It's all a question of attitude
Labor costs and inflation are putting pressure on agencies’ margins. They could counter this by increasing their revenue. However, this requires a different approach than before—not only toward procurement and line departments, but also with regard to their own services.
Agency heads are currently talking about money with striking frequency. No wonder—staff are in short supply and becoming increasingly expensive, and the economy isn’t exactly booming, which is prompting companies to take a doubly critical look at their marketing budgets. Agencies« revenue models are coming under pressure, and established compensation structures are consequently being called into question. One term comes up strikingly often in these discussions, and in my view, it’s actually highly relevant when it comes to potential revenue opportunities for agencies—the word »attitude.”.
«Agencies can certainly afford to project a confident image.»
But what exactly does «attitude» mean in a positive sense? According to Duden, it refers to an «inner [fundamental] attitude that shapes a person’s thoughts and actions.» Since agencies are business-oriented service providers, «attitude» here must, to a certain extent, be interpreted as a “service-oriented mindset.” However, it’s possible to take this too far, and I fear that this is precisely what some agencies are accused of. When a service provider becomes a submissive “do-it-all,” its business model is built on shaky ground.
This far and no further
Yet agencies can certainly afford to project a confident image. Their services operate at the interface between companies and their customers—that is, where the success or failure of brands is decided. Investing in brand communication—and thus in the work of agencies—therefore plays a major role in determining a company’s success. Yet agencies often lose sight of their own business goals due to an (excessive) service-oriented mindset. But a strong stance is demonstrated only by those who negotiate terms not only on equal footing with the client’s department but also—in the dreaded next round—with the procurement team. From the agency’s perspective, this stance translates to «this far and no further.» Requests for price reductions are understandable, but they don’t always have to be granted in full. Professional negotiation skills are helpful here, as is the realization that if the subject matter department has already said “yes” to the agency, the purchasing department’s negotiating position may not be as strong as it claims.
Submissive Jack-of-All-Trades
However, your approach must also demonstrate who is committed to succeeding in the ongoing collaboration with the client—that is, who wants to make money. This means, for example, delivering only what was actually promised. It sounds obvious, but it often isn’t. I bet every agency executive knows of examples where this rule was broken because the client asked for a few small favors. A little competitive analysis here, a bit of organizational consulting there—these are gladly accepted, even though they weren’t part of the original engagement and, of course, go unpaid. Management consulting firms call this a «follow-up engagement» and have established a very successful business model by using the strategy of starting with small projects at the client’s site to generate larger follow-up projects based on the issues identified in that way. Agencies, on the other hand, often give away follow-up projects—and with them, a lot of money. That is certainly not the right approach.
Strong negotiating position
Having the right mindset also means being aware of one’s own strengths and limitations. Agencies provide an important and complex service for which there is high demand on the corporate side. Given the variety of analog and, above all, digital communication channels, advertising companies are increasingly «lost.» They are more dependent than ever on qualified partners on the agency side. Furthermore, there isn’t an infinite number of agencies capable of offering brand communication at the highest level for medium-sized and large brand companies. So their negotiating position isn’t all that bad.
Ultimately, integrity means being aware of one’s responsibility to the industry. Agencies that go along with every price-cutting game help ruin the industry’s pricing structure. Short-term success comes at a high cost.
This article is a contribution from GWA, the German m&k partner association.
