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Ad agencies just can't get a break when it comes to convincing their clients they can handle interactive work.

After struggling for years to staff up new-media units, form alliances with technology partners and educate their employees, ad agencies still rank as just another supplier when marketers look for interactive expertise.


In the first study of its kind, Advertising Age and Mediamark Research Inc. conducted telephone interviews with 301 marketing executives to ascertain how they assign interactive projects and how their ad agencies stack up in key capabilities.

The same survey was posted online and generated 108 responses. (See box below for methodology and separate story on this page for online results.)

The results of the phone survey paint a frustrating, but not surprising, picture for agencies: Marketers still turn first to interactive specialists for key assignments; they give lukewarm marks to their agencies' interactive expertise; and they are surprisingly willing to handle work in-house-sometimes before they consider their agency.

But while marketers are quick to knock their agencies, the survey shows they are unexpectedly conflicted about how they would like those agencies to manage interactive work.


Even more telling, they are still using two-way communications for one-way messages, ranking information-providing and public relations needs well above one-to-one marketing and electronic commerce.

"The perception in the marketplace is that traditional agencies have not closed the gap between what clients want and what they can deliver," said Edgardo Pappacena, partner in charge of Arthur Andersen's advertising consulting practice, which assisted in analysis of the survey.


Just 29.2% of the telephone survey respondents say their ad agency is their lead resource for interactive marketing projects. While that's enough to rank agencies first, they're only a hair's breadth away from being overtaken by Web developers (26.6%) and in-house resources (22.9%).


Only one-quarter of marketers planning changes in their interactive roster this year will give more work to their traditional agency.

The main reason the ad agency doesn't get the assignment? Lack of expertise.

"Clients in some form or another want their ad agency to be involved, but they don't think their ad agency alone can do it," said Rishad Tobaccowala, president of Giant Step, an interactive subsidiary of Leo Burnett Co., Chicago.

Agencies lucky enough to get assignments from their clients face a difficult path to profitability.

Marketers overwhelmingly compensate their suppliers on a project basis, with more than two-thirds choosing this option. Only 24.3% of marketers put their interactive suppliers on a retainer, and fewer still (4.7%) pay media commissions.

As interactive work becomes more important to marketers, its compensation methods could be the Trojan horse to usher in a sweeping overhaul in the way agencies are compensated for other tasks.

A 1995 study by the American Association of Advertising Agencies found that only 14% of advertisers pay their agencies a standard 15% media commission, while 35% use labor-based fees.

"Agencies don't know how to make money on a project-based structure," Mr. Pappacena said. "Interactive media projects will continue to reinforce the trend of moving away from media commission to a project-based" compensation structure.


Of concern for all suppliers, whether ad agencies or not, is the fact that clients are more than willing to take work in-house. A sizeable 22.9% of respondents said their lead resource for interactive is their own employees.

Even more telling: Of the marketers planning to make changes in their interactive roster this year, a whopping 46.3% said they will take more work inside.

One factor contributing to that decision could be budgetary. Of the survey respondents, the majority (52.9%) said they plan to spend less than $150,000 on interactive projects this year; only 10.6% have budgeted $500,000 or more.

Another factor: the winding down of the initial Web site-building craze. Marketers that in the past year relied on outside suppliers for Internet activities are now turning more of their attention inward, developing intranets, database systems and other tools that link with the Web site.

If agencies are conflicted about how to handle interactive, they can probably blame their clients.


While most survey respondents (37.2%) said they prefer their agency to set up a separate, dedicated interactive unit, nearly as many (26.9%) said they'd give more work to their agency if it integrated interactive capabilities. And 26.6% said they wanted to see their agency form alliances with outside suppliers.

Reflected in this data is a picture of marketers still unsure of what they want from their agencies.

`I want an interactive specialist who integrates with my brand work who I don't have to use all the time," is the way Giant Step's Mr. Tobaccowala described the scatterbrained client attitude depicted in the survey.

Another telling result: Marketers are still using interactive tools to accomplish one-way communications.

Nearly three-quarters of respondents said they use interactive technologies to provide information about their company. Nearly half (48.2%) use it for promotion, while 45.8% highlight public relations needs.

Only 37.2% use interactive media for one-to-one marketing; even less conduct electronic commerce.

"Many companies are looking at the new interactive media as just another operational or executional tactic-a new medium to deliver an old message," Mr. Pappacena said.


Even the terminology is dated. When the Advertising Research Foundation gathered 80 industry executives to debate research needs last month, one of the most common requests was a way to extend traditional measures such as reach, frequency and persuasion to the Internet.

"Traditional agencies can't change the old guard fast enough to respond efficiently to the changes in the industry," one survey participant said.

If that refrain sounds frustratingly familiar to ad agencies, they have a chance to change the tune.

Marketers place the most value on the ability to link interactive projects with traditional marketing, with 34.9% of respondents saying that capability is most important. Agencies, the keepers of the brand and the place clients turn for help in making key marketing decisions, have the most to gain by touting their expertise on both sides of the equation.

Nearly as valuable to marketers is basic knowledge of interactive marketing, with 26.6% ranking it as most important. Least important among marketers: skill at online media buying, which only 3.3% of respondents ranked first.

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