A Survival Strategy for Agencies

The recession snuck up on us. The tragedy of Sept. 11 added doubt and downward momentum. Clients seem to be in suspended animation. Projects and entire relationships are being re-evaluated, killed or put on indefinite hold as budgets are squeezed and eliminated.

Agencies had already begun pruning their staffs and their client lists. Bean counters emphasized cost controls and aggressive collections. Everyone is out pitching for any incidental piece of business they can find.

In this downturn, agencies are reacting to events rather than anticipating or influencing the business conditions. This was not always the case. The inability to control our fate is a byproduct of a steadily eroding set of agency relationships, a loss of access to key client decision makers and the general commoditization of direct marketing.

Agencies have always been at the mercy of client anxieties. And agencies have always been the whipping boys for all manners of brand or product performance issues. Everyone understands that agencies exist so they can be fired.

Everyone also realizes that the core agency value proposition is either “We know or can do something you cannot” or “We have arms and legs to get things done faster, better and/or cheaper than you can do it yourself.”

But in the past 10 years, agencies have had even more tenuous relationships with clients. The list of clients that broom agencies quickly seems to be growing. Pile and Co.'s latest research indicates that clients change agencies on average every 2 1/2 years, twice as frequently as before. There are all kinds of reasons, but the bottom line is that few clients believe that agencies are long-term partners.

You cannot be a partner if they do not know you well. For too many agencies, CEO-level contact is nonexistent or consists of a single dinner or golf outing each year. Rarely are agency chieftains, especially direct marketing ones, part of a client's inner circle. Instead, agencies and their leaders have become receivers of strategic output and implementers of tactical plans.

Yet that role, too, has a built-in trap. Aggressive cost controls and benchmarking have given savvy clients unusual leverage. Many specify upfront the time, cost and staff to produce a postcard, a Web site, an e-mail campaign or a No. 10 mail package. Few are willing to pay for anything but minimal staffing. Even fewer are willing to pay for senior people who allegedly bring added value.

When you consider that several of the leading direct marketing industries like telecom, insurance and financial services favor white mail as their primary direct marketing vehicles, the creative differences are virtually eliminated and you can begin to gauge how much this business has become a commodity influenced by a downward trend in price and profitability. Smart clients know they can get a well-targeted, serviceable direct marketing piece out in six to eight weeks for less than 50 cents a unit fully loaded. And if their current resource cannot do it, there are five hungry competitors that can or will at least promise to do it.

Yet agencies, from two-person shops to global conglomerates, seem to be impotent to affect the size, timing or sequence of client spending. Agencies are output. It is a sobering thought, which fundamentally changes the game, and it should scare the bejesus out of anyone serious about an agency career or a role in agency leadership.

But does it have to be so? Maybe not. Yet changing your circumstances will require changing the way you orient yourselves and the way you do business. Consider the following areas where you can leverage your knowledge and experience:

Leadership. Clients hire agencies that have a point of view. If you do not have one, you are just another agency that can crank out pretty pictures or punchy copy. Too many agencies either have not developed or articulated a distinguishing point of view or are unwilling to expose their point of views for fear of rejection.

Direct marketing agencies especially have practical knowledge not only about a client's strategy but generally understand the distribution channels, the media, contact centers, customer service, fulfillment, retail traffic patterns and nuts-and-bolts operational reality. You need to use what you know and what you see to better guide and direct your clients' targeting and spending.

Leadership requires agencies to get ahead of their clients by thinking through and anticipating events, sketching out likely competitive scenarios, understanding the power dynamics within client organizations and presenting “crazy” ideas or trial balloons for client consideration. Doing this requires proactive thinking and investment spending. It also requires that agencies train junior people how to do these things and use senior, seasoned people to get top-level access and to put this stuff across persuasively.

It helps if an agency has an individual who can carry these messages with credibility, gravitas and humor. Too many of us have reverted to the era of the “man in the gray flannel suit.” We shun anybody too colorful. Yet as the purveyors of color, we do ourselves a disservice. Think about it. Is there anyone who has the impact or showmanship of a Lester Wunderman in today's direct marketing world?

Efficiency. Developing tools to train, manage, deploy and effectively use your people and resources is critical to maintain margins and grow profitable businesses. Now that most agencies have adopted the professional services fee model, you need to catch up in terms of maximizing the productivity and use of your primary resource … people.

This is not a software problem. It is a matter of understanding who you have and what they can do and mapping these resources against client needs in real time. Planning who will do what to whom spells the difference between profitability and loss and ensures a motivated, gung-ho staff. Arranging to teach team members and fill in the gaps in their personal skills sets should be central to an agency's social contract with employees.

For years, those of us in the industry have created separate departments, incented them to be different and often competitive, rarely cross-trained anyone and assumed that each account would be staffed with a pickup team of account, creative, production and media people. It never bothered us that the actual pace of work meant that some people were always busy while others sat around. We were willing to tolerate a great creative working with a so-so account guy.

On a macro level, we rarely looked across the agency to match players to accounts based on skills, availability, experience or chemistry. Nor have we parsed work among or between teams to capitalize on expertise or economies of scale. Nor have we used time zone differences, cost differentials or global resources to move projects ahead faster or to squeeze out better margins.

Alliances. Every agency has loads of alliances. They are usually touted in press releases. Yet few can capitalize on these relationships to the benefit of clients. And while they sound good in credentials presentations, far too many agencies can't, don't or won't leverage these alliances because they are fearful that they cannot control the ally's end product, or they fear disintermediation resulting from any relationship that might sprout between the ally and the client.

These twin demons — paranoia and the egotistical need for control — have undercut most agencies' claims and burned our credibility in offering clients the ever-elusive “integrated solution.”

The inability to leverage alliances (both within and outside networks) has frustrated the likes of Martin Sorrell, group chief executive of WPP Group, and John Dooner, chairman/CEO of The Interpublic Group of Companies Inc., and led clients to reject the idea that they can get full service from any one agency or group of agencies.

Clients think that each agency has one or two core strengths. Nobody really thinks that any given agency is tops in everything. Fielding a coordinated team of agencies that will uniformly understand client objectives and culture, work in a coordinated manner, deliver against integrated timetables and husband precious marketing dollars is the holy grail. Orchestrating alliances is the best chance for finding and delivering the grail to your clients.

Leadership, efficiency and alliances are three areas you can grab onto and use to rebuild your leverage and credibility with clients. They are areas that you directly control. And they have traditionally influenced relationships with clients. Attacking consulting firms and whining about the economy is not the answer. Taking control of your own means of production and your own destiny is.

Related Posts