Value is created outside the agency

May 8, 2012 | Author: Tim Williams

Agencies want to capture more of the value they create for their clients; in other words, earn more for what they do.  The first step is to understand the nature of value, including how, when, and where value is created.

The truth is, almost all agencies are looking in the wrong place for value.  Their compensation agreements are based on hours worked, FTE’s assigned, and costs incurred.  Hours and costs look inside the agency, but value is created outside the agency.  In other words, value is created outside your four walls.  Agencies and their clients are therefore usually looking in the wrong place for the basis of pricing and compensation.

In order for an agency’s compensation to be based on the value it creates, the agency needs the necessary knowledge and skills to identify and measure the drivers of a brand’s success.  If you don’t understand how you create value for your clients, you’ll never succeed in being paid for it.

Counting the wrong things

A survey by the American Association of Advertising Agencies asked agencies “What information do you track?”  Here’s what the agencies said:  

These results make it painfully clear that agencies believe value is created inside, rather than outside, their organizations, because they’re paying close attention to internal activities and very little attention to external outcomes.

Investing your time in ways that create and capture more value

By some estimates, the average agency spends up to 20% of its time and energy recording, tracking, capturing, estimating, billing, and adjusting it’s time.  Imagine if you took that same time and energy and instead invested it in doing a better job of creating marketplace value.  What if you traded the time spent in column A for time spent in column B?

If you turned your agency’s focus to column B, would the quality of your work be better?  Would the client receive better value from the agency?  Would you earn better margins on each assignment, and therefore on the client as a whole?  The answer to all of these questions is yes.  Why should we stay trapped in a model that serves neither party well? 

Knowing what you’re really selling

The critical first step on the path to becoming a value-based agency is to start turning your attention and energies to what clients are really buying from you; business success.  And as soon as you become as expert in identifying, measuring, and analyzing client business results as you are in crunching your agency’s cost accounting data, you will be infinitely more valuable to clients and prospects.

Mammals with money

April 23, 2012 | Author: Tim Williams

During a positioning discussion with an agency in the eastern U.S., I asked a pretty common question “How do you define an ideal new business prospect?”  I’ve heard some pretty weak answers to this question over the years, but none as honest as “Mammals with money.”  Hilarious, but sadly true for the vast majority of firms.

The first rule of business development: Decide that not everybody is a prospect

Most agencies have a weak and frequently replicated combination of objective and subjective criteria that attempt to define their target prospect.  

For unfocused agencies, the objective criteria usually include things like:

• Company size
• Advertising or marketing budget
• Geographical location

The subjective criteria usually consist of elements like:

• Values good work
• Easy to work with
• Has experience working with ad agencies

Look familiar?

The problem is, none of these criteria come are enough to be of much help in new business development.  First, because it’s virtually impossible to identify prospects that match your subjective criteria (unless you meet them face-to-face and get some experience working with them.)  And countless other agencies are looking for the same prospects that match the objective criteria.

Not “anyone with a pulse”

The ideal prospect for your firm must be defined in much more specific terms.  Having a good answer to the question “Who is our best customer” is the foundation of success for any business – ad agencies included.  Rather than defaulting to “anyone with a pulse,” gather your management team and invest some creative thinking to this question by deeply exploring the following questions:

1. What kinds of clients have we been most successful attracting in the past?  Looking at the history of our client relationships, what are some of the traits these companies have in common?  Start with the more obvious questions of size or geography.  Then apply some creative thinking to identifying common threads that might not be so obvious.
2. Which industries or business categories do our people know best?  Looking at the historical experience of the key people in our firm, in which industries or market segments do we have the most collective experience?  To help in this process, reference a list of industry categories such as the one published by The List.
3. As a group, what types of brands do we know best?  What is our collective experience in terms of types of brands?  There are many ways to think about a type of brand: New or established/Products or services/Retailer or manufacturer/Upscale or average/National or regional/Conservative or progressive/Entrepreneurial or traditional/Physical location or online?  Try to think creatively about this question.
4. Which audiences or market segments do we know best?  Given the types of clients we have worked for in the past, what characterizes their customer base?  Think about age, gender, income, geography, occupation, attitudes, behaviors, buying habits, media habits, usage habits, ethnicity etc.
5. Which internal and external brand stakeholders do we know best?  Inside client organizations, which constituencies do we know best (think beyond marketing to include sales, HR, etc.)? In the external marketplace, who do we communicate to most often (think beyond customers or consumers to include such things as dealers, distributors, etc.)?

In a way, these queries are all different ways of asking the same essential question: “Which specific kind of client organization wants what we do best?”  The answer can’t be everybody.  

You counsel your clients to define a specific target, a “best customer.”  You wouldn’t let your clients gets away with customer definition platitudes like “people with money” or “customers that are easy to deal with.”  Hold your agency to the same standard.