Bruno Gralpois, Co-Founder & Principal, Agency Mania Solutions, Author/Speaker, Thought-provocateur, Client/Agency Guru.
In business as in life, changing partners always costs more than expected. Divorces in the U.S. average $15,000 to $20,000, with more complex cases costing far more. Similarly, the cost of changing a brand’s agency partners can be significant.
This is one key takeaway from “Cost of the Pitch” (download required), a recently released report issued by the Association of National Advertisers and the American Association of Advertising Agencies. (Full disclosure: My company is a member of the ANA, and I am a faculty member of the ANA School of Marketing.) The report shows both brand advertisers and incumbent agencies spend hundreds of thousands of dollars to review and defend an account. This might explain why 25% of incumbents decline to participate, especially with the low odds of keeping the account, which is between 25% and 30% in my experience.
If you have participated in an agency review or pitch, you know finding and selecting a new partner is highly demanding and resource-intensive. It also can be hugely distracting.
The report estimates actual costs based on the typical number of hours it takes, travel and research expenses and optional use of external consultants for a brand. With industry practices dictating the involvement of three or more agencies, the research found the average pitch costs about $1 million. When there is an incumbent, that number increases to $1.2 million. This is significant, especially when chief marketing officers need every dollar to drive organizational growth.
Working on the client side for the majority of my career, I built the agency management practice at large Fortune 100 brands. Over the past 10 years, I cofounded a company that manages agency performance reviews. Through this experience, I’ve seen how vital it is that clients not only understand the costs involved with going through a formal agency review and pitch process but also how to avoid making expensive mistakes.
What are the hidden costs?
The report’s estimate includes hard-to-quantify costs related to disruption in assignments, responsibilities and other work priorities, which I believe are far underestimated. In the study, 34% of brand advertisers reported major disruption in daily tasks, while others mentioned delays, declines in brand or product awareness, loss of revenue and more.
In today’s fast-paced, highly competitive business landscape, companies cannot afford this distraction. The marketplace demands agility, innovation and constant evolution to remain relevant and maintain a competitive edge.
I’ve observed that distractions and rising tension between clients and agencies can hinder progress and prevent the organization from capitalizing on emerging opportunities.
To thrive and grow, companies must foster a culture of unwavering focus, strategic decision making and continuous improvement. When initiating a review, brands risk immediate deterioration of their agency relationship. Demotivated agency staff, with an acute sense of the fragility of the relationship, might be so worried about avoiding missteps that they are more likely to stumble. No one likes working with a constant fear of losing their account. Although difficult to quantify, these consequences can be far more costly than the review itself.
If it’s so costly, can we prevent it?
The agency search process is complex and painful for brands and agencies. Some agencies decline to participate in agency reviews, but in difficult economic times, an agency often cannot afford to voluntarily opt out, no matter the investment or risks.
In my experience, independent agencies seem to be more flexible than those that are part of publicly traded giants. They also often allocate their best talent and invest heavily to impress a prospective client. In their shoes, wouldn’t you? However, I’ve noticed that agencies are rightly becoming more diligent about relationships they want to pursue before investing their time, staff and efforts. If it is not the right culture or fit, they may say no.
The “Cost of the Pitch” report follows up on last year’s Agency Search Simplification Report, which invites both parties to use a more concise, transparent, standardized methodology to expedite and improve the review.
Alternatively, for brands that want to bypass the formal search and review process, I suggest bringing in new agencies on a project basis as a test. Brands can give them real assignments to assess their skills and fit. Although vendor onboarding can tax internal resources such as procurement and legal, this method allows a more programmatic, reliable way to evaluate the agency’s ability to deliver.
How can you conduct responsible, effective reviews?
Although performance issues are often the primary reason for brands initiating a review, sometimes, it’s out of everyone’s hands. For example, a policy might require periodic partner reviews or a new CMO might be hired who wants to reset relationships.
However, when performance is an issue, it’s tempting to start a search/review to replace a partner. When relationships are beyond repair, it’s a necessity. Yet, too often, efforts would be better invested in course correction, mutual accountability and concerted efforts to strengthen the partnership. It’s a two-way street. Client behavior, such as poor guidance or communication, can lead to agency performance issues. Striving to be the best client is an effective way to avoid costly reviews.
In my experience, most advertisers have a formal 360-degree client/agency performance evaluation program to drive continuous partnership improvement. Despite this, one or both parties might fail to address early signs of misalignment, leading to costly agency reviews. I believe brand advertisers should set up a robust performance evaluation that drives better insight into improvement areas and their causes. Then, they can recommend specific, targeted recommendations for both sides. Coupled with a streamlined process to distribute, track and report on action plans, both agencies and clients have a roadmap to follow.
With the right focus on improving the client-agency relationship, the risks and costs of the traditional review can be mitigated.
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