Why Agencies Are a Company's Most Valuable Business Partner

By Tim Williams

By Tim Williams

To understand what’s happened to the perception of agency value, look no further than the invasive involvement of procurement in the agency selection process.  Rest assured that procurement does not hire a company’s management consulting firm.  How did this happen to agencies?

It happened because we lost sight of our own value proposition.  This is not a result of the Great Recession.  Even in the best of times, most agencies have shown a remarkable lack of self-confidence and self-respect.  Well before the economy took a dive, Advertising Age ran a provocative pieced titled “Is There Anything Agencies Won’t Do?’ highlighting the degree to which agencies will lower themselves in pursuit of new business.

It’s time for agencies to rediscover the value they create for their clients.

You’ll only be paid what you think you’re worth

In this and several upcoming posts, I’d like to invite marketing communications executives to engage in some serious self-reflection and make a commitment to:

  1. Update your understanding of how your firm creates value in the marketplace.
  2. Evaluate your own line-up of services against the value-creation leaders.

Phenomena like crowdsourcing and online auctions for new accounts have distracted agencies from cultivating competencies and approaches that can create demonstrable value for clients.  In the age of consumer-generated content, it might be true that “anyone” can attempt to create an ad, but not everyone knows how to create a brand, a customer, or a relationship.  That’s what great agencies do.

Nothing is more valuable than brand equity

While most agencies would describe themselves as being in the brand development business, few have stopped to appreciate the tremendous wealth they create for their clients when they do their jobs well.  Instead, they get paid as though they are just doing “ads” or “brochures” or “web sites.”  Wrong.  You’re creating brand equity for your client.

You owe it to yourself to stop and think about this for a moment.  Brand equity accounts for somewhere between 55% and 75% of a company’s value.  Most studies of large public companies show that two-thirds of the company’s value is from “intangible assets,” meaning the equity of its brand.  Agencies are in the brand equity business, and their contribution to a marketers intangible assets is routinely undervalued by both parties.

Most importantly, strong brands command premium prices.  The stronger the brand the higher the price.  This creates vast profit pools for clients.

[brand equity chart]

Adapted from “Brand Equity and the Bottom Line” by Peter Walshe and Helen Fearn,Admap, March 2008.

Agencies are a company’s most valuable business partner

It’s ironic that law and accounting firms typically charge fees that are two to three times higher than agencies.  Law and accounting firms are mostly in the business of helping clients protect what they already have.  Agencies are in the business ofgrowing their client’s business – actually helping companies make money, not just save money.