It should come as no surprise that agencies have these kinds of practices around rebates and credits in place. Every person who has ever worked in an agency environment knows this to be the case — it’s not much of a shock, although the press is treating it as such.
I would go further out on a limb and say many brands have enabled things by permitting — if not creating — the situation that requires these kinds of practices: a climate of agency distrust and mistreatment.
For many years now, brands have been whittling away at agency fee structures by bringing in procurement to manage reviews, pushing ever-harder against the models for agency compensation while not valuing the work agencies provide.
Media commissions used to be as high as 15% of spend; in recent years, they have been pushed as low as 1%. Many agencies now have a full-time-equivalent model or hourly rates like lawyers — but without the higher hourly rates lawyers demand.
All these situations have created a vicious cycle: Agencies are forced to hire less experienced employees, and the work falters. Brands put agencies in review, and the cycle of devolution continues as one agency loses an account to another who just lost a different account for the same reasons.
The definition of insanity is doing the same thing over and over and hoping for a different result. In this case, the model of client-agency relationships is insane.
Agencies have been forced to be creative in how they get paid. They have dabbled in technology, they have looked to trading desks, they have created rebate models. I am not defending the idea of rebates, but I am providing an explanation that this lack of transparency cannot be placed solely on the shoulders of the agency world – the blame goes all the way around.
To solve this problem, agencies need to be clear on the value they offer, and brands need to feel the value is measurable.
As a media professional in an agency, I would worry, because this shift toward transparency means it’s time to truly rethink how agencies work. If the model wasn’t broken before, it certainly is now. Agencies could open the books and become fully transparent, but they are going to have to clarify their role in the ecosystem and take a stand to be paid fairly for the work they provide, while being willing to put some of their compensation on the line for performance.
On the flip side, brands need to stop driving the dollar ever downward through procurement and pay a fair wage for the work they request. Brands need to empower their partners to do great work, able to make a mistake without fear of a review pending around the corner.
We need to look at the client-agency relationship like a marriage where not everything goes well all the time, but you are committed and you make things work (for better or worse!). If there are irreconcilable differences, you find a mutually acceptable means of parting ways. But brands shouldn’t angle this threat over agency heads on a daily, weekly or monthly basis.
And, no more pitting your agencies against one another in the hopes of “competitive spirit,” because that approach doesn’t work. You’re kidding yourself if you think short timelines and competitive pitches get you anywhere. It gets you backstabbing and cheating, creating the situation where agencies have to do what they can to survive.
Transparency is the name of the game at this point. It applies to technology, data, ad exposure, analytics — and even agency compensation models. Transparency is a good thing, but now that most of the skeletons are out of the closet, it’s time to fix the problem.
Many agencies are filled with smart people with a lot of integrity — but when you back an entire industry into a corner, what do you expect them to do to survive?