How Agencies Big and Small Are Working Smarter in the No-Margin, Pay For Performance Era
P&G’s Marc Pritchard kicked off a season’s worth of headlines with a speech at IAB’s annual leadership meeting in early 2017 when he “put his agencies on notice,” in a public demand for transparency from the entire digital advertising infrastructure. “The days of giving digital a pass are over,” he said.
By now Mr. Pritchard’s comments are old news. But the consequences for the agencies that have been “put on notice” are just beginning to emerge.
P&G’s newly aggressive position is the latest rupture in a deepening rift between Fortune 100 brands and their agencies. Their frustrations have been mounting for years amid revelations of massive ad fraud, low viewability rates, rising ad blocking, and agencies engaging duplicitous kickback schemes. Large brands are understandably fed up, willing to use their leverage to demand more accountability from their digital advertising partners, the most proximate of which are the agencies themselves.
The large agencies have gotten the message. They are now racing to deliver client-friendly terms to marquee clients like P&G — the brands with the heft to make or break agencies’ fiscal year. The terms themselves are increasingly low-margin, performance-based contracts that share the upside from sales instead of paying fees. Agency Of Record (AOR) relationships are vanishing in favor of project-based work. Digiday called 2017 the year of “the zero-margin agency,” reflecting that trend.
Practically speaking, this means that agencies have to do more with less, executing even bigger contracts with fewer resources upfront. All sizes and types of agencies are looking for ways to cut costs and searching for efficiencies across the board. If they are going to survive in this new era, with high expectations from all sizes of clients for more value for each dollar invested in advertising, they need to find a way to get more from less in a sustainable way.
So if you're a small agency, how do you ensure predictable revenue in a world without AOR retainers, and clients who keep demanding new digital services? The answer is to remain ruthlessly focused on what your clients value most and entrust strategic partners with the rest. Focus on your strategic advisor role, helping your clients invest their marketing budgets in the right channels, with the right target audiences and creative. Put your ad operations teams to work on the highest-value accounts and campaign strategies, and have a trusted partner handle smaller accounts and the details of trafficking, optimization, fraud management and reporting. Let your creative teams develop the best creative platforms for each client, and have a partner do the day-to-day tasks of versioning for each channel. These smart actions will support your success now, and as advertising complexity rises in the years to come.