The retainer fee systems that are meant to benefit the advertising industry may actually be driving the industry into the ground. The way they are implemented justify inefficiencies and drive agency commoditisation. They may seem to be a safe option for agencies, but they can stifle their growth and prevent them from scaling; added to which they no longer serve advertisers or give them the same value they did a decade ago. The question is: Why has the retainer system not evolved, while marketing and PR have changed dramatically over the past decade?
Breaking Creativity Down Into Neat Slices
The bean counters at the advertisers’ end have been pondering the best way to package the delivery of advertising services into neat slices that better fit into their accounting books. The retainer model emerged as the hero over the past decade in Pakistan, superseding other models of à la carte rates and the old 15% agency commission system. Retainers made everything more comfortable; agencies would pitch and the winning agency would negotiate a retainer for the purchase of their services. Agencies would then offer up slices of their key internal resources and hire others based on the time allocated to the brand. Clients could purchase partial slices of people, or opt for full ‘dedicated’ slices of the resources, who would be fully available to them and their brands.
Why Have Agency Retainers Become Buffets?
May I have the regular mix of dedicated account managers, dedicated designers as a filling and a few planners as the cherry on top please? That is what an agency is typically asked for by the procurement departments of leading advertisers while negotiating a retainer fee contract. Although I like a buffet once in a while, I know they are not the best good restaurants are capable of serving. Buffets are consistent, but they quickly become stale and boring. This is what happens to retainers which mandate lots of dedicated resources. Advertisers today need agency partners working at their peak, with the ability to flex and adapt to rapid market changes. How can agencies deliver this when they are locked into a stiff and inflexible compensation system?
Wow, What a Pitch Team; Where Have They Gone?
All good agencies have an ‘A-Team’ capable of putting together excellent presentation decks to wow prospective clients during pitches. However, usually they then pull their ‘A-Teams’ away from their leading accounts because of the lack of flexibility in the retainer model, which forces them to provide a large number of dedicated resources within a fixed price. The reality is that agencies cannot afford to dedicate their leading resources to a single client because that is not how the business is run. Agencies are therefore forced to hire resources from the market to meet these requirements. There is an important difference between people who are dedicated and those who have been dedicated to an account. Dedication is a great thing for advertisers to expect in their agencies, yet the fact is that when good resources are dedicated to a single account, their productivity declines; it decreases their passion and brings in a sense of complacency as the work becomes repetitive and monotonous. It is, therefore, so ironic that agencies have given up the differentiation that won them the business in the first place in order to meet poorly thought out retainer requirements.
Retainers Prevent Agility
Agility and efficiency are only possible when agencies have the flexibility to deliver the best solutions they are capable of, by engaging multidisciplinary teams. Procurement-based retainer systems stifle this flexibility. The sad reality of the retainer model is that 90% of the time both advertisers and agencies lose out because of the inherent inefficiencies in the system. Clients lose because they are paying for people’s time rather than for results. Agencies lose out because clients keep pushing them to justify the fixed sums they pay for, squeezing the dedicated resources to a breaking point, resulting in a high turnover. This is why retainers justify inefficiencies and drive agency commoditisation. If retainers push agencies to hire from the same pool of resources available to everyone else, how is the system driving differentiation?
Hot Shop or Sweatshop?
Constant pressure and an unrelenting effort to justify an inefficient system is a perfect recipe for a sweatshop. A group of people working day in and day out in poor conditions is not conducive to the kind of original thinking and creativity a strong agency is capable of delivering. It saddens me to see young people inducted into a system of dedicated retainer sweatshops. The system reduces the incentive for agencies to train and develop resources which may need to be demobilised should the agency lose the account. As a result, agencies take on less ownership of these ‘sweatshop’ resources, which leads to high turnover.
How Can We Fix the System?
I don’t think we should do away with the retainer fee system wholesale; we should adapt and link it to actual deliverables and performance. This will probably make the accountants on both sides of the table less happy, but it will be greatly beneficial for the agency and the advertiser. Yes, part of the fee should be fixed to lock in the commitment of key agency resources, but agencies should be given the freedom to achieve the results in the best possible way without being dictated to by the advertisers’ procurement departments.
We have achieved success with deliverable and performance based agency compensation systems that I believe have worked better for both the agency and advertiser than traditional retainers have. A more flexible system has enabled us to be more agile and responsive to our clients’ needs and mobilise multi-skilled resources for a win-win solution. The retainer system is being questioned the world over and it is time we explored a system that works better for everyone.
Afzal Hussain is Chief Strategy Officer/General Manager, M&C Saatchi World Services Pakistan. firstname.lastname@example.org