“You should spend money to generate profits,” because the adage goes. But it’s possible that promoting agencies are spending an excessive amount of money.
According to a new Forrester report on the normal selection process requiring agencies to devote unpaid time and resources to landing a chunk of new business, U.S. agencies spend as much as 17% of their annual revenues going after new business. That amounts to about $12 billion annually, which is just below the annual revenues of considered one of the massive three holding corporations.
And while it’s ultimately the agencies who’re racking up the bills, they’re passing on the prices to current clients, who’re ultimately funding the agencies’ new business efforts, said Jay Pattisall, principal analyst at Forrester.
“That is a colossal number,” Pattisall said. “You could have a look at it as awful for the agencies to fund such activities, but [much of] it is coming out of the fees of the marketers [who are existing clients].”
Relic from the past
Increasingly, agencies, marketers and consultants are frustrated with the long-standing process. Concerns include the quantity of resources dedicated to pitching new business, the shortcoming of marketers to get to know the teams that may be working on their accounts, the length of the everyday pitch process and the variety of departments involved in making the selections.
“An easy answer would be to point the finger at one particular set of constituents,” Pattisall said. “I feel the problem is much larger than that. It has to do with a number of inertia in all parts. It has to do with misaligned objectives, and it has to do with distributed decision making.”
All of those issues stem from a singular source, which is that the new business pitch process is a relic from a previous era that favored agency-of-record relationships and compensation models, Pattisall explained. In the present era, marketers depend on rosters of specialised agencies to supply every part from promoting to influencer marketing to social media content. Yet the ways agencies find business and are compensated for it have remained the identical.
“For every part that has modified on this industry over the past several a long time, from technology to the fragmentation of channels and audiences and the shifts of consumer behavior, two things have stayed the identical: the way in which the agencies receives a commission and the way in which that agencies are chosen,” Pattisall said. “And it’s really high time to modernize that together with every part else that has modernized in marketing.”
It’s not as if the industry hasn’t identified the pitch process as an issue. Last yr, the Association of National Advertisers (ANA) and the American Association of Advertising Agencies (4As) collaborated on an Agency Search Simplification initiative to rectify the disconnect between agencies and advertisers.
Radical change
Recommendations from the report included five key areas where the search process could be improved. Among them were: sharing agencies participating within the review, sharing the project budget or range, increasing access to key agency decision-makers and outlining the use and ownership expectations of spec work.
Those recommendations are a step in the precise direction, but they could not lead to the wholesale change that seems to be needed to repair the method, Pattisall noted.
“The work that the ANA and AAAAs have done together is admirable, but ultimately it points to incremental change,” he said. “It must be a more radical change.”
Forrester’s report, titled “Ditch the Pitch,” recommends a new model that takes a partnership-oriented approach that shortens the method, compensates agencies for their efforts and streamlines the decision-making process around the corporate’s internal priorities and external goals. Search consultants, meanwhile, would shift their focus to facilitating long-term partnerships between agencies and clients relatively than trying to seek out new partners every few years.
“Those which might be involved in facilitating selection – the consultants – should be involved within the long-term relationships as well,” Pattisall said. “That helps take these misaligned objectives and align them along the target of partnership.”
With the entire constituents agreeing the normal pitch model is broken, the query of the industry’s ability to alter stays. After all, the present process has been ingrained for a long time, and change is hard to implement, even incrementally. For a solution, Pattisall points to the recent past.
“We’ve had 20 years of digital transformation by which businesses were slowly moving toward new business models. But when the pandemic hit, they did it in six weeks,” he says. “My hope is that by voicing it and laying it out on a table in such a way that it is honest and constructive, and that the 4 sets of constituencies can come together to have some type of reform.
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