Ad agencies are failing miserably to deliver what clients want—never mind that most marketers can't measure what they're getting from their shops anyway.
A survey of agencies and their clients released last month by Forrester Research has a disturbing pair of findings that together put a fine point on one of the major challenges facing Madison Avenue today: How can agencies remain central marketing partners in an age of increased specialization driven by an increasingly digital media environment?
The rather bleak report employed the net promoter score, a popular test of loyalty that's based on a simple question: How likely are you to recommend a particular product or service? Agencies turned in a dismal aggregate score of 21%, meaning that very few clients would recommend their agencies' services to others. Yet the report also found that a whopping 76% of marketers had no way to determine their return on investment from their lead agencies. Sixty-nine percent said ROI is too difficult to measure.
"There's always an undercurrent of discontent with agencies," said Peter Kim, a senior analyst at Forrester. "What surprised me is that three-quarters do not measure agency ROI. They're dissatisfied, yet on what basis? It's not because the agency didn't help them drive sales or meet some other business outcome. It's a vague disenchantment or disappointment; it's a feeling that there isn't data to back up."
The report—cheekily titled "Help Wanted: 21st Century Agency"—queried about 140 agency executives and marketers. Overall, it found that agencies' perceptions of their performance in crucial areas such as helping marketers navigate emerging channels and understanding business channels were more optimistic than the actual judgment of marketers themselves.
Big agencies under assault
This isn't the first time Madison Avenue's potholes have been under the spotlight. In 2004, Procter & Gamble Co. CMO Jim Stengel famously gave the industry a barely passing grade—a C-minus—slapping down the business for its shortcomings in research and accountability. In recent years, large agencies that for decades dominated the scene have been under assault from much newer and leaner shops that promise channel-agnostic thinking.
The bright side for Madison Avenue is that, for all their shortcomings, agencies still exert a big influence on how marketing budgets are spent, responsible for nearly 60% of spending, and marketers continue to regard them as strong business partners. That figure could be at risk, however, especially if agencies aren't quick to solve the digital-talent shortage that's plaguing the business and better lead the way on media-agnostic thinking. One anonymous CMO was quoted as saying: "Client-side marketers are better at managing integrated campaigns and being media-agnostic."
Said Kim: "As a client you don't want to have your own in-house activation officer; you want your lead agency to be able to handle that. The catalyst here is technology. Agencies that have traditionally held the lead relationship aren't up to speed when it comes to things like consumer-generated media or digital."
Focus on measurement
The relationship will also be helped along by a better focus on measurement. Arthur Anderson, a principal at Morgan Anderson Consulting, said marketers have generally been good at measuring business outcomes, such as sales, or marketing results, such as awareness; but less so when it comes to evaluating work practices and nuts and bolts, such as sharing marketing plans.
"Marketers lead the way on productivity," Anderson said. "If there's an efficient practice, then an agency is probably going to follow in it, and that has an impact on sales and awareness as well as the customer-loyalty question."
Matthew Creamer is a reporter at BtoB sibling publication Advertising Age.