent and the company overheads, and we have witnessed a growth in procurement teams – whose goals are often at odds with marketers – and their agency partners, as well as a reduction in headcount. This reduced central resource means that advertisers no longer have the people and/or time to act as co-ordinators, managing multiple agency relationships.

We are starting to see a push to reduce the number of suppliers on rosters at a time of the emergence of nimble 'speciality' players. How can agencies step into this space to offer project management as well as creative/buying services?

But advertisers have responsibilities too. Here are five areas from the client side.

1. Involving agency partners closely in the world of advertisers. Advertisers need to take responsibility for ensuring that their agency partners really understand the total client business: business plans, scorecards and metrics, the way client contacts are judged and so forth.

2. Ensuring clarity of purpose. What are our real business challenges and do advertiser briefs reflect these? How do advertisers see the agency's role – who does what? What does success look like? Clear business metrics and openness on how we will judge our agencies need to be shared.

3. Working seriously at the relationship. Identifying and addressing areas of discontent before they become major issues is key, and can be addressed with a simple structure of checks. Exploring no-pitch pitches or silent pitches to refresh relationships is a great way to force advertisers to reassess their business needs and to check that agencies have the right resources. The best relationships develop when agency and advertisers share agendas, talk frequently, and take responsibility for training and development.

4. Setting and sticking to best practice. In the USA they would describe this as 'grooved processes'. Advertisers need to ensure that they establish and maintain a consistent and robust framework for managing agency relationships and tasks on a daily basis.

5. Addressing the emergence of procurement departments. There is a perception that marketers have deferred the gritty part of relationship management to anonymous procurement teams whose focus is unit cost, not value. Agencies are often caught in the crossfire between warring departments, with frivolous marketers on one side and procurement professionals on the other.

Procurement functions provide real benefit to business, and advertisers must take responsibility for setting out the strategy for their involvement in agency relationships. I believe that both agencies and clients have a responsibility to work together to drive transformational change so that the world of marketing communications delivers on its promise.

ABOUT THE AUTHOR

Mark Hunter is CEO of Molson Coors and president of ISBA.

[email protected]