The Agency Model Is Bent but Not Broken

For Agencies to Thrive in This New Environment, They Must Change the Way They Do Business and Get Paid

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Stephen Fajen
Stephen Fajen
It seems that everyone has declared the agency model broken. I disagree. It is just bent out of shape by at least three seismic marketplace fractures, which it is trying to accommodate.


Beginning in the mid-1980s, major agencies merged into holding companies in a drive for growth and economies of scale. With unexpected suddenness, old relationships were strained by the quest for greater profit margins and the loss of familiar talent that was eliminated in the shuffle.

The new agency holding companies realized they could make even more money by forming media-buying companies. Buying services, while introduced in the late 1960s, never received the imprimatur of legitimacy that was to follow in the wake of the new goliaths. Today, the media agencies are as large as their creative counterparts. With all this money at stake, everyone became instantly accountable.

To ensure economies, client-purchasing departments were granted license to partner with marketing departments in the management of agency resources. Their cost-cutting measures create further financial tensions at agencies. Compensation consultants (and I am one sometimes) have occasionally been known to exacerbate the situation.

Finally, around the beginning of the new millennium, the search for the holy grail of IROI (immediate return on investment) began in earnest. Everything needed to be measured as we chanted "accountability" in unison.


According to the Association of National Advertisers, just short of half of clients are offering incentive plans to their agencies based on performance goals. For the most part, agency costs are covered, as well as 5% to 10% of profit. If pre-established goals are met, however, bonuses are paid that can increase the agency's profit above 20%.

The same ANA survey says 3% of client/agency relations are on a value-compensation program. More important, it is the talk of the industry at the moment. Value comp suggests that the agency fee is no longer predicated on labor-based indicators. Rather, all or at least a significant part of the fee is predicated on meeting pre-established goals. Because sales are a prime criterion for value- and incentive-compensation plans, and a brand's sales are not entirely within the province of an agency's work in the marketplace, this is an invitation to the agency to begin making contributions beyond advertising alone.


Strategic communication choices abound, but if one doesn't exist to solve a marketing problem, smart strategists are just as likely to invent a media or partnerships as they go along.
Stephen R. Fajen is president of Steve Fajen Consulting, a firm specializing in client/agency strategy and relations. Previously he managed accounts, research and media as director at Saatchi & Saatchi and JWT.
Moreover, anyone who uses a computer knows how difficult it is to filter through their daily information dump in order to find what is relevant and useful. While it facilitates the availability of information when we need it, it overloads us when we don't ask for it. Oftentimes this destroys our ability to focus on what is really important.

The results of these fractures are discontent and re-orchestration.


Fully 49% of CMOs polled said they intended to put their accounts in review this year. With creative, media, digital and sales-promotion agencies, the opportunity to become unhappy with service has multiplied exponentially. Every time discontent is expressed in the form of a review, another campaign is plunged into uncertainty. One easy way to express this discontent is to proclaim the agency model broken.


For agencies to thrive in this new environment, they have to change the way they do business and get paid. But if value compensation is an answer, and the agency is held monetarily responsible for a brand's success in the marketplace, then it must have a bigger seat at the marketing table to more directly affect some of the many other factors that drive brand sales -- including price, packaging and distribution. This alone dramatically changes the agency model. Together with the array of new media platforms, the agency increasingly will be asked to orchestrate an integrated marketing effort.


I have often wondered why the ANA explicitly has a Client/Agency Relationship Committee and the 4A's does not trumpet a similar group. The industry really needs its best brains working together to chart the future course of our business. A blue-ribbon panel of ANA and 4A's members, moderated by a few sympathetic consultants, should be brought together to map these new directions and gain consensus.
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