Darren Herman

This post is part of my Marketing Wednesday’s series which was originally inspired by Fred Wilson’s MBA Mondays and Albert Wenger’s Technology Tuesdays.  This is my 3rd post – the first being on the Chief Marketing Officer and the second being about the Marketing Plan.

There are two ways to handle marketing:  you can perform all the marketing functions inside the brand (client side) or you can hire an agency to handle some or all of the marketing functions.  Today, we’ll cover reasons why you would and should hire an agency.  Note, I currently work for an agency which rolls up to a larger integrated agency.  So with that said, my answer is inherently skewed by the nature of where I work, but this is my own thoughts and not necessarily thoughts of my employer.  OK, the disclaimer is out of the way, so let’s begin.

The Role of an Agency

There are different types of agencies and those agencies come in all shapes and sizes.  There are marketing agencies, creative agencies, media agencies, buying agencies, planning agencies, social media agencies, mobile agencies, search engine marketing agencies, pr agencies, digital agencies, product innovation agencies, production agencies, analytics agencies, and many more.  So yeah, there are lots of types of agencies.   The agencies role is to act as an independent view, but an extension of the client, to create strategy, research, and work and liaison with the vendors and partners needed to carry out with whatever the output might be.  When an agency/client relationship is going well, the agency is essentially an extension of the client, but is just different “enough” to push the thoughts and boundaries of the clients.

Most agencies bill their clients on time and labor based on an overall relationship deliverable or a particular project deliverable.  This is then written into a Scope of Work (and sometimes an MSA) and signed off by both parties.  This is sometimes negotiated by the client’s procurement department to put pressure to bring down the agency cost.  More on this here.

Media agencies will bill based on time & labor for the planning components and will then charge a buying commission based on the media channel which is purchased.

Depending on the agency, they might move to a performance compensation model where they might put a % of their fee or commission at risk for sharing in the upside.  These types of models are becoming more popular but are fundamentally flawed because agencies don’t touch many of the factors that go into a clients product/service, so they could be in a very high risk situation which is very much in favor of the client.

The fee a client pays an agency covers everything from a team dedicated (or semi-dedicated) to a client as well, as, the infrastructure that the agency has invested in (research, tools & technology, processes, overhead).  Many times, the blended rate an agency charges could be less than hiring a marketing staff on the client side with tools & research at parity.

Conflicts

Advertising agencies have to manage for conflicts.  In the USA, advertising agencies cannot work with clients who happen to be competitors.  This goes without saying, clients wouldn’t appreciate that.  Agencies essentially give partial or full category exclusivity when they sign up a client.

Additionally, in the USA, advertising agencies do not markup the cost of media.  Agencies act as “agents” and pass along the cost of media to the client with a pre-defined commission rate bundled on top of it (net/gross).  The commission rates are pre-defined as noted and changes based on the media type (i.e. Television has one commission rate and SEM has another).

Finding the Right Agency

There are thousands of agencies in the USA, let alone tens of thousands across the world.  How do you find an agency that’s right for you?  There are agency “search consultants” who help brands create a list of agencies to talk to and lead the agency RFP and pitch process, there are online sites that have agencies listed, and of course, there are always referrals.  Much of the business we see at the agency are through referrals and search consultants.  Finding the right fit with an agency is important so generally the first meeting is what we like to call, a “chemistry check.”  Having a positive relationship with your agency is like having a positive relationship with your spouse.  You need to make sure chemistry is there and sometimes it takes dating around to find the right place.

A Few Reasons To Hire

1.  Evolved Thinking
Agencies and their staff generally don’t sit within the walls of clients.  Sometimes we do however, though this is not the norm.  This is a major plus because we can help evolve our clients thinking in different capacities because we do not suffer from knowing their artificial constraints (based on politics, budgetary, knowledge, etc).  Since we are in the business of big ideas (or many good small ones), we are constantly ideating and can bring these ideas to our clients.

2.  Multi-Discipline Thinking
When you do the same thing over and over again, you start to think a similar way.  Agencies have many types of clients – you can be working on an automotive account, a juice account, a pharma account and a fashion account.  Thinking across all of these accounts can help bring new ideas that can break through a particular category.

3.  Someone to Blame/Buffer
It’s true, we’ve seen this happen before.  Our car breaks down, we through the automotive brand under the bus.  Of course, it had nothing to do with our driving.  Similar to marketing.  If marketing isn’t working, fire the agency.  Don’t fire anyone at the client side, just fire the agency.  It’s a safety net that has worked for years and Wall Street accepts it, at least for the most part.

Ownership

Depending on the size of the brand/client, they might have one or many agencies.  Agencies might be broken down by discipline (search, social, pr, etc) or by product, or even both.  The overall decision maker for agencies is made by the Chief Marketing Officer of the brand but they might delegate the agency choice to their team depending on the organization they work for.  We have clients where the CMO has chosen us and we have clients where Brand Managers have (and clients in between).

Future Posts

In future posts about agencies, we’ll break down roles within the creative & media agency, discussions around compensation models, sequential liability, USA vs. EMEA contracts and more.  I hope you enjoyed this Marketing Wednesday installment.