Cost-cutting clients and profit-hungry business owners are what I see more and more of out there. In this crowd, there are only a few rare clients left who still value what an agency brings to the table and are willing to pay the right price without any unnecessary haggling. This is the sad reality in the world of client-agency business these days. Today, both the relationship and the pricing are not determined by marketers and people with a heart. They are in the hands of penny wise and pound foolish bean counters, better known as marketing services or procurement people; people who view agency services and deliverables as commodities, hence their desire and the mindset for the lowest possible price or a wholesale rate.
The brutal fact is that the average price for agency deliverables has declined by 50 to 70% in the last decade, depending on the type of agency service in question. That too, in a country where inflation is rising and includes the profits clients make, despite the so-called ‘difficult times’ and ‘squeeze on profits’. Yet, clients need to realise that agencies are running a business too and not an Edhi service for clients. As a result, agencies are taking action, as every action has an equal and opposite reaction – and in order to generate growing margins, agencies are cutting costs per deliverable at a rate higher than the 50 to 70% price decline. Here is what will happen and is already happening.
Agencies used to hire with the intent of providing 24/7 services to clients – even if it sometimes meant reduced profits. They invested in highly-paid strategy, creative and account management people and they dedicated multiple teams to each brief, to focus, work, rework and rework until they got it right. However, with fees and commissions cut by clients, agencies have downsized and largely eliminated the number of teams assigned to creatives. This had the effect of reducing the high rate of rework, as fewer extra ideas are presented to clients. So if clients are complaining about why everything takes so long and deadlines are missed, they should know the reason why.
As rates continue to be slashed year-on-year, agencies will be left with no other choice but to ‘juniorise’, in order to maintain or grow their profit margins. Senior, and therefore more expensive, people have been let go in favour of hiring a mix of more junior people – a fact that will have an adverse effect both on quality and delivery timelines.
Agencies are compelled to work with freelancers more than ever before, as this enables them to pay for specific work rather than hire a full-time resource. However, the result is that clients are chasing agencies to deliver on time and agencies are chasing freelancers to deliver on time – causing further issues in the client-agency relationship.
The length of a client-agency relationship has decreased significantly compared to the long-term relationships that existed before, and the fact that new agency pitches have become more commonplace is because clients are not happy with their agencies and agencies are not happy with their clients. Overall, it is hard not to conclude that the pricing and profit pressures that are being put on agencies have led to deterioration in the agency’s capacity and capabilities.
For reasons best known to themselves, senior client executives do not routinely plan, document or negotiate their remuneration based on measuring the scope of work agencies are expected to deliver and the resources they need to do so smoothly. In too many cases, declining fees are set by clients and their procurement departments, based on statements such as: “It’s a global decision and is happening everywhere”, “We are cutting all costs, so this cost too has to be cut,” and in cases by a polite threat of “We will have to open up a pitch if you do not agree.” Then, with a gun pointed at their heads, the agencies agree, despite clients adding that the workload will grow throughout the year and the agencies better prepare for this without compromising on the quality or delaying the delivery. However, agencies no longer hold to the attitude of: “We are great service providers and will do whatever our clients require.” Instead, their attitude is: “You will get what you deserve,” and “If you pay peanuts, you will have to hire monkeys to do your work, not agencies.”
This situation is becoming worse and will have catastrophic implications on the client-agency relationships in the future.
Shoaib Qureshy is Managing Director, Bulls Eye DDB Group. email@example.com