Wednesday, March 18, 2009

To All Agency CEOs - Stop Your Whining

Every advertising agency CEO has seen the projections regarding the number of marketers who are going to renegotiate compensation with their agencies.

According to Advertising Age, 68% of marketers are looking to reduce agency compensation this year. 77% are planning to cut production budgets.

"Woe is me," laments the agency CEO. Yeah, right. Here's a word of advice. Zip it.

For the last 50 years the complaint coming from the good creative agencies was that creative has been basically treated like a commodity. There was no way to prove that good creative was worth more than bad creative. So, good creative agencies have always felt that they were leaving money on the table.

The fact is, they were. That said, they only have themselves to blame. After all, most agencies bill their clients based on costs incurred rather than value delivered.

The problem in the past was in defining value. A very subjective process, to say the least. That is, until the digital platform went and made value transparent.

As proof, I'll reference a recent conversation I had with the Finance Director of a large CPG company. We were discussing how there were two very distinct parts to a marketing budget:

1. Concepting/production of the advertising. 2. Distribution of the advertising.

The creative agency was responsible for the former. The media agency, for the latter.

Each distinct part of the marketing budget had its own separate return on investment. There was a return on investment on dollars spent to concept and produce the work. And, there was a return on investment for dollars spent to distribute the work.

The creative agency was accountable for the first ROI. The media agency, for the second ROI.

Initially, the Finance Director argued that the return on investment for dollars spent to concept and produce a commercial was sales. I disagreed, pointing out that while sales were indeed, the long term ROI, the more immediate ROI was tied into time-spent with the commercial.

To prove this, I asked a very simple question. "Let's say you produce two :60 commercials. After running the first :60, the digital data tells us that viewers, on average, watched only :10 before switching to something else. With the second :60 commercial, the data tells us that viewers watched, on average, :58."

"Which commercial was worth more to you, the advertiser?" I asked. Not worth more based on sales, mind you. But worth more based on actual dollars spent to concept and produce the commercial?

There wasn't any question in the Finance Director's mind that the spot that was watched more was worth more, or delivered a better return on dollars spent to produce the work.

"So if you can determine that a spot was worth more to you, should it not also be worth more to the agency that created it?" I asked. And if so, then why not pay your agency accordingly?

The Finance Director smiled and questioned whether any agency would actually agree to work that way? We went through a list of creative agencies, saying yes, that agency would probably work that way. Or, no, that agency probably would not work that way.

We came up with around five that we thought would. These five, of course, have great confidence in their creative ability. These five agencies are the ones that are constantly leaving money on the table by billing for their services based on costs incurred rather than value delivered.

Now, if a large CPG advertiser can recognize that their agency is delivering value by creating time-spent with their advertising messages, it won't be long before other advertisers also come to the same conclusion.

What's surprising to me is that agencies haven't gone to their clients first with this sort of approach. Instead, most seem to be waiting for 68% of their clients to call them up with the news that they're about to reduce their compensation.

Now, more than ever, it's time for creative agencies to go on the offensive. To put their money where their talent is. Not to drop their retainers, mind you. But to start to be paid for performance based on how well their spots involve the viewer first, and, sell product, second.

The IAB recently put out an all points bulletin saying it's time for a Creative Renaissance. If a Creative Renaissance is going to occur, then creative can no longer be viewed as a commodity. In other words, there has to be a way for good work be worth more than bad work.

Let good work be defined as work that first involves the viewer in the creative. After all, only through involvement can it sell product. Not that it always will. We're not saying that involvement in the message guarantees sales.

But I think it is logical to assume that watching the commercial is somewhat of a precursor to selling the product. Otherwise, why spend the money to create the commercial in the first place?

Look at it this way. The greater the viewer's share of time in a commercial the greater the brand's share of mind in the viewer.

And, the one thing that has been proven is that share of mind does lead to share of market.

Share of time is now measurable. And, monetizable. Which means that good work can now be worth more than bad work.

And isn't that what good agencies have always wanted?

So, what's with all the whining?

No comments:

Post a Comment