Are Large Upfront Agency Commitments Replacing Strategic Thinking?

Agencies are searching for a way to remain relevant in the data age of marketing. As a result of this quest, many are announcing “big strategic deals” with publishers like Facebook and Twitter.  These deals are intended to guarantee publisher revenue in exchange for preferred levels of service, but isn’t that what agencies are supposed to provide on their own?  Why do agencies have to be “all-in” in order to achieve efficiency?  Don’t these kinds of deals infringe on the agency’s ability to be nimble, strategic and flexible enough to find the right way to spend their client’s money?

This strategy feels like 1997 and 2007 all over again.  Back in 1997, a number of agencies and brands established large “upfront”-type commitments with major portals in exchange for best pricing and “preferred service.” By 2000 and 2001, almost every one of those deals was considered a monumental flop.  Back in 2007, many agencies began to launch their own trading desks built on third-party DSP technology, requiring their media shops to run at least a portion of the buys through those platforms.  In many cases those mandates had to be withdrawn because agencies were seeing poor performance on their trading desks -- and they were charging commission for the media, while making money on the back-end arbitrage. 



By now most marketers have wised up.  Agency trading desks work better than they used to, but they are rarely forced to stay on a buy, and most marketers have negotiated reduced pricing, or procurement has stepped in to cap arbitrage revenue. 

But an agency’s committing to spend a significant volume of its clients’ money in advance of developing strategy feels confining to me.  Am I choosing an agency because that publisher works for my current campaigns and I know I can get a better rate, or am I picking an agency because I think they add the most strategic value to my business?  The former is a shortsighted approach, while the latter is a winning decision.

Coming from the world of media buying, I feel confident saying that all media can be negotiated, unless you have no choice but to spend the money in a single location.  When your agency has committed to spending with a select number of publishers, you’ve effectively removed free-market pricing.  Your strategic options become limited and you’re stuck spending money in ways that may not generate the ROI you’re looking for. 

One of the best negotiation tools stems from the ability to cancel a buy and spend your money elsewhere.  If you lose that leverage, you lose flexibility.

I understand that Facebook and Twitter are important, and I understand many agencies are going to spend their money with those partners regardless, but I like leverage.  I like knowing I can walk on a buy, or buy around a partner if I have to, in order to get the best deals.

On the flip side, if you treat your partners well, and you are open and communicate honestly with them, they will like to work with you -- and in many cases will give you preferred service and best pricing because they feel committed to the partnership.  And not to rain on the parade a little more, but in a programmatic buying world that is driven by data, most pricing will be market pricing anyway, so what value does the upfront model have on a publisher with loads of inventory already?

I think this is a PR strategy, not a marketing strategy.  It’s something employed by a company, or in this case a category, looking to get mentions in the press but not thinking on behalf of their customers first. 

Flexibility and strategic thinking are what win business. At least, that’s how it was when I was on the agency side of things. Maybe I’m just old-fashioned, but I like the sound of that.

2 comments about "Are Large Upfront Agency Commitments Replacing Strategic Thinking?".
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  1. Christopher Sanders from The Ingredients Group, May 21, 2014 at 12:16 p.m.

    Let's bust out our Palm Pilots and surf the information highway on Netscape. I am "old-fashioned" too. It's not just the "up-fronts" done around partnerships with Facebook and Twitter (both of whom are showing strategic weakness in growth and engagement) but any "upfront" positioned as a "strategy". Really, its a tactical buying maneuver that any media planner can negotiate. I am sure some shops can justify a large commitment because Data legitimately tells them they will get the returns spread over a number of clients or campaigns. But, as you point out, it doesn't leave you with flexibility. What marketers are executing a plan in September exactly as they predicted they would in January . . .I would be surprised if it was 5%.

    A Strategy would be identifying the right set of technology/data tools and personnel that will drive repeatable processes that predict, measure, attribute and thereby assign value to media choices.

  2. Ann Balboa from Orange22, May 21, 2014 at 3:20 p.m.

    Everything old is new again eh? 22 year old media buyers running syndicated software and just clicking and choosing. Sounds familiar.

    ALso I hope they get good cancellation clauses….The fun part is when the budgets get cut or you lose a big client….and the agency tries to get out of the deal.

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