13 August, 2009 · 4:29 pm

Ten Things Your Agency Prefers You Don’t Know: #3

ATM Out of OrderThe business model is backwards.

The agency business has evolved to a state where there is little relation between the value they add and the compensation they get. This is a historical problem. The original commission system rewarded agencies for how much their clients spent, not for the actual work the agencies did. The fee-based compensation that is most common today rewards agencies for how many people they can get to work on the account. Neither system is related to the strength or effectiveness of the ideas and programs that they develop. In fact, the most valuable thing that agencies do is often given away for free. In the typical new business pitch, agencies get their best people to work feverishly on developing their best ideas to the point where they’re ready to be executed. They do all this for free, and then hope that if selected, the client will compensate them after the fact by paying a premium price to manage the production and execution of those ideas. It’s like a restaurant giving the food away for free, and hoping to make it back on the valet parking.

This model might have made sense when marketer-agency relationships averaged 10 years or more. But now that the best relationships last only 3-5 years, it doesn’t. Marketers may think they’re getting something for free, and initially that’s true. But whenever the compensation model of the seller is out of sync with the objectives of the buyer, something is lost. Can marketers really think they are getting the best service and advice from a provider who gets penalized if they can develop and execute programs more quickly and cheaply?

Agencies have been shy to take on results-based compensation because there are so many factors beyond their control, like sales and distribution, that effect the outcome in the marketplace. But some may come to realize that facing the same market risks and rewards as their client puts them in a far better business and financial situation than constantly justifying monthly retainers with procurement.

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7 July, 2009 · 9:23 pm

Word of Mouth is Not a Channel

Personal InfluenceWord of mouth is the most powerful brand-building mechanism there is. This is not new, of course. The book on the left put rigorous data behind the idea that people were more influenced by their peers in marketing, politics, and fashion than they were by mass media. It is interesting to note that the book was published in 1955, and is well-known by most marketing researchers. That is why I am taken aback by people promoting word of mouth as the next big thing.

What is new is the means to witness, promote and harness word of mouth through digital social networks.  But this does not change the fundamental challenge to marketers, which is finding a way to generate genuine word of mouth in the first place. True word of mouth happens when a potential customer gets a sincere recommendation from someone they trust. True word of mouth cannot be generated directly by a company. If it is, it loses the sincerity and trust that make it so powerful. Instead, it has to do something that makes that trusted influencer want to recommend their product. High product quality might do that, mass media might do that, database marketing might do that, great customer service might do that, a viral video might do that. These are all marketing channels. They are all means to influence the influencers.

When new firms try to position themselves as Word of Mouth agencies, the trick is to find out what they really do. How do they generate word of mouth? If they say by creating buzz in the mediasphere, then they are a PR company. If they say by identifying influencers most likely to be the source of recommendations to others, they are a database marketing company. If they say by creating unique brand experiences, they are an events company. Word of Mouth is an end, not a means. It still falls on marketers to find and use the tools they need to make true word of mouth happen.

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3 July, 2009 · 4:26 pm

Ten Things Your Agency Prefers You Don’t Know: #8

olsen twinsThere is no real difference in capabilities between agencies.

The marketing services business in heavily saturated. There is no shortage of people willing to manage your social media campaign, make a TV ad, or facilitate an innovation workshop. There may be a brief window in the very beginning of new tool’s life, when there are a more limited number of people who can claim competency. Experts in search engine optimization were limited in 1996, as were television producers in 1938. But the pace by which people master new media has accelerated, such that those windows of scarcity are increasingly short. What that means is that there is no agency that is going to distinguish itself by having some capability that another does not.  Everyone has the same type of experts in the same fields. If not, they are easy to hire. While it is true that the very best in any field will always be rare, that true elite is probably not on staff at an advertising agency anyway. So agencies are not differentiated in terms of what they can do for a client, though a few may be differentiated in how well they do it.

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