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Home Advertising

The state of agencies today – here and abroad

by Glenda Nevill
March 16, 2011
in Advertising
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The state of agencies today – here and abroad
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The Independent Agency Selection and Search Company’s (IAS) counterpart in the United Kingdom, the AAR, recently conducted a survey and polled the top 25 CEO’s of global adverting agency networks and 15 in the UK.

TheMediaOnline asked Johanna McDowell, managing director of the Independent Agency Search and Selection Company, to put a South African spin on the results of the survey. The original survey is carried below the IAS response.

Do you agree with the answers to the first question asked, regarding the challenges CEOs of agencies are facing in a South African context, or are there other issues here that are perhaps unique to the SA situation?

I think that some of the issues are not yet that apparent in SA but that they will become so within the next 18 months.

Does SA have to deal with “managing the apparent spilt within clients companies, between marketing and procurement agenda”?

It is not yet as much of an issue as it is in US and Australia but it is an issue here nonetheless and one that savvy agencies need to be aware of.  Procurement are asking marketing for much more business return on investment proof from their marketing activities including the monies spent on advertising.

How are we doing on the talent acquisition point? Are there specific programmes set up to help build the careers of people in this industry?

There is a gap between what is offered at the various schools and universities of advertising and what is happening in the workplace.  There would be benefit in agencies having in-house mentoring programmes to develop their people.

Is there a high turnover of staff due to headhunting?

No – that is not the case. It is more about staff believing that the grass is greener in a new environment. They are quickly disillusioned and then want to move on again.  There is real “people churn” in the industry.

What are business opportunities like for SA agencies or are they too facing a lack as in the UK?

I think that things are much better here due to the entrepreneurial nature of SA. But agencies have to be much more versatile in general here.

Globally 60 % of clients rely on agencies services, 40% of UK clients rely on agencies services : how do we look in SA?

I would say we are at 60%.

Are clients trying to get business done more cheaply due to the recession?

I am not sure that clients know how to evaluate costs of various things so I don’t even know if they do cost comparisons on anything intangible. Printing costs are easy to compare for example, but retainer fees are not as each agency has its own system. However, clients will always look for less expensive ways of doing things or greater added value.

And are agencies succumbing?

Yes – they are not trying to work things through with clients and are giving in often without a fight. It is not necessary for them to do that but I think that the after shocks of the recession have caused some agencies to panic.

Considering how tricky procurement is in SA, with BEE etc thrown in to complicate matters, what is your response to the UK question: Does procurement act as a facilitator, a barrier or have little or impact on your agency’s ability to better service client needs?

I don’t think that procurement has had a huge impact on agencies yet apart from the BEE factor.  Many agencies have risen to that challenge and are actively attending to their BEE on a continuous basis.

Most clients now will not even consider any agency whose score is below level 5 and in fact, there is much more competitiveness around the Level 3 BEE mark, as many agencies have brought their compliancy up to that level.

With BEE taking precedence over everything else, cost issues come further down the agenda and generally Procurement simply try and compare like with like which is often not possible.

What did people talk about, what were the themes, when you presented these findings to the New Business Masterclass?

Our main theme was winning new business. We talked about the situation “out there” in terms of levels of competitiveness for business, how agencies need to position themselves accurately as clients do struggle to see the difference from one agency to another. We talked about Pitch Makers v Pitch Breakers – with 20 tips.

Plus we talked about lead generation as opposed to “ambulance chasing” new business tactics.  We had about 40 people at our Masterclass from about 25 different agencies across all disciplines. A fair amount of time was spent discussing the problems that agencies face – and how clients need to be educated. Our view on this is that agencies must continually work at educating their clients in such a way that business becomes sustainable.

Please unpack this: If inward investment is not re-introduced to a significant degree, the sense is that not only will agencies suffer, but as a result, their clients will too.

On an international level, global clients need to start spending again. They have not stopped spending altogether during the recession but levels are nowhere near what they were three years ago.  This means that agencies are only able to provide “maintenance campaigns” for their clients with no new creative and production work and minimal media spends.  This in turn does not allow agencies to re invest in their own systems and people as they are not making sufficient profits.

“Beyond a general economic upturn, there appears to be little that will significantly change this overall situation.” This is quite a depressing finding. Do you concur? If not, what is your take?

I do concur. What we have seen in South Africa across the board is that agencies are either shrinking fast or disappearing altogether. Only those with strong infrastructure and good support are growing along with one or two start ups.

“It is generally recognised that the more clarity agencies can create in linking the impact of their actions to the impact on clients business, the greater chance of success they will have in justifying the value they believe they contribute.” What tactics could be used to address this?

It is all about return on investment and about agencies talking to their clients about what their campaigns have done or are capable of doing for client business.  So clients want to hear what agencies can do for their businesses as opposed to hearing what awards agencies can win for client campaigns. Effectiveness that can be measured is what clients are looking for.

Clients also want to be talked to in their own language not in “advertising speak” so the more that agencies can demonstrate an understanding of client difficulties and client day to day workings the greater chance the agency has of obtaining client ‘buy in’ to any new ideas.  Also agencies will then come up with ideas that are relevant to client’s business and that will create a real return.

GLOBAL / UNITED KINGDOM SURVEY RESULTS

What’s on the minds of Agency Chief Executives?

Five questions were asked to get a sense of some of the challenges they are currently facing.

1. If you could wish for one thing from your clients, what would it be?

  • A better understanding from clients of the complexities and economies of running an agency
  • Payments based on ideas
  • Braver clients who support big ideas
  • Less reliance on research and quantitative testing
  • More client boardroom discussions about marketing communications.
  • An understanding of the real economies of our business

2. What are the three biggest challenges your agency network is currently facing?

  • Talent acquisition and growth
  • Trying to maintain internal levels of investment across people, technology and geographic growth
  • Changes in technology and the growth complexity of production
  • Demonstrating effectiveness on client business
  • Managing the apparent spilt within clients companies, between marketing and procurement agenda
  • A lack of significant new business opportunities.

3. Are your clients relying on agency services more, about the same or less now than before 2008?

  • Globally 60 % of client rely on agencies services
  • 40% of UK clients rely on agencies services

4. Where there is an increase workload is being seen, is the agency being remunerated fairly, less that fairly or not at all?

  • Globally 40% of agencies are being remunerated fairly
  • 27 % of UK agencies are being remunerated fairly.

5. Does procurement act as a facilitator, a barrier or have little or impact on your agency’s ability   to better service client needs

A disappointing but clear point of view is given from 60% of CEO’s, who agree that procurement generally prevent them from being a better agency to service their client needs

In Conclusion

There is little that’s surprising in the issues both global and UK CEO’s have over the challenges they face. What is evident is the strength of feeling with which these concerns were expressed. If inward investment is not re-introduced to a significant degree, the sense is that not only will agencies suffer, but as a result, their clients will too.

The challenges identified are linked to increased pressure being placed on agencies, which are often met by a less than fair (if any) increase in remuneration, this creates greater pressure on margins, thus exacerbating the lack of inward investment.

Beyond a general economic upturn, there appears to be little that will significantly change this overall situation.

The perceived gap between procurement’s lack of support of agencies, and agencies desire for their endorsement as genuine business partners remains worryingly wide.

It is generally recognised that the more clarity agencies can create in linking the impact of their actions to the impact on clients business, the greater chance of success they will have in justifying the value they believe they contribute.

Tags: AARadvertisingBEEIASinward investmentJohanna McDowellmarketingprocurementreturn on investmenttalent churn

Glenda Nevill

Glenda Nevill is the editor of www.themediaonline.co.za She is also a writer, communicator, dog walker, mother, worshipper of Burmese cats. Loves rugby and beach walks. Hates bad grammar and bad manners.

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