Increasingly cost-conscious advertisers are demanding that agencies be held more accountable for their work by demonstrating value for what they charge.
The call for accountability--making the quantification of the value of advertising an imperative against a backdrop of growing compensation issues--was loud and clear at last week's American Association of Advertising Agencies annual meeting at Turnberry Isle, Fla.
PUT UP OR SHUT UP
Whether marketers sell a 25 cent pack of gum or a $30,000 car, they're pressuring agencies to put up or shut up, maintaining that demonstrable worth will cement better agency/client relationships.
"If only agencies would do a better job of demonstrating to clients how the agency delivers on the price/value equation, relationships would improve rather dramatically," said Ron Cox, group VP, Wm. Wrigley Jr. Co. "The nagging question with clients today is `Are we getting value for the money we pay our agencies."
"Clients feel they don't have a clue as to the relationship between the agency's billings and its actual value added," said Chrysler Corp. Vice Chairman Robert Lutz.
Mr. Cox suggested ad agencies provide "stewardship reports" that explain, "here is what we're doing with the money you've invested."
`DON'T TAKE FOR GRANTED'
Suggesting agencies update clients regularly on all work they have done and the results produced, Mr. Cox warned: "Don't take for granted clients know all you do to earn your keep."
Mr. Lutz said agencies could benefit from a more quantifiable evaluation.
"Part of the reason [agencies] might not want to do a true, value-added accounting of all [their] activities is the fear that clients will use that information to cut [their] billings," he said. "I don't think that would necessarily be the case at all."
CLIENT'S RESPONSIBILITY, TOO
Burt Manning, chairman-CEO of J. Walter Thompson Co., allowed that proving advertising's value is "an important thing to do," but stressed it's a responsibility of the client, not just the agency.
Putting the responsibility to create a quantifiable method solely on agencies is "artificial. Most clients are involved deeply and profoundly in the advertising-approval process," he said.
It's not practical for the client to work with the agency every step of the way through the ad process and, in the end, hold only the agency accountable for proving the value of the work.
However, Shelly Lazarus, CEO of Ogilvy & Mather Worldwide, said, "It's completely legitimate" for clients to ask for more proof ad dollars are well spent.
Mr. Cox also warned agencies not to stay too far afield of the business of creating ads in efforts to prove their worth.
"Some agencies chose to introduce the biggest new-product failure ever to hit the business--namely the concept of integrated service," said Mr. Cox. "The failed concept of one-stop shopping to generate more service revenue per client [is] not the answer to . . . agency price/value questions."
DON'T STRAY FROM AD WORK
Mr. Cox stressed, however, that he wasn't arguing against integrated marketing plans or the inclusion of such services under a holding company.
Mr. Lutz, on the other hand, advised agencies against becoming "full-service communication conglomerates" and warned them against continued expansion and "merger-mania" that could lead to the "evil trap of getting too extracurricular."
The Four A's also jumped into the issue of quantifying the value of advertising, initiating a multi-year research program called MAX (AA, April 7). Short for Managing Advertising Expenditures for Financial Performance, the program will use cross-industry research from marketers, agencies, universities and researchers to determine the optimum amount of money each advertiser should be spending, and how to best utilize ad budgets.
Accountability also was discussed by executives speaking on bonus/incentive compensation for agencies.
Robert Lundin, president of consultant Jones-Lundin Associates, said pay-for-performance incentives add value to both a client and agency by leading to stronger and longer-lasting client-agency relationships.
John Costello, senior exec VP-general manager of marketing at Sears, Roebuck & Co., advocated clients use a performance-based incentive system.
"A lot of the old rules simply aren't working," he said, adding the "old school" mind-set that billings would naturally increase as clients increased business is no longer true.
Young & Rubicam and Ogilvy & Mather are Sears' agencies, and they've been using agency incentive programs for more than three years.
William Cochrane, exec VP-chief financial officer of Saatchi & Saatchi Advertising, said that although his agency uses this system for some clients, performance-based pay is not for all clients."
Copyright April 1997, Crain Communications Inc.