Decideware

Depth interviews conducted recently with fifteen Chief Marketing Officers in the US has revealed some interesting trends in media spend and agency management.

The move to new media

The research, conducted by Andrew Tipping, a partner at Booz, Allen, Hamilton in conjunction with the ANA, found:

• Market leading CMOs have changed their advertising spend patterns ahead of the rest of the market
• Half of the budget of marketing leaders is now spent on the internet and other new media
• The change to a greater share of spend in digital has occurred in the past 2 years

Other characteristics

Further, Tipper found 5 other factors common to the study group, they were:

1. Driving advertising partners (agencies) to become more integrated, ‘go digital’ and collaborate better with clients
2. A customer centric marketing focus
3. Quantifying the return on marketing investment
4. Training staff and integrating them in the main business
5. Remaining adaptable

Tipping also noted when CMO’s focussed on profitable growth, they had more tenure than the average CMO of 24 months.

Our 2 cents ...

Can we add an observation?

The growing shift towards digital, and the emerging trend of digital becoming a larger part of the mainstream creative and media spend, may place some pressure on traditional client-agency relations.

Generally, if clients do want to encourage their agencies to move in a desired direction, e.g. to incorporate integrated digital offerings, then working with them to formulate an appropriate agency evaluation framework can be a very effective method to help manage the change process.

Marketers collaborating with their agency partners to design evaluation metrics which reflect the new shared objectives generates not only good will in the new direction of the partnership, but perhaps more pragmatically, also offers a means for both parties to table and discuss in depth the metrics that will drive the new direction and form the basis of successful future evaluations.

And it may be that where a significant shift in direction is required, marketers and agencies should design a staged evaluation framework.

Staged Approach

A staged approach, whereby for example the metrics shift toward the ultimate objective over an agreed period, delivers both guidance to all the people working on the partnership and time to allow both parties to adapt as necessary.

Many agency evaluations are currently limited to a short time horizon, commonly 12 months.  In the future, we may well see clients and agencies set short term, long term and transitional parameters for their relationships.

Author: Viji Ratnam (Decideware)

See: CMO Thought Leaders; The Rise of the Strategic Marketer.

Source article: The Australian, 18 Oct 2007.

A few weeks back we had the pleasure of presenting a paper to the ANA Financial Management Committee in New York.

We were also extremely fortunate to have two of our champions, Kim McMillon (who implemented at Hanesbrands) and Zac Belcher (key driver of the global roll-out at Procter & Gamble) provide their stories and insights.

A key message of our presentation was that an effective Agency Relationship Management program can be used as a lever to improve many aspects of financial performance.

FINANCIAL PERFORMANCE METRICS

Some of these aspects of direct performance are well understood and commonly applied, see some examples listed below:

1. Increased Sales:

Getting the Agency 'A' team on your business leads to...

• Improved Growth
• Gain in Market share

2. Improved Efficiency:

Better processes and financial management leads to...

• Lower costs

3. Reduced Risk:

Better identification of issues and positive action leads to...

• Lower 'Churn'
• Improved Governance

BUT WHAT'S MISSING?

But, perhaps what's missing from this set of typical metrics are measures of brand value.

Brand value is, arguably, the most important long-term metric that an agency can influence.

The problem is that brand value is also widely recognised as one of the more difficult metrics to operationalize in evaluation programs.

Further, the conflict between a focus on long term brand value and with efforts to meet quarterly results for the financial market, is well documented.

In a recent Harvard Business Review article entitled "If Brands Are Built over Years, Why Are They Managed over Quarters?", Leonard M. Lodish and Carl F. Mela provided an interesting analysis of brand equity, and how short term tactics can have a terrible effect on the long term value of a brand.

MEASURE AND REWARD

The authors recommend every senior-level brand manager take a quarterly look at the 4 key metrics, below:

1. Estimated brand sales at a constant, non-discounted price
2. The change in baseline sales over months, quarters and years and the probability that the baseline sales have increased or decreased over those time periods
3. The regular price and promoted price elasticity -- or the percent change in revenue due to a percentage change in price
4. Change in brand price response over months, quarters and years, and the probability that elasticity has increased or decreased.

Our view is that we should at least consider incorporating measures of brand equity in agency evaluation / compensation frameworks. And even if they not immediately available, that we look to include them in future reviews. 

Author: Richard Benyon (Decideware)

On Sept. 18, 2007, the American Association of Advertising Agencies Board of Directors adopted a new position paper, "Best Practice Guidance: Agency Search Agreements." In this new position paper, the AAAA recommends that agencies execute new-business agreements with client prospects at the outset of every new business review.

The position paper reviews background and considerations associated with client search and agency new-business activities. The best practice guidance recommends that agreements covering confidentiality, ownership of ideas and work, and participation compensation be executed for all new business-agency search reviews. The paper also provides an illustrative Agency Search/New Business Agreement form.

For more information, and to download a complete Tool Kit of New Business-related resources, please visit the AAAA Web site or click here.

This article introduces a tool we use to map agency or strategic supplier performance - the Relationship Matrix.

The Relationship Matrix helps clients visualize the two key dimensions that all suppliers must deliver on - Product and Process.

This is a powerful tool to deliver deep insights into performance, quickly. As such, it's a terrific "C" level report.

More than a Number?

With formal evaluation programs it is very easy to get caught up in the final, overall rating score.

However, it's also very useful to dig deeper into the data to understand how that overall score was determined.

The Relationship Matrix helps clients better understand where the strengths and weaknesses of their suppliers are. Then they can develop strategies based on those understandings.

Performance Dimensions

In the Relationship Matrix we label the two dimensions "Product" and "Process".

The Product dimension is what the agency / supplier actually does and relates to the craft or output that they deliver.

As an example, in advertising this would include such aspects as strategic insights, creative ideas and customer understanding. In strategic supply it might address the quality of a product, innovation and delivery.

The Product in an agency context has been referred to as the 'Magic'.

The Process dimension is how the agency / supplier does it and relates to the way in which they provide their goods and services.

Examples of this would be project management, financial administration and account service.

In an agency setting, this has been referred to as the 'Logic.

For more on Magic and Logic see the ISBA / CIPS / IPA Whitepaper 'Magic and Logic: redefining sustainable business practices for agencies, marketing and procurement' .

Mapping

Where do your key agencies or suppliers fit on this Relationship Matrix?

Using these dimensions we can segment agencies / suppliers into 4 key sectors. Potentially, clients can develop  different strategies to address each group. Hopefully, very few of your portfolio are in the final segment!

• Dynamic: Strong on both “Product” and “Process”

Your ideal partner. Learn from what they do and build best-practice models to leverage across others in your portfolio.

• Develop: Strong “Product” but weak “Process”

They are good at what they do but can be a nightmare to work with as their processes are inefficient. Help them to identify and improve the areas that are causing you concern.

• Diagnose: Strong “Process” but weak “Product”

This is a difficult segment, as suppliers may be easy to deal with and incredibly efficient, the issue is that don't deliver what you are actually paying them for. Diagnose quickly what the problems are as they can have a major negative impact on your business.

• Danger: Weak on both “Product” and “Process”

The big question here is whether you should continue to work with anyone in this segment. Is it worth having to not only improve their processes but also to address the critical problems they have with their outputs?

Author: Richard Benyon (Decideware)