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2014's Top 100 Digital Agencies report has revealed some changes in the agency landscape.

I've been looking at changes to the agency model. In part one I looked at PepsiCo's Galaxy model, the trend for marketers and agencies influencing the wider business, and how clients are increasingly embedding agencies or in-housing skills.

In this final part, it's time to discuss the demand for speed and agility, data's influence and changing pricing models.

Speed and agility

Speed characterises many aspects of digital. Customers expect timely communication and quick customer service.

Advertising is becoming targeted and personalised, better able to hit a window of opportunity when potential customers are mostly likely to engage or re-engage. Ecommerce and retail increasingly cater for the ‘I want it now’ journey from online to offline. Social media permits no time for the protracted sign-off process.

Agile marketing is increasingly effective. Ashley Friedlein has described the principles of agile marketing as being the same as those of agile software development.

The latter values:

...individuals and interactions over processes and tools; working software over comprehensive documentation; customer collaboration over contract negotiation; responding to change over following a plan. 

It’s their perceived inefficiency when responding to change that may mean agencies are no longer in vogue.

Interestingly, there is another side to marketing that’s in the ascendancy but may sound like the opposite to flexibility and agility.

Programmatic marketing, the automation of CRM and media buying, is growing rapidly and it’s causing headaches for many agencies.

agile marketing

Data disruption

The digitisation of media is changing the agency model, much as it affected publishers.

More platforms, quicker turnover, greater client expectations and competition with tech companies are some of the reasons the agency model must adapt.

As online advertising becomes more sophisticated with the advent of programmatic buying (see also Econsultancy’s Programmatic Marketing Beyond RTB report) data is creating efficiency and accountability for advertisers with each ad impression bid upon.

However, this data is also helping publishers to optimise their yields, ensuring web real estate is matched with audiences.

So, if advertisers and publishers want better deals and increased transparency, where does this leave agencies?

Rob Norman, Chief Digital Officer at GroupM, made a speech at the International Advertising Association World Congress in Beijing in May this year, addressing the issue of the changing relationship between advertiser and agency.

Rob posted the transcript on LinkedIn and it’s an eloquent discussion of the issue, which you should read in full.

Rob’s main points are as follows: 

  • There are limits to programmatic. The seller has to determine if it will achieve optimum yield, the advertiser what budget they can spend on it, and if the costs of technology and service are more than offset by the gain in price, efficiency and effectiveness.
  • Google, Facebook, Tencent and buy-side ad tech companies like Rocket Fuel.
  • Turn, DataXu and MediaMath all perform agency-like functions, with few of the traditional constraints of advertiser and agency relationships.
  • DoubleClick Bid Manager, owned by Google, is also involved, a buy-side operation that is increasingly easier to use.
  • Relationships between advertisers and publicly-traded agencies have always been transparent (a contract ensuring visibility, delivery and verification), disclosed (so the advertiser knows what underlying costs are), and neutral (the advertiser can expect an agent to always act in their best interest).
  • Clients audit transactions. But, with plentiful supply, abundant data, more technology and questions around viewability and fraudulent audiences, such auditing is far less simple in a
    programmatic world and more generally a digital world.
  • This may be a recipe for distrust throughout the value chain.
  • Some clients might not have welcomed the evolution of the media agency business model particularly when the agency is perceived to supply inventory (rather than act as agent), and provide technology and data (rather than use it). Clients may believe this compromises disclosure and neutrality. 

The point though, is that over the last 15 years, media has changed so much that agencies have had to be very quick to keep up, and now find themselves with around 30% of billing in what might still be called ‘new media’.

At risk of doing Rob a disservice by paraphrasing him, here’s a quote from his piece that should be a rally cry for all agencies seeking to convince clients of their value:

The value of the agency is to look across channels, to distinguish the countable from the accountable, to look at the whole of marketing effect rather than the last click, to use technologies across multiple vendors and to navigate the shifting sands of progress and ownership, to represent the brand across device types, delivery systems and the greatest change in consumer behaviour since the invention of television.

data

Pricing: the bottom line

This is what the agency model boils down to; proving value as opposed to cost.

It could be argued that SaaS platforms across digital and on-demand solutions are increasing expectations of transparent pricing.

Agencies are under pressure due to information available online and are wise to give good information on pricing levels, services available and activities undertaken.

Another finding of this year’s SoDA report is that agencies are not great at estimating project costs. The average self-assessment for all agencies and production companies was just 6.09 out of 10, when measuring their ability to correctly estimate project costs.

With this in mind, it would be unwise for agencies to be too cut and dry about pricing, though it’s clear some clients are becoming disillusioned with the retainer model.

Again, some of this may boil down to how integrated many digital channels are, making specialist project work a more logical proposition. It may not make sense for a client to have a user experience specialist on retainer, for example, as the work may be fairly project-based.

The same may be true of content creation, a burgeoning area of spend, where skills may still be lacking in-house. 

Paying a fixed amount for an ill-defined set of services can lead to inefficiency, as time is spent justifying the time sheet. While agencies might not be well advised to commit to sales or leads, there should be some solid metric from the funnel. It remains to be seen whether the changing agency model is the beginning of the end for the billable hour. 

The definition of value is the most pressing concern for digital agencies right now, as measurement leaves nowhere to hide. In theory, this is good for those agencies that are good and bad for those that are bad. 

Surely we can’t say fairer than that?

price is right

This article was originally part of the Top 100 Digital Agencies 2014 report.

Ben Davis

Published 20 June, 2014 by Ben Davis @ Econsultancy

Ben Davis is a senior writer at Econsultancy. He lives in Manchester, England. You can contact him at ben.davis@econsultancy.com, follow at @herrhuld or connect via LinkedIn.

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Comments (2)

Will Huggins

Will Huggins, Managing Director at Zoocha Limited

Great article Ben - the changing agency model is a challenge on both sides of the client/ agency relationship. The speed of change in consumer behaviour and the rapid accumulation of big data mean that division of skills and resources in house vs agency sourced is difficult to navigate and forecast. This puts pressure on pricing and commercial negotiation.

I believe the winners will be the agencies who focus on the consumer, rather than the channel and brands who nurture relationships with those agencies based on trust, respect and mutual success. Easier said than done.

over 2 years ago

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Peter Madison

At last a good article to read!
It's not easy for an agency nor for a brand to adapt quickly to every change. Communications world is changing very fast and that means that what we call "new media" may finish to be "new" all of a sudden.

I completely agree with Will, the best way to success in both sides (agency/client) is to stablish a strong relationship based in trust and mutual respect, and of course, in targeted advertising and communication. That means, common sense.
Congrats for the article

over 2 years ago

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