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Geoff Russell: Thoroughbreds not donkeys

01 Sep 2009  |  Geoff Russell 
geoffrussell

The IPA's Geoff Russell explains how demonstrating the value of the services clients receive can help the fight against increased cost cutting.

There is a story about an Egyptian peasant who decided to save money on his donkey by progressively cutting down on its hay.

"All was going beautifully," he said, "but sadly, just when I had got it down to nothing, the donkey died..."

There are a lot of agencies out there at the moment which must be feeling a little like that donkey.

In a marketplace which is becoming increasingly more complicated, they find themselves on the horns of a dilemma. On the one hand, they need to be able to show their clients that they are experts in an ever-multiplying, ever more complex number of media, while on the other they have to contain and even reduce costs.

The trite response in these circumstances is to say that they simply have to "work smarter". That's fine, but it will only go so far.

There would appear to be a belief in some quarters of client procurement departments that only when reductions in remuneration result in the actual failure of an operation, have they cut too deep. Until then, they are simply taking away the fat.

In one of his amusing and always perceptive Campaign articles, Jeremy Bullmore recently described the agency business model as insane, highlighting among others, the following key features:

  • Work is always done on a sale-or-return basis;
  • Everything is different;
  • If clients don't like the first product they are offered, agencies have to make another one for free.

Of course, anxious to please, most agencies have always worked in this fashion. However, with the tightening of remuneration arrangements and client procurement departments constantly chopping away, one has to question how long this can continue.

In an article on "Value Capital and Creation with Suppliers", Dr Victoria Zammit of Avante Partners in New York, advises her procurement colleagues to identify the levers "that can yield significant... value by constantly probing the links in the chain and jointly exploring 'what if' scenarios."

Unfortunately, in all too many instances, these scenarios are rarely "jointly explored" and simply become an exercise in buyer power.

This is the philosophy which has seen many clients seeking to renegotiate agency remuneration arrangements on an annual basis. The pressure is inevitably downwards, and, sadly, the resulting levels of payment, increasingly divorced from media spend, may not necessarily recover with the return to more buoyant economic conditions.

Each cut becomes the new normality.

The consequences of this are easy to work out and none of what I am about to say will strike anyone as new. One of the first casualties in these circumstances is overall manpower, next comes a reduction in senior (experienced and more expensive) individuals. Since training budgets do not bring immediate returns, these too shrink and in many cases disappear altogether. Thinking time is squeezed as more and more is asked of remaining personnel.

And then there is research. How many agencies now have the financial freedom to invest in R&D activity? It is difficult enough finding the funding to cover the ever-increasing costs of the various industry media research "currencies", where fragmentation has meant that the revenues for individual media have reduced, while their greater complexity has driven up their measurement costs. And yet effective planning and new thinking are vitally dependent on a finer and deeper understanding of consumers and the media they use - hence IPA TouchPoints, an increasingly important investment agencies must make.

But this is just economic reality, isn't it? Except that to make proper sense of an ever more complex media marketplace requires time, experience and insight. Spending media money to build shareholders brand assets on the basis of anything less than the most thoughtful planning and buying is a very expensive way of reaping the rewards of an over harsh remuneration settlement.

On 21st June, the Borough of Hammersmith and Fulham held a reverse e-auction and proudly proclaimed that it had cut an estimated £2 million off the cost of stationery for London councils. Dealing in a commodity with a fixed specification like paper, it was probably justified in its pride - even if it left its suppliers bruised.

Hammering costs from suppliers whose "product" is more intellectually and creatively based is far more dangerous.

In this context, it is clear that the main priority for any agency that wishes to push back against the tide of commoditisation is to demonstrate the value of the services it delivers to its clients. Thus the recent publication, How share of voice wins share of market could not be timelier.

This key report provides quantified evidence that top-quality strategic thinking, channel planning and creative content produces a better return on marketing investment. Indeed, the return on the IPA Effectiveness Awards FMCG cases is 60% higher than the Nielsen average. Surely it is worth paying an agency properly to achieve that added value?

In 2010 we will be celebrating the 30th anniversary of the IPA Effectiveness Awards and this provides the thoroughbreds among agencies with another excellent opportunity to demonstrate their worth.

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