I had a lively conversation over lunch last week with an agency head and his largest client. We were talking about digital media, connected consumers, and how they're shaking up the advertising business as we've known it. We each saw things a bit differently, but we all agreed that the traditional ad agency business model is fatally broken and needs to change.
The client chided the agency head: "We need you to do more with less, especially when it comes to execution tasks like media planning and buying. I don't want to pay by the head for monkey work." Ouch. More generously, she said she valued the agency's strategic message and program development work and hoped they could make better use of analytics to connect total client investment to results.
The agency head noted that the client's procurement department had squeezed the AOR (agency of record) fees so tightly that it made it difficult for the agency to invest in innovation efforts - like analytics - that would enable it to become more strategic. "Procurement has drained the life blood out of agency-client relationships." The client nodded sympathetically.
I had to chime in with, "Isn't this why programmatic buying was invented?" I qualified my question by explaining that tech geeks like me are excited about the rise of ad exchanges, demand-side platforms (DSPs), real-time bidding (RTB), etc., but the reason these things are being adopted so quickly is that they solve a fundamental business problem for both the agency and the client. Using smart software to help do "monkey work" means - at least in theory - that the agency can reallocate staff and resources to focus on more strategic messaging and communication work that moves the brand forward.
My reasoning roused everyone from "complain mode" into thinking about the future possibilities. How can the role of agencies of record (AORs) evolve not just to survive but to actually thrive in the digital age? With credit to my lunch guests, here are five ideas for how the AOR of the future might redefine its value to clients:
Offer Outcome-Based Relationships
Arrangements based on fees for execution (cost of media) and full-time equivalents (FTEs) on the client's account reward the wrong behaviors - doing stuff and staffing accounts with many people. They also make for crummy agency economics. Think like a money manager; you should share in the upside if the investments you're running are successful. Sure, clients might balk, but consider putting your own skin in the game…which leads me to the creative side of the equation.
Inform the Creative Brief With Analytics
Some AORs are wary of performance-based compensation without complete creative control (e.g., the client who insists on a sure-to-fail creative message or strategy). But you can now use a tool like a DSP to measure consumer behavior in reaction to various creatives. Then overlay demographic or other consumer data on "responders" to better understand which of your client's segments engage best with various messages. For a fraction of the cost of traditional research and in much less time, you can generate a more accurate view of the consumer (measuring what people do rather than what they say about an ad).
Integrate Customer Acquisition and Retention Marketing
Helping a brand acquire customers has long been the exclusive domain of agencies, and CRM (retention or upsell marketing) has been handled by other specialists or by CRM systems run by the client directly. However, as more marketers successfully leverage consumer data for acquisition in digital media ("faces not places"), these disciplines are starting to converge. AORs have the opportunity to expand data-driven marketing acquisition programs (buying audiences, retargeting prospects) to the data-rich environment of customer relationship management.
Create a Data-Driven "Learning Framework"
Audience buying, auction media and bid management, data management, customized multi-channel attribution models - there is a plethora of new, powerful digital marketing strategies and tools available today. Unfortunately, there's also a shortage of expertise in their use. There's never been a better opportunity for AORs to play the role of the trusted expert that guides a client through a bewildering array of options, vendors, and - most importantly - strategies. We see clients and agencies routinely struggle with design, assessment, and strategy regarding data-driven tools and ways or working.
Deliver Customer Intelligence
Global brands have embraced business intelligence (BI) tools to measure and optimize their business operations. As consumer use of digital devices becomes ubiquitous, there's a huge opportunity to harvest the consumer behavioral data generated by a brand's various digital assets. This data can be analyzed, visualized, and put to work in guiding decisions about products, offers, budgets, and media plans. All digital media investments can now be considered research, as distribution and measurement of engagement with your content creates rapid, inexpensive, and highly actionable insights that would be otherwise unavailable to your client.
If you're an agency of record, you cannot afford to outsource elements of your value proposition to third parties. You know the client better than anyone else. If you in-source new tools, vendor relationships and capabilities - granted, that's a big if - the future might be better than the past and the present. Who knows, maybe we're on the cusp of a new golden age for the AOR, and they'll be making movies about you 50 years from now. What do you think?
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Mike Baker is president and CEO of DataXu. He has been pioneering digital media platforms for 20 years and is a widely recognized thought leader in interactive advertising. Before cofounding DataXu, he was vice president at Nokia, where he created and ran Nokia Interactive. Baker came to Nokia through its acquisition of mobile advertising leader Enpocket in 2007, where he was the founding investor and CEO. Baker was previously a partner at venture capital firm GrandBanks Capital. He has also been executive vice president at CMGI and Engage Technologies, an innovator in online advertising and behavioral targeting. Baker holds degrees in law and telecommunications management.
December 12, 2013
1:00pm ET / 10:00am PT