• by January 16, 2002

Jupiter Media Metrix today reports that advertisers are skeptical about forming long-term relationships with agencies for interactive marketing.

According to a new Jupiter Report - "The Essential Agency: Positioning Interactive Agency Offerings as Marketing Needs Evolve" - 37% of advertisers prefer to compensate agencies on a per-project basis, while 23% favor paying a straight retainer. Despite the shift toward short-term project work, Jupiter analysts have found that agencies that provide context and analysis and identify drivers of consumer response will find their relationships with advertisers elevated above that of a typical vendor.

"Advertisers are ambivalent about the future of their agency relationships, preferring project-based compensation during uncertain economic times," said Jupiter senior analyst Marissa Gluck.

"As advertisers respond to a dismal economic climate by slashing their marketing budgets, it is not surprising that their approach to agency compensation reflects such austerity," she added. "Agencies must start to rethink pricing, structure, and most important, how they market themselves. This means focusing on marketing the competencies that make them indispensable to clients, such as cross-client learning, idea generation and brand building."

No Clear Pattern Ahead

Although 34% of advertisers believe their agency relationship will improve as those agencies enhance their service offerings, the remaining 66% tell a much more daunting story. According to a November 2001 Jupiter Executive Survey, 21% of advertisers are unsure how their agency relationship will evolve, 27% want to bring services in-house and 18% feel their agency relationship is transient - based on cost rather than quality of service. Jupiter analysts assert that agencies now face the challenge of proving their worth without depending on price-cutting tactics.

Single vs. Multiple Agencies

Despite the heightened pace of consolidation within the online agency space and the buildup of interactive capabilities within traditional agencies, advertisers are equally split between those that prefer to use a single agency and those that prefer multiple, best-of-breed agencies. According to the survey, while 43% of advertisers choose multiple agencies to meet their interactive needs, another 43% favor a single agency. Of those that prefer a single provider, 25% use an independent shop and 18% use an agency affiliated with an off-line shop.

Advertisers with a Single Agency Looking for Strategy

Jupiter analysts have found that advertisers that use a single agency are more than twice as likely as those that use multiple agencies to depend on their agency for higher value, strategic services. According to the survey, 41% of marketers that hire a single agency assign both execution and strategy to the agency, compared with 26% of advertisers that use multiple agencies. Advertisers that use a single agency are far more likely to use it for services such as brand measurement and media placement.

"Agencies have flung around the term 'strategy' as one of their core competencies for years, rendering it hackneyed and misunderstood. There are, however, discrete competencies that agencies should highlight as they sell themselves to clients, including their understanding of branding and exceptional creative. Even though certain aspects of an agency render it an indispensable partner to an advertiser, the pre-eminent factor influencing an agency affiliation is often indefinable - human relationships. When choosing and reviewing an agency, the final verdict often comes down to chemistry, an imprecise and intangible selection criterion, but an essential one," Gluck said.