The End of “Agency of Record” Relationships?
Since the turn of this century, the “Agency of Record (AOR)” concept has died a not-so-slow death. With new channels and technologies born every day, marketers no longer have the expectation that any one agency can stay up with it all. Instead, they assign a federation of “best-in-class” resources not only to help solve marketing problems, but more importantly, to identify new opportunities.
Why is this happening? A recent report from the consultancy R3 points to factors ranging from the globalization of marketing to the proliferation of message types to the growing expertise of marketers. That last point — increasingly sophisticated marketers — is foundational to this phenomenon. Harvard’s Clayton Christensen observes that we are seeing a shift in the competitive dynamic from the dominance of integrated solution providers, which are designed to meet the majority of a client’s needs, to providers who offer services in a much more modular way, specializing in a specific link in the value chain.
In 2015, Chief Marketing Officers have access to all the information they need to identify and assess world-class resources in virtually every dimension of marketing, from CRM to social media. And their access to a global talent pool means they can find and hire agencies, freelancers, and virtual networks virtually anywhere in the world.
In marketing as in law, accounting, and architecture, the era of the one-stop shop is over. The only market left for “full-service” providers is small companies and small clients — those who lack the money or sophistication to work with multiple providers of professional services. There’s still a need for the country lawyer, but only in the country.
Collaboration now as valuable as creativity
More convincing evidence of this perma-trend came this year from the 4As (American Association of Advertising Agencies), who replaced their long-standing awards competition for creativity with a new competition based on agencies’ ability to partner with other agencies: The Partner Awards. Needless to say, there is no single winner in the Partner Awards, but at least four or more. This new reality is a difficult adjustment in an industry that is as much art as commerce. Collaboration is now prized as highly as creativity.
But there’s one more reason for the demise of the generalist and rise of the specialist. Marketers need better business results. What used to work in 2000 (and perhaps for 50 years before that) no longer produces the same result. Thanks largely to the DVR, a dollar spent in mass media isn’t nearly as valuable today as it was then, and a dollar spent in digital media is split between so many marketing technology intermediaries that only 40 cents of it actually reaches the screens of computing devices.
Marketers need expertise now more than ever, not only to help optimize their current marketing programs but to “test and learn” by running experiments to find new and more potent ways to reach prospective customers. In marketing as in science, art and academia, the ground-breaking work is being done by people with deep expertise in their fields, not the generalists who skim the surface of innovation.
There’s another critical new dimension to this new marketing framework now being practiced by the Fortune 1000 and beyond. As marketers access the talents of best-in-class partners, they increasing approach the relationship in a project-based way. At The Coca-Cola Company, every marketing initiative is approached as a project, and Coke’s agencies go through an extensive evaluation process designed to marry the company’s specific marketing needs with the agency’s specific areas of expertise. Coke’s agencies are able to climb the ladder from “Project Agency” to “Partner Agency,” but even those who make “partner” are still assigned a string of projects in place of the traditional retainer-based relationship.
This new reality has at least three major implications for agencies:
Agencies have to solve better
To meet the needs of today’s marketers, agencies must have either deep-rooted functional expertise or category expertise, or both. There are no longer many buffers for getting up to speed, unlike the retainer or “AOR” relationship of the past. Plus, having a functional or category focus allows agencies to solve better and faster, which helps produce not only results for the client, but profits for the agency.
Agencies have to deliver better
Most agencies were built around a production process that relied on reasonable if not generous production timelines and budgets. Today’s project-based model requires agility and workflow management that most “full-service” agencies struggle to achieve. Hence the new class of marketing implementation specialists like Tag Worldwide, ICPand H&O, which are optimized to produce work faster, cheaper, and better (from a QA standpoint) than traditional shops.
Agencies have to price better
Agencies have long been amateur sellers up against professional buyers (purchasing and procurement professionals at client companies), because they have never really studied the principles and practices of professional pricing. One of the repercussions of this negligence is that average agency profit margins have been on a steady march downward for almost 20 years, and now the project-based environment exposes the multitude of sins that some retainer-based relationships used to cover. Most agencies have unfortunately become a variation of the Oscar Wilde quote, knowing at the cost of everything and the value of nothing. They know the science of costing, but not the art of pricing.
In regards to pricing, prospecting, and even project management, it’s quite possible that today’s new best-in-class, project-based environment will function as what agency professionals Adam Morgan and Mark Barden call “a beautiful constraint” against which agencies can now innovate and implement new business models. In this sense, perhaps it will even be a blessing in disguise.
___________________________________________________________
Tim Williams leads Ignition Consulting Group, a U.S.-based consultancy devoted to helping advertising agencies and other professional services firms create and capture more value. He is the author of Positioning for Professionals: How Professional Knowledge Firms Can Differentiate Their Way to Success.
*This article originally appeared as part of the LinkedIn Influencer series “Big Ideas of 2015”
