Time for a new model

The financial crisis is prompting clients to view their relationships with agencies from a different angle. Agencies should really take note, says Steve Booth

Hopefully the financial crisis brought on by the credit crunch – if not the credit crunch itself – has now come to an end. But as bankers breathe a sigh of toxic debt relief and start counting all that lovely taxpayers’ cash, the squeeze will move to other sectors of the economy.

Just as the crisis has raised questions about banking’s business model, so it will do the same with the media agency model. In particular, it’s likely to put the so-called “Agency Deal” under immense pressure. It’s a hoary old chestnut but there are good reasons for thinking that a system that was born in an age of near monopoly in television and a backdrop of high media inflation might be recognised as fatally flawed.

As clients come under increasing pressure to deliver real results on tighter and tighter budgets, they will no longer put up with media owners who charge more for delivering less, late booking deadlines that penalise them at a time of falling demand, opaque trading systems that fail to make clear what each rating will cost when they book and media deals that tie them to underperforming communications channels.

The bottom line is that for all the smart new planners and strategists who make up an increasingly important part of our business, many agencies face a tough choice. Either they deliver flawed communications strategies for their clients or they tell them the blunt truth about the consequences of their addiction to the agency deal.

I don’t expect the do-a-deal agencies to give up without a fight. With total expenditure falling, many can only protect their terms of business by maintaining their share of expenditure with each and every media owner.

The way media time and space is traded has long been felt by advertisers to be something of an arcane black art. It works by bundling the collective budgets of a media buying agency and trading them as a block to deliver an agency-focused deal with the media owners.

Agencies have little interest in clarifying precisely why a client is obliged to have its money poured into the agency deal. It is presented as a great way to get the best in market discounts and quality of media, and perhaps, for the very largest spending clients this is true.

The issue for the vast majority of advertisers, though, is that any benefits come at a heavy price. And it is not unusual to find that clients don’t really appreciate the many shortcomings of the situation they find themselves in. The main downsides are the lack of flexibility and the strictures of early booking deadlines. And with so many of the major agencies tied to this system, many advertisers have little alternative. Now they might demand change.

With media demand falling dramatically there can be nothing but incredulity among advertisers who are told they will be penalised for putting money into the media market after advance booking deadlines have passed. Pretty much every client in current trading conditions needs absolute flexibility, so it is astonishing that agencies still accept this model and haven’t fought for their clients to change it. Even media owners must be wondering if it suits them to carry on as these deals also serve as a barrier to entry to short-term spending by clients who need flexibility.
But the biggest issue is the lack of flexibility of the media deal. Patterns of consumer media behaviour are changing dramatically, yet patterns of media deployment remain largely unchanged. Some clients will be acutely aware of the need to change and adapt but the nature of the agency deal means that many others will have received advice about media selection that at best can be described as sub-optimal.

It’s no coincidence that despite phenomenal growth the internet commands 19% of advertising budgets while attracting 26% of consumers’ time. With 8.3% of online revenue, the automotive sector, for example, has an acute mismatch between consumer behaviour and media deployment. No surprise then that every car account in the UK sits inside an agency deal.

It is time for advertisers to demand the flexibility to deploy budgets when they want, where the audience is and where they will deliver optimum effectiveness. If enough clients are bold enough, agencies will have to remember who pays their bills. 

Steve Booth is chief executive

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