As we approach the ICA Agency Transformation Summit in May, we should be ruminating a little more about how we can better define and defend the tangible value of what ad agencies do day-in-day-out. In most instances, debate over what constitutes ‘value for money’ to the client comes down to haggling over spread sheets of agency resources and hours. This Transformation is an opportunity to step back from such ceremonial processes and consider the client/agency relationship in more fundamental terms. Kicking off that consideration now, you’ll have to forgive me because I need to get more theoretical than practical here to do so.
Firstly, we have to recognise that different agency services provide objectively different kinds of value. Although all agency services provide clients with solutions to problems of one sort or another, we could usefully define the nature of these problems differently: those with ‘finite solutions’ and problems with ‘infinite possible solutions’. For example, downstream production – the duplication and distribution of an ad asset to various media – represents a problem with a finite solution – i.e. the job will either be done correctly or it won’t, hence its solution is finite. However, the need to develop a communications strategy and a creative idea represent problems with unlimited possible solutions. These problems don’t have one right answer and their effectiveness can only be evaluated after the fact by whether the campaign achieved its objective or not.
Continuing this thought, these two types of problem could also be defined as the difference between costs and investments. Costs are the finite problems; they are undesirable drains on financial resources and should be either reduced or avoided as much as possible without compromising the integrity of the solution. Indeed, technology has helped us vastly reduce such costs compared to the photo-mechanical duplications of decades ago. In contrast, investments are desirable uses of budget, insofar as they are expected to deliver a return that is greater than the principal invested. To express this difference another way, if I get the right ads in the right media on the right date I can’t add any greater value than to have performed that task correctly. But, if my strategy and my creative idea are persuasive, they will create a greater ROI than if they were poorly thought out, ill-conceived or poorly executed.
Although downstream production has been increasingly annexed from creative agencies, which once routinely delivered this as part of their full service, clients still demand tangible and specific service levels so agencies still provide both finite and infinite solutions, though much more the latter now than they once did. Therefore, the challenge for clients is to know how much they should pay agencies when agency fees are mostly investments, or when it’s difficult to distinguish between which services are costs and which are investments.
The choice involved in any investment is similar in many ways to investing in advertising services, but the nature of investment tends not to be the subject of agency and client negotiations. We can put the level of client investment on a continuum. At one end there is a minimum amount – let’s call this critical mass– and at the other there is a maximum amount which is dictated by what we can call diminishing return, when the yield of additional value to spend is negligible or costs more than the return it provides.
However, the particular challenge for the negotiating agency is often marketing procurement, and for two reasons:
Marketing procurement rarely seems to distinguish between costs and investments, not least because procurement is rarely accountable for marketing’s effectiveness.
Both marketing and procurement frame their definition of value by the amount of money they invest/spend rather than the return that might be determined by it or, more crucially, the degree to which overall marketing ROI might dependon it.
For example, it is still bewilderingly common place for junior brand managers to be charged with running pitches for packaging design briefs. Yes, as a proportion of the marketing spend packaging is often relatively small – even comparable to a rounding error – but that is not to say that the price paid is indicative of packaging’s value. If a brand invests the vast majority of its marketing investment in advertising and media to drive consumers to buy their brand only to lose them at the point of purchase because their packaging isn’t as good as their competitor’s, it would be madness. But it’s not uncommon to see brands’ campaign efforts grow the market and not the brand.
However, if the value of a marketing asset were defined not even by the return on investment but by the whole campaign’s dependencyon it for ROI, then clients might be persuaded to think differently about whether they want to reduce that investment.
By way of a further example, if we consider the difference between the budget expended on media planning(a problem with unlimited possible solutions) and media buying(a problem with limited possible solutions), the effectiveness of the latter dependsupon the effectiveness of the former. Not only that, but the return on bothof these investments depends upon the strategy and planning. We could consider this in the figure below as a cost to value ratio.
Now consider this: most, if not all in marketing procurement, are charged with achieving a savings target each year in whichever category they operate, and marketing is no exception. When the procurement industry first began searching for savings in marketing, they went to the highest spends first, so media spend and production got more scrutiny than packaging or market research at the lower budget end of the scale. But now that many in marketing procurement have got to grips with these higher-budget items, they are starting to pursue the lower-budget items to find their savings. Procurement is having to be more inventive and negotiate harder.
But let’s think about that for a minute. Market research – the brains behind the entire marketing strategy, the key determinant of the effectiveness of the whole marketing investment, is firstly considered less important than media because it costsless, and secondly considered a source of savings. As an analogy, it’s not unlike taking part in a trans-Saharan rally and choosing to buy a cheaper map despite the risk of its inaccuracy. Keystone services such as research, strategy and creative, upon which overall success dependsmust be identified as such, and their investments protected - in the interests of the client.
So, we need to encourage advertisers to turn the telescope around for their own sake; to consider the criticality of some keystone agency services to their success, and to realise that if they disinvest from these services they run the risk of diminishing their overall commercial return for the sake of a small saving.
And a financial saving that comes at a greater commercial loss is not a saving at all, it’s a loss. Without the keystone everything falls down.
Author – How to By a Gorilla.
David Meikle is keynote speaker at ICA Agency Transformation Summit, Toronto, May 14thand May 15th.