It is amazing how often a conversation about tendering for a new agency occurs without any substantial reference to the overall roster structure. The desire to appoint a new media agency, a new creative agency or a new digital agency is often made in apparent isolation. In late September I had a discussion with a Marketing Director about the desire to review all of their “major” agency suppliers – this being the three agencies where almost 90% of their budget was currently invested.

This opened the conversation beyond simply “who is the right supplier and how do we find and choose them?” to a conversation about “what is the right roster structure to deliver our strategic requirements?”

As a guide and as stimulus for this conversation I use the presentation above outlining the various major roster structures and the relative strengths and weaknesses. The main agency roster structures are:

1. The Full Service Agency
2. Holding Company Model
3. Created Customised Agency
4. Lead Agency
5. Strategic Group
6. Strategic Tier
7. Best of Breed

There is no one correct structure and in fact there are many hybrid models of these structures that all function effectively. The important step is to define the strategic requirements and match the roster to those requirements.

Therefore when the Marketing Director was talking about the major shift they had in mind for the brand beyond simply position, but one that would impact the marketing investment mix and the channels, it was the ideal time to review the overall roster structure to ensure it was aligned to the new strategic marketing requirements.

This approach then made it much easier to then assess if the current supplier structure and mix was aligned, by defining the requirements of the supplier roster strategy. I am a big believer in the strategy of “changing your agency is smarter than changing agencies” and have found that this approach ensures that most of the emotional and subjective drivers for the new Marketing Lead to change agencies are put to one side and a more strategic approach based on the immediate and future requirements of the brand is embraced.

Even if this strategy leads to the incumbents being asked to re-pitch for the business, it is done with clear requirements in place for which they can prove their suitability rather than being led through a process to be rejected for often ill-defined and usually personal reasons.

And I have found a good starting point for this is to review the current roster structure against the various models available.

I would be interested to know if you have worked with a roster structure outside of the ones I have defined here?

And how successful was it?  And under what circumstances?

Let me know in the comments here.

As “the marketer”, every time your agency issues a purchase order on your behalf to the production company making your TVC, you are bound by the SPAA (Screen Producers Association of Australia) set of terms and conditions (let’s call it a contract), unless of course your contract with the agency strictly forbids your agency from entering into third party agreements without your written permission. (Increasingly common and cause for concern for agencies approving the SPAA without your written approval).

Fixed cost up front?

Under the SPAA contract once the purchase order is issued, you have agreed (by default) to pay a fixed price for a “completed and reasonably acceptable videotape master” of your TVC. (The SPAA contract makes no mention as to whom the master is be “reasonably acceptable” to)

You pay the worst-case scenario?

The SPAA contract goes on to explain that the contract is actually applied to an estimate based upon assumptions, by which the agreed or estimated total is calculated. Now any reasonable person would understand that the production company makes TVCs and is not in the business of gambling. Thus all the production company assumptions would have to be based upon a worst-case scenario. Then the estimate would have to be based upon financial considerations high enough to cover these worst-case scenarios whether they occur or not.

Robbing Peter to pay themselves?

The SPAA contract then goes on to explain that if not all the funds are required as estimated for one particular cost center it is the up to the discretion of the production house to re allocate the excess funds into another cost center should they see fit, or alternatively they can retain these excess funds as profit above and beyond the production house mark up / profit margin.

Make a change and we’ll bill you!

The SPAA contract also outlines the production company’s rights to charge extra should the client or agency alter the specifications of the project.
 There is no allowance in the SPAA contract for the reimbursement of funds to the client should the change of specifications actually decrease the scope of work required to deliver a completed and reasonably acceptable videotape master. This is a fair indication of the spirit in which the SPAA terms & conditions were drafted.

Plus you never really own the production

The SPAA contract also states that the production house could claim payment if for instance, the client executed a cut down of a TVC that had not been mentioned in the original project specifications. Although this clause is rarely enforced by production houses it is still included in the SPAA contract, once again enforcing the production house bias of the whole contract.

In summary

The SPAA contract is a document from the 80s when the advertising business was awash with cash, when Alan Bond was winning the Americas’ Cup for Australia and Christopher Skase was planning the opening bash for his Queensland resort. Things have moved on since then, unfortunately the SPAA terms & conditions haven’t.

There is a solution

Thankfully there are alternative contracts that can be put into effect that are far more in tune with current industry practices and expectations. But it seems that few agencies are challenging the production companies on the terms of their agreement and binding their clients to these terms by accepting them on their behalf, even when they may have no legal right to do so.

See where the potential legal dispute may arise?

Have you checked what production contracts you or your agency approve?

There are times when an advertiser should go to the market to select a new agency. But this is not a process that should be entered into lightly. Going out to the market place comes with several risks and costs to both advertisers and their agencies. Before we consider if the advertiser should pay pitch fees, lets look at the cost to the agencies, which include:

Internal agency human resources

Like most companies these days, agencies do not have a significant capacity within their human resources for speculative work. While few agencies appoint external staff for a pitch, the head hours invested in the pitch process is a cost to the business, with the majority of the costs quoted for the pitch process comprising these human resource costs.

Disruption to the agency

The opportunity to participate in a pitch can be great for agency morale, but many agency managers are rightly balancing the potential upside of chasing new business opportunities with the impact the disruption may have to existing clients.

Non-recoverable external costs

Depending on the size of the account, many agencies will invest heavily in external costs such as consumer research, animatics, external artwork and the like to provide a perceived competitive advantage. If the agency is unsuccessful, these are hard costs that will never be recovered and even if they are successful, it can take many months to get back to break even.

Intellectual property rights

The core value an agency provides is the ability to generate ideas. In many cases advertisers require the agency to assign the rights to these ideas to the advertiser as part of the pitch process. If you were not intending to use the idea why would you want to own it? And if you do intend to use the idea, why would you not pay for it?

Industry perception of failure

While the successful agency wants to shout their success from the roof tops, the unsuccessful agencies are naturally concerned that a number of unsuccessful pitches can create a perception that the agency is “off the boil” with little or no opportunity of putting these losses into context as they are often covered by confidentiality agreements.

When to pay pitch fees

There are times when you should compensate the participating agencies for their costs. Our advice is to offer pitch fees when:

1. you want to buy the rights to all concepts, not just the winning concept,
2. when you require the agencies to prepare materials and incur external costs beyond what would be considered standard
3. if you are engaging a large number of agencies in the strategy / creative stage of the process.

How much should you pay

That is obviously open to negotiation with the agency. Too little and the fee becomes token and potentially insulting. Too much and you are simply wasting money. But if you are simply paying out of pocket expenses then as a guide $10,000 – $25,000 per agency would be reasonable and if you are buying their intellectual property rights then the commercial value is easily $100,000 +.

Have you ever paid pitch fees? Or been paid pitch fees? And what was the fee for? And how much were you paid?

Leave a comment here. We do not need to know who the companies were. Just the facts.

Thanks.

Undertaking an agency review or “pitch” should only be done for the following reasons:

1. You want to appoint an agency provider for the first time. It may be a new business, new brand or growth in an existing business that now requires a specific external resource such as a media, direct marketing or advertising agency.

2. If the current relationship with the agency is damaged and beyond repair, in which case the incumbent should not be asked to pitch as it is simply a waste of everyone’s time.

3. If there is a regulatory or corporate governance requirement to go to market on regular intervals. However, if this is driven by cost concerns there are much more cost effective ways to determine how the current remuneration compares to the market, such as benchmarking, instead of the long and labor intensive pitch process.

4. If the company or business or marketing strategy is undergoing major directional changes and there is a requirement to expand or change the mix of services being supplied by your current providers.

5. To rationalise large numbers of like suppliers to achieve economies of scale and to assist in supplier management. In this case only existing suppliers on the panel would be asked to participate.

But many people use the review or pitch process for a number of other reasons, involving higher risk and higher costs including…

1. Facilitate fee negotiations – While a competitive environment provides the company with an advantage, the cost and disruption to the existing process and relationship almost never warrants this strategy. There are some advertisers known to change agencies on a regular basis to reduce their costs, but the false economy they are following does not account for the wasted resources consumed each time.

2. Wanting to test your incumbent against the market - The danger of this strategy is that while it allows the advertiser to directly compare the incumbent to others in the market, it can have the effect of damaging the existing relationship over time. Also, because of an imperfection in the review process an advertiser may make a decision to change that they may later regret.

3. To engage a pre-selected preferred supplier – This is deceptive conduct that simply wastes the time and resources of all participants. If there is a clearly preferred supplier, then they should be appointed through a due diligence process, but not under the guise of a fraudulent tender process.

4. Because the love is gone – A common reason advertisers want to change agencies is that the relationship has changed. This is where business and personal relationship counseling collide. When the relationship with a provider is under performing it is important to determine the cause and assess if this can be rectified before terminating the relationship. Only when the relationship cannot be fixed is it time to go to a pitch.

5. To keep all of the agencies on their toes – There are some marketers who take the concept of competitive tension to the extreme having their agencies pitch for every project, either within an expanded roster or the open market. While it seems sound in theory, in practice it will last a short period of time until the better agencies withdraw from the process. It is draining on the agencies and also the marketing team if managed properly.

There are easier ways to address issues and drive performance than running a pitch. But if you do decide to run a pitch make sure you do it properly.

With increasing complexity advertisers are finding limitations in relying on media and creative agencies as their main advertising providers. Today, most advertisers are juggling five or more providers including digital and direct marking, public relations, experiential, promotions companies and more.

At best, the management of this range of providers is time and resource consuming and at worst leads to a fragmentation in the brand communications with each provider doing their “own thing”.

Identifying your key communications providers

The very first step is to identify the various providers currently on your roster. Often, over time, advertisers will accrue a growing number of providers. In one case an advertiser had more than twenty graphic design providers through leakage outside the original panel of three.

Often, in identifying the various providers, many advertisers will then go through a process of rationalisation to deliver economies of scale in their expenditure.

Defining your requirements and the role each will play

The next step is to then define your total requirements to fulfill your marketing plan. This includes budget, outcomes, planned campaigns and known activities.

Traditionally the activities would then be placed against the particular providers based on their core competency or the core service they were engaged to provide.

This is becoming increasingly difficult with most suppliers expanding and blurring their range of services to capture more revenue opportunities with technology assisting this in the digital domain.

Developing the appropriate structure to deliver outcomes

There are a number of different structural options for managing the relationships, from the traditional client agency relationship where the marketing team is responsible for the individual management and co-ordination of the various and usually small number of service providers to a collaborative adviser model where the service providers work collaboratively as advisers to the marketing team.

Many of these options are presented in the TrinityP3 discussion paper available on Slideshare.

The right structural / organisational model depends on the culture, needs and requirements of the marketing team.

Implementing remuneration strategy to encourage collaboration

Many marketers attempt to create a collaborative working environment between their various specialist service providers. While this can be successful in the short term, invariably power struggles and demarcation disputes develop as the various providers compete for incremental revenue.

The most successful approach is to take a whole of relationship approach to the task including review of remuneration, service level agreements, reporting and deliverables.

In our experience, many of the attempts to create a more collaborative approach to service delivery is undermined by contracts and remuneration that rewards individual providers higher than collective outcomes.

Managing the process to deliver the desired outcome

Without a comprehensive approach to the way in which the service providers are engaged in the relationship, efforts to develop more collaborative working relationships are almost always doomed to fail through struggles over roles, responsibilities and remuneration.

Once you have these aligned across your roster you then need to ensure regular measurement and management of the roster to improve collaboration using a system such as Evalu8ing.