Agency/client relationships: what's love got to do with it?

A recent survey of National Agri-Marketing Association (NAMA) members has many in the industry feeling their relationships could be on the rocks. No, you don't need to contact your marriage counselor, but after seeing these results, a conversation with your communication agency or client might be a great idea.

The research, a collaborative effort between Jefferson Davis Associates, The Meyocks Group and NAMA, focused on the attitudes and perceptions concerning the constantly evolving relationships between agencies and the clients they serve. The Web-based survey, with 266 respondents, was customized according to three classifications: agencies, clients and media.

At the 2004 NAMA Convention and Trade Show in Kansas City, Mo., the findings were revealed and discussed by a panel representing the three groups polled in the survey. The study shows that the vast majority believe that relationships between agencies and clients have changed over the past five years. Respondents said some of the ways that relationships have been impacted are: an increased emphasis on cost efficiency; lower budgets; more emphasis placed on strategic guidance/ expertise; the need for closer partnerships between agencies and clients; and agencies being viewed as vendors.

Interestingly, the client group feels that these changes are good for their organizations, while agencies and media are not as enthusiastic about the ways the relationships have shifted. However, all groups agree it is more vital than ever to have a close working relationship. And while all groups feel that the agency relationship is viewed as a hybrid of a "partnership" and a "vendor / outside supplier," the clients tend to lean more toward the "partnership" type of relationship.

WHAT'S IT WORTH

When asked what makes an agency indispensable, all respondent populations agreed that the knowledge of the client's business, the people involved in the relationship, creative product and marketing strategy are the most valuable assets of an agency.

With the valuable characteristics established, the next area of interest is compensation. From the survey we see that clients and media entities prefer performance-based, by-the-job compensation for agency work. On the other hand, agencies feel straight hourly rates are the best way to structure compensation.

This seems to be a hotly debated topic and one in which all sides have an opinion. Doug Davis of Davis Harrison Dion Inc. says part of the reason for this disconnect is because businesses tend to emphasize the bottom line, not people and relationships.

For example, Paul Welsh of Welsh Group says, "I was talking to an executive at a major animal health company who was livid that his agency was asking to travel with their sales-people and billing the company to do it.

"It used to be that if an agency had an account with a decent-sized media budget they made more in commission than they expended in time. As a result, agencies had a pool of money to entertain, to travel with field reps, to play secret shopper, to staff for peaks rather than valleys--to hire top-notch creative people even if they weren't billing 100 percent of their time," Welsh explains. "When you're charging by the hour, whether the rates are pure or blended, you just don't have a profit margin that allows you to do a lot of things for 'free.' When agencies charge for what used to be free, it creates acrimony in the agency / client relationships."

Some feel another result of lower profit margins could be agencies' trend to emphasize marketing consultation in their package of expertise. Fifty-five percent of agency respondents feel that the use of agencies to provide market consultation has increased. Some panelists commented on the importance that agencies placed on marketing strategy in the survey, which agency respondents ranked even more important than the creative product.

Welsh said this priority shift is creating an identity crisis among agencies. He explained that some are trying to be strategic before creative as billing for strategic consulting becomes another acceptable revenue stream.

WHAT'S IN STORE

Not only are agencies and clients dealing with the pressure of shrinking budgets and potential clients but everyone also seems to be expected to do more work in less time.

The fast pace has been accelerated with advances in technology, which can be both a blessing and a curse. Neil DeStefano of FMC Corp. says technology is "phenomenal," and it does seem to keep communication going for time-strapped agencies and clients. In addition, Davis says computers have "changed the ways we see what agencies do." But technology may also place added pressure on agencies to get the job done very quickly. The research shows that 92 percent of agency respondents feel the lead time allowed for a project has decreased over the past five years.

DeStefano says the pace of business is getting faster and that probably isn't going to change. "Today, we don't have time to develop our relationships. You do the best with the time you have, which is why trust and feedback are key to a good relationship."

Should we expect more of the same in the future? The majority of respondents expects the status of the client/agency relationship to continue changing and noted a few changes that they expect to take place in the next five years (see table below). An overwhelming 73 percent of clients expect these changes to be positive to their business, while only 54 percent of agencies and 41 percent of media entities expect positive effects.

Steve Custer of Farm Journal offered his opinion on the state of agency / client relationships by quoting Rick Segal, CEO of HSR Business-to-Business, who said, "Over the last 10 to 15 years, C-suite executives in general have become less and less engaged with their agencies, and that relationship is delegated as many as two or three or four tiers removed from the C-suite. It's no wonder they're disenchanted, because they're disconnected."

In closing, Dave Knau of Pioneer Hi-Bred International said of the survey, "This is a snapshot with a lot of different camera angles in the same picture."

The research, though it offers many varying angles, is a great way to ignite change in our business relationships. Knau concluded that he feels the best thing for agencies and clients alike would be to sit down and honestly take this survey together, trade papers, and then begin a dialogue on how to improve the agency/client relationship.

SURVEY RESPONDENT POPULATION

Agency           40%
Client company   35%
Media            25%

Total Population = 266
Agency = 107
Client Company/Association = 94
Media = 65

Note: Table made from pie chart.

WHAT IS IT THAT MAKES AN AGENCY
INDISPENSABLE TO ITS CLIENTS?

(Ranked on a scale of 1 to 10.1 not at all important 10 = essential)

Knowledge of their business - 8.5
People and relationships - 8.2
Creative product - 8.1
Marketing strategy - 7.6
Communications planning - 7.3
Full-service capabilities - 6.8
Production capabilities - 6.8
Media capabilities - 6.7
Direct marketing capabilities - 6.5
Web, Interactive capabilities - 6.0
Location - 4.9

PREFERRED AGENCY COMPENSATION STRUCTURE

                             Total
                            Mention     Agency      Client     Media
                           (N = 265)   (N = 107)   (N = 94)   (N = 64)

Straight hourly rates         23%         38%        16%         6%
Blended rates                 19%         25%        19%         6%
Performance-based             28%         25%        37%        17%
By the job                    38%         29%        53%        30%
No commissions or
  markups                     24%         26%        32%         6%
Standardized commissions
  or markups                  15%         15%        11%        22%
Other                          7%         11%         6%         2%
Don't know                    13%          6%         4%        41%

WHAT CHANGES IN CLIENT-AGENCY
RELATIONSHIPS ARE PERCEIVED TO
TAKE PLACE IN THE NEXT FIVE YEARS?

                               Total
                              Mention     Agency     Client     Media
                             (N = 186)   (N = 68)   (N = 53)   (N = 45)

Increased accountability
  results-oriented
  thinking                      11%         9%        15%        11%
Increased emphasis on
  cost efficiency               17%        16%        21%        13%
More vital to have close
  relationships with
  clients                       17%        15%        19%        18%
Less reliance on agencies/
  more in-house work            13%         9%         8%        27%
Higher dependency on
  agencies                       4%         3%         6%         2%
Fewer agencies still in
  business                       5%         0%         8%         9%