Commentary

Why Agencies And Clients Are Calling It Quits

by Gord Hotchkiss , Featured Contributor, August 4, 2015

"Love on the rocks ain't no surprise" -- Neil Diamond

In yesterday’s Online Spin, Maarten Albarda signaled the imminent break-up of agencies and clients. Communication is close to zero. Fingers are being pointed. The whisper campaign has turned into outright hostility.

When relationships end, it can be because one of the parties is just not trying. But that isn’t the case here. I believe agencies are truly trying to patch things up. They are trying to understand their onetime life partner. They are desperately gobbling up niche shops and investing in technology in order to respark the flame. And the same is true, I believe, on the client side. They want to feel loved again by their agency of record.

I think what’s happening here is more akin to a break-up that happens because circumstances have changed and the respective parties haven’t been able to keep up. This is more like high school sweethearts looking at each other 20 years hence and realizing that what once bonded them is long gone. And, if that’s true, it might be helpful to look back and see what happened.

The problem here is that the agency is a child of a marketplace that is rapidly disappearing. It is the result of the creation of the “Visible Hand” market. In his book of the same name, Alfred Chandler Jr. went to great lengths (over 600 pages) to chronicle the rise of the modern organization. The modern concept of an advertising agency was a byproduct of that.

Essentially, markets grew too rapidly for Adam Smith’s “Invisible Hand” to be able to effectively balance through market dynamics. Organizations grew to mammoth size in order to provide internal efficiencies that allowed for greater profitability. You had to be big to be competitive. Agents of all types filled the gaps that were inevitable in a rapidly expanding marketplace. Essentially an agent bridged the gap between two or more separate nodes in a market network. They were the business equivalent of Mark Granovetter’s “weak tie.”

Through the 20^th century, advertising agents evolved into creative houses -- which is when they hit their golden period. But why was this creativity needed? Essentially, agencies evolved when advances in production and distribution technologies weren’t enough to expand markets anymore. Suddenly, companies needed agencies to create demand in existing and identified markets by sparking desire. This was the final hurrah of the “visible hand” marketplace.

But the explosion of networking technologies and the reduction of transactional friction is turning the “visible hand” market back into the “invisible hand” market of Adam Smith, driven by the natural laws of marketplaces. The networks of the marketplace are becoming more connected than ever.

This is a highly dynamic, cyclical market. Straight-line strategic planning doesn’t work here. And straight-line strategic planning is a fundamental requirement of an agency relationship. That level of stasis is needed to overcome the inherent gaps in a third-party relationship. Even under the best of circumstances, an arm’s-length relationship can’t effectively “make sense” of the market environment and react quickly enough to maneuver in this marketplace. And, as Albarda points out, the client-agency relationship is far from healthy.

The ironic part: What was once an agency’s strength -- its position as a bridge between existing networks -- has turned into its greatest vulnerability. Technology has essentially removed the gaps in the market itself, allowing clients to become more effectively linked to natural customer networks through emerging channels also increasingly mediated by technology. Middlemen are no longer needed. Those gaps have disappeared. But the gap that has always been there between the agent and the client not only still exists, but is widening with the breakdown of the relationship. Agencies are like bridges without a river to span.

If you read the common complaints from both sides in the presentations Albarda references, they all come from the ever-widening schism caused by a drastic change in the market itself. Simply put, the market has evolved to the point where agency relationships are no longer tenable. We on the agency side keep saying we need to reinvent ourselves, but that’s like saying that a dog has to reinvent itself to become a fish. It’s just not in our DNA.

advertiser-agency relationship

14 comments about "Why Agencies And Clients Are Calling It Quits".

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Barbara Lippert from mediapost.com, August 4, 2015 at 11:49 a.m.
dead-on analysis, Gord.
Reply

Tiffany Lyman Otten from Tiffany Otten Consulting, LLC, August 4, 2015 at 11:53 a.m.

This, like anything, is a sign simply that agencies must evolve - again.

I left my "large" agency to build a "small-by-design" agency that straddles sales, marketing and technology, which is the one hole that is still a gaping one in the organizations I've worked with. The writing was on the wall as all of our large clients started trying their hand at it in-house. Frankly, they'd be irresponsible NOT to try if I'm sitting from a shareholder perspective, but in the agency perspective if you're still trying to keep your clients dependent upon you for everything so you can keep super high margins, you're the first to be cut.

A big, flashy agency model just won't work here, and in my humble opinion, you'll see more and more break-ups. Frankly, the margins aren't there. We have to provide better than a shared services or in-house person can do, so charging old agency rates won't cut it. Deliver more value or lose customers. It's not unique to this time or this industry - it's just particularly pervasive at this moment at this time and in this industry.

Jerry Shereshewsky from GrownUpMarketing, August 4, 2015 at 12:13 p.m.

I have been living inside a major, ad agency for several years. I worked there for 22 years and am now back there doing some consulting work, helping on projects and occupying a very tiny amount of space. But I have been given the gift of insight as we work (or attempt to work) with product groups across their spectrum. While the 'visible hand' may have lost some of its value, from personal observation and experience I don't believe that this is the real reason for the decline of agency centrality for clients. Dumbness is.
Agencies, despite what they say publicly, are still vestiges of their former selves. They are way too internally focused and don't see the world through their customers' eyes. As they devolve into makers of things (marcom) their specialness goes away. While they buy and try to expand their range of capabilities, they have not crossed the chasm into true multi-sided organizations; instead they still reek from their original homes, whether that is making tv spots, digital stuff, pr, direct, etc.
Client companies/marketers have need for all these skill sets and more. What they don't need is a collection of 'specialists' fighting internally for budgets. Agencies, for the most part, have not figured out how to share their wealth, so marketers figure it out for them. Marketer middle management is increasingly adept in a multi-channel world. And the last thing they need are expensive, narrowly focused 'advisors' whose multiple layers of redundant management are not only costly but also ineffective. In fact, they are causing way more problems than they solve.The Y&R "Whole Egg" (aka 360 and other similar terms) never paid off. They couldn't figure out how to divide the pot equitably, and, instead, merely squabbled over a diminishing budget. Marketers have responded by finding specialist consultants who work with limited overhead, and they do the integration themselves.
Advertising is not alone in this conundrum. Doctors have aggregated themselves into larger, multi-service health care providers. Those that can't figure out how to have a single point of reference for the patient (aka client) lose out to those that can. Same with lawyers. Can you imagine talking to your outside counsel whose firm did not offer M&A, IP, Litigation and other services...all under a single partner who 'drives this bus'? It was way simpler when media equaled a :30 spot or a full page magazine ad. There were specialists for newspapers, out of home, radio and other 'minor' media. But the bigger media shops have broken away from the creative agencies, specialists in search, display, social, b2b, 'new' media and every other variation on the theme have emerged, some way more creative and aggressive than the former 'agency of record'. When you become irrelevant, when you can be replaced by a 26 year old MBA who can also write code and has a start up or two in their back pocket, you become history.

Paula Lynn from Who Else Unlimited, August 4, 2015 at 12:50 p.m.

PS: Jerry, in Phila., even in the largest agencies back when, there were never specialists. All buyers did all media. The AE's told you what media was going to be used and how much money you had for each media and what the target audience was. Research was compiled through "books". Marketing? MOre than one 180's since.

Tiffany Lyman Otten from Tiffany Otten Consulting, LLC, August 4, 2015 at 3:52 p.m.

Jerry, that brings up such a good additional point. I'm seeing a lot of agencies move to the "jack of all trades, master of none" model, despite trying to position themselves as one-stop-shop. Essentially, faking it. And either they let their slip show to the client and look bad, or eat their mistakes and lose money on the deal because they didn't know what they were doing in the first place.

For example, there's a short list of a few things I'm really, really good at. I don't pretend to have anything other than a working knowledge of the others, but I know other small agencies and freelancers who are awesome at it. I either make the introduction for the client, or do centralized billing for the client who is aware of it, with a small markup to cover my admin - all transparent to the client. As opposed to coming back to your agency with "yay, I just signed a deal for us to do XYZ. So, who knows how to do XYZ? Let's hire someone!".

I get it - they want to stay competitive in a multi-channel world, but as you so adeptly point out, to collect all those experts from disparate sources = lots of extra management = lots of extra overhead = less value to the client, as in my first post.

It's a buyer's market, and they're not interested in what agencies are "selling" anymore.

Jerry Shereshewsky from GrownUpMarketing, August 4, 2015 at 4:16 p.m.

Thank you Tiffany, well said. Clients/marketers don't really care who is doing the work just as long as there is someone they can hold responsible and trusts. The old maxim that folks buy from those they "know, like and trust" is simply true. And, by the way, this stuff, conceptually, is not brain surgery. This is marketing and advertising. If I can't explain (for instance) content marketing or social media in just a few minutes and be a judge on innovativeness and quality of execution (not to mention strategic acuity) then I have no right to presume to be a real friend of the client...simply another supplier.

Thomas Siebert from BENEVOLENT PROPAGANDA, August 4, 2015 at 5:14 p.m.

"The problem here is that the agency is a child of a marketplace that is rapidly disappearing." Nailed it.

Ira Kalb from Kalb & Associates, August 4, 2015 at 5:40 p.m.

You make excellents points as usual. One big problem you touch on, but do not emphasize is executives want to see ROI from all investments and marketers (and agencies) have been notoriously weak at proving their case. While they are being undone by technology on the one hand, as you point out, they have not developed sufficient technology to improve their content or prove the return the client is getting on its investment. From the content perspective, most of the ads I see done by agencies don't give buyers sufficient reasons to buy. From a technology perspective, systems do not sufficiently tied all the necessary systems together from cradle to grave. There needs to be the ability to measure where leads come from and follow those leads through to sales and the back end customer service and sufficiently predicting buyer behavior the next time around. There are bits and pieces but they are not integrated with enterprise accounting systems and vice versa.

Tom Cunniff from Tom Cunniff, August 4, 2015 at 8:31 p.m.

This is the single smartest thing I've read about the agency/client relationship in a long time.

In the golden era of advertising, consumers had scant sources of information about the products and services they might buy.

Advertising

Retailer (whose information largely came from the advertiser)

Word of mouth (whose information largely came from the advertiser)

Reviews (only if they existed, and only if they were easily available)

This made advertising monumentally important. In fact "as seen on TV" was a proof point in and of itself: if the manufacturer had the confidence and means to be on TV it seemed reasonable to assume that the product or service was good.

Today, advertising remains powerful at generating awareness ("this is new" or "this brand is still here") but it has a radically diminished ability to persuade. If it sounds good, we Google it. We look at reviews, often on Trip Advisor or Amazon where we can be reasonably sure someone is a verified buyer. We go on forums and ask around.

Meanwhile, the appeal of reaching mass audiences is substantally diminished. The atomization of audiences into a finer and finer mist and the radical collapse of attention spans means that data and relevance are taking the place of sheer reach. This is less because it is superior (as certain digital triumphalists believe), but because it is increasingly the only hope of finding individuals who might -- maybe, just maybe -- have some interest.

But data and relevance are purveyed by ad tech, not by agencies. Increasingly, marketers are bypassing agencies to work directly with ad tech vendors. This is far less about cost than it is about data and the ability to add value. As one client-side marketer from a *very* big brand said to me a few years ago, "agencies are increasingly in the way of progress, but it's not their fault". Amen.

It's very difficult to see how agencies can get to the future from where they are now. They can absolutely make money in the legacy business in the near term -- and very good money -- but I don't foresee a long-term future.

It's easy to criticize agencies as being out of touch or slow to move, but I don't think that is the problem. I think the problem is far more fundamental than that, and I think Gord has nailed it.

Jill Montaigne from Orignal Spark/Agency Performance Index, August 5, 2015 at 7:23 a.m.

This article (and associated comments) sheds brilliant light on the underlying foundational weakness that is exposed in the current marketplace. Yet, our own ongoing advertiser conversations confirm that rather than walking away from their traditional agency relationships, clients desperately need and want their agencies to evolve.

As Gord accurately points out, the agency 'reason for being' has shifted (permanently), but advertisers still believe their agencies play a critical role in their success. The best led agencies are leveraging this critical client feedback and working feverishly to iterate, but are severely hamstrung by the relentless day-to-day financial pressures they operate under. Agencies may take on new roles, or new forms, or even new names, but our client intelligence tells us that agencies won't become extinct anytime soon. There is no doubt they are desperately struggling with having to reinvent the car while it is being driven.

sam statton from statton & associates, August 5, 2015 at 10:15 a.m.

As I read through the blog and all of the comments, what emerges as important is the nature of the relationship between the agency and client. The individuals.
Often, its between two very important and strong personalities.

Next, it is the ability and desire of each side to keep the other informed.
And perhaps something that may be missing is the "experience levels"........the ability to understand what is coming, how to anticipate change, and then how to communicate and re-organize. It would seem that often, people in these places really haven't had enough experience in managing all of the necessary resources.

As "change" gains clarity and strength, it introduces more complications and calls for simplicity......back to basics,ec................at least in my area of Brand Consulting.

David Vawter from Doe-Anderson, August 5, 2015 at 6:01 p.m.

Ms Montaine has it about right. As long as there is something to sell, people will be needed to create and produce the ideas that sell it. And not every brand is trapped in shiny object syndrome where their marketing efforts are concerned. Just look at Apple, who have somehow managed to stay in business without a Facebook page.

Dean Logan from FOUNDATION, August 6, 2015 at 4:11 p.m.

This is easy one of the best reads on this popular topic I’ve read in quite a while.

The demise of the traditional agency model is something we’ve collectively been chanting for a while now and it’s become pretty easy to beat up on traditional shops. Mainly because most of what’s said is true. Yes, they’re generally slow, resistant to change and slave to the model of the billable hour as their generator of revenue.

But I think the key difference now is that clients are finally becoming brave enough to “cut the cord” due to the explosion of ad-tech, automation platforms and specialist shops. Technology is driving a lot of this.

And they’re experimenting. Witness the trend of decoupling (which now looks like it may be reversing itself), bringing disciplines in-house or just shuffling things around like Kimberly-Clark. This experimentation will continue at the cost of existing agency-client relationships.

That said, I firmly believe there will always be the need for one group to have solid stewardship of the brand independent of the client’s culture - but whatever that is, it definitely won’t resemble what we’re looking at today.

Great post.

Lara Hoefs from Zetta2, August 10, 2015 at 8:29 p.m.

Fabulous read. Thanks Gord.

Indeed, the relationship between agency and client is shifting and it's because the relationship between client and consumers has shifted. With new media being the new bridge and consumers want - and expect - a direct relationship with the brands they love. They want to be seen, heard, given attention and value added content/experiences. The traditional agency imedes this relationship from being a direct channel - from the brand knowing their audience and building strategies that provide value - via product or experience - to keep consumers brand loyal. The equation has changed because traditional agencies don't know how to build relationships with consumers, in fact, their old strategies often push consumers away. Traditional agencies no longer have what brands need. Bringing marketing teams in-house helps centralize that relationship building process. Yet, many brands, even if they've cut the ties with agencies, are still at a lose for how to navigate the new relationship requirements with their consumers. So the need for agencies hasn't necessarily gone away, but the need to reconsider how brands are served by outside agencies has. Strategies shift from being about marketing to about building a relationship with consumers - knowing them and developing cross-platform brand experiences that serve them and the brand.

So, in a way, the new agency is like a therapist or mediator, helping develop a solid relationship - between consumer and brand - for all to grow on.

And the services of the new agency will need to shift to provide more holistic approaches. And be nimble. At my company - an "agency" - we are not building departments that limit creative to groups of people who serve all clients. We're building teams to execute per each client, based on their direct unique needs. And we're finding the best in the business at what they do, so our clients get the best of the best strategists and creatives. And we're not delivering marketing strategies, we're delivering audience development strategies that includes audience analysis, marketing and product development. All in service of ensuring both audience and brand win.