The Agency-Client Relationship is Forever Changed

In my recent work with clients, many of them have articulated an urgent need to improve the effectiveness and efficiency of their relationships with agency partners and vendors. It used to be much easier, when there was one, giant agency-of-record (AOR) that was supposed to coordinate all the moving pieces to ensure the client got the best work. But with the rise of digital, there are so many new technologies, tactics, and techniques that it simply isn’t possible for any one agency to have all of that expertise in house at the same time.

Trend Toward Specialization

The last few years has seen the dramatic rise of small, niche specialists in various digital disciplines like paid search, organic search optimization, mobile marketing, etc. and also the rise of tools providers, measurement and analytics players, etc. They each carved out a tiny and highly specialized area they could make money on. And clients added many of these new vendors and partners to their rosters to perform these specialized tasks, augmenting the core services provided by existing agencies of record, which were no good at any of these new disciplines.

Unfortunately this has led to the current situation – dozens of agencies working on various parts of marketing projects and little coordination among them. These vendors were hired by different individuals from different departments on the client side.

Only recently have marketers started to ask how the various digital disciplines fit within the greater context of their overall marketing and advertising and how the various agencies should interact with each other to coordinate their activities.

A Historic Focus on Production

In the current situation, where each vendor is busily working away at its own task but with little to no coordination with other vendors doing other marketing activities, clients are getting underserved – budgets are fragmented, costs are higher, inconsistencies are rampant, and business impact is adversely affected — euphemistically, “sub-optimal.” This is like having one chef beating the eggs, another sifting the flour, and a third chopping the nuts in different parts of the kitchen. They don’t talk to each other and they don’t mix their ingredients together to make cookies.

Historically, agencies got paid to execute campaigns and make stuff (e.g., make the TV ad, produce the print ads) – once the client bought the “big, creative idea.” Even to this day, the smaller digital specialists get paid to “do stuff” – like run a paid search campaign, make a website, send out emails, make display ads, etc. And they often give away the big idea in order to win the business – a la the days of Mad Men.

But these days, the margins in most forms of production work are being pushed down to zero or even negative, because

  1. There are other vendors who can do it for cheaper with lower cost resources (e.g., developers in India or China).
  2. Smaller vendors can do it for cheaper because they have less overhead.
  3. Procurement departments are getting involved and triple-bidding everything and CFOs are asking for more ROI.

So if agencies can no longer make a living on production, what else can they do?

Many Agencies Now Hang a “Strategy” Shingle

Do strategy, of course. Or so they think.

Most agencies now say they do strategy too. But how do clients tell if it is good or bad, or even if it is strategy at all? Well, obvious red flags include:

  1. The “strategy” was developed by a 23-year-old account person straight out of college with no digital experience, no marketing experience, and no business experience.
  2. The “strategy” looks like a laundry list of tactics that the client should choose from; and
  3. The “strategy” starts off with all the cool stuff you can do in digital, with no mention of metrics or how it maps back to business impact.

Additional points are covered in my ClickZ article from earlier this year, Digital Strategy and How to Tell if Your Agency Has Any.

Further, if agencies submit proposals where they charge for the production work, but give away the “big idea” or strategy, then how good could that strategy possibly be if they developed it over the course of the pitch (e.g., a week or two) with little to no interaction with and input from the client?

Also, if the tactics they are recommending are the things they make money on, how objective could they possibly be in finding what is actually the best for the client? There is an obvious and inherent conflict of interest.

I would respect an agency more if they actually charged fees for and took appropriate time for the development of a strategy, which should include collaboration with the client who has industry specific knowledge and experience. The strategy should show direct correlations to the client’s business and marketing goals. See the chart “Digital Strategy Tree”.

Most agencies don’t do this and most are really not set up to do it – they don’t have people who are experienced in business strategy, marketing strategy, and digital strategy.

Clients’ Department Silos Hinder Efficient Marketing in the Digital World

The client side of the house also needs to be optimized. As mentioned before, sometimes different vendors are hired by different individuals in different departments. Sometimes, former e-marketing departments morph into “digital” departments but remain separate departments from IT, marketing, branding, etc. Sometimes, digital duties fall in the IT department, social media duties go to PR, and website design goes to brand managers.

All of this leads to cases of too-many-chefs or design by committee, which inevitably ends in hodgepodge websites or inconsistent social presences. And approval processes involving many departments or stakeholders are ultimately too inefficient to be effective in the new digital age, where speed is of the essence.

Articulate & Standardize a New Value Chain

So how should clients proceed with optimizing their agency relationships? The first step is to articulate a new value chain, where developing the right marketing strategy is the first and most valuable step. Then, agency partners and vendors can be invited to articulate digital strategies and select specific tactics that map to the marketing strategy and can be shown to directly impact business objectives. This should be a process, done in collaboration with the client, not done in isolation. The real value is in the correctness of the ideas and strategies, not in the creativity of the big idea, as it once was in a TV-ad-centric world.

Once a strategy is created, the right executional partners should be selected to carry it out, with metrics in place to monitor the progress in real-time so optimizations can be made while the campaign is still running, not after it is over. In this way, the process of creating strategy is much more like the scientific process, rather than a creative exercise, because we start off with a hypothesis, supported by a deep understanding of customers and the industry. Based on this hypothesis we run initial campaigns (i.e., pilots or experiments). Then the data is immediately analyzed to see if the hypotheses were correct and tweaks are made if necessary. This is an iterative process, with continuous improvement.

This is a value chain that is foreign to most agencies and clients today. But trends point to it as a necessary next step in the evolution of agency-client relations. What are you and your departments doing to adapt and drive this change?

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