As brands try to keep up with changing consumer behavior, agencies are being met with demands for diversified services, forcing them to adopt a new business model. While there’s no one-size-fits-all playbook to address this new brand-agency dynamic, there are steps agencies and advertisers can take to align their goals and drive agency transformation.
During the panel, “Agency Transformation: Building for the Future, Now,” presented by Think with Google, at this week’s virtual Advertising Week, Matt Bush, Google managing director of agencies and partners, hears from Forrester principal analyst, Jay Pattisall, and UM Worldwide global chief client officer, Trish Chuipek, on the growth opportunities and barriers in driving agency change.
To help agencies understand how to best cater to clients’ evolving needs, Google commissioned Forrester to conduct research with 300 brand marketers and 500 agency executives across EMEA. The surveys were conducted in February before lockdowns and were conducted again in May with 30 percent of the original respondents.
As per Pattisall, the report found that brands need for their agencies to be strategic partners, the result of a growing disengagement in consumers’ online behavior, namely a ‘messy middle’ funnel where consumers skip ads online and jump across channels on the path to purchase. According to Forrester, 77 percent of brand decision makers are looking to agencies to provide customer-first strategies to address this new behavior.
“Consumers easily navigate between our retail commerce, mobile commerce and desktop commerce, and it’s incumbent upon brands to think about this in a connected way that optimizes performance,” says Chuipek.
Another byproduct of this new brand agency paradigm is a discrepancy in perceptions of value exchange—agencies are expected to do more with less. While 77 percent of agency leaders expect agencies to prove commercial outcomes, agencies are facing financial struggles with delivering on client needs because of marketing budget reductions. For example, 72 percent of brand leaders reported having to downsize.
Forrester’s data show that both brand and agency leaders expect a shift from a fixed-free structure like retainers and project models to outcome-based fees such as performance- and commission-based models. In fact, over the next three years, between 51 percent and 63 percent of brand leaders expect to move to either a performance-based model or a commission-based model for most of their agencies.
To build compensation models around outcomes, Chuipek says agencies and clients must discuss the key performance indicators (KPIs) to which they’ll collectively hold themselves accountable.
Despite tightened budgets, 63 percent of brand leaders are ready to invest in agencies that can engage disconnected consumers. Nearly half, or 43 percent, of brand decision makers say the top expected benefit of enlisting an agency is to increase company profits, followed by to increase a return on investment of digital marketing tactics (41 percent) and the ability to keep pace and adapt to shifts in consumer behavior (37 percent).
Other enhanced capabilities brands expect from agencies include creating seamless digital/mobile experiences with visual and display media, building meaningful customer relationships via loyalty programs, safely leveraging customer data to its full potential and utilizing martech to streamline processes. In fact, 68 percent of decision makers expect to increase budgets for emerging martech—like voice/conversational marketing, automation and artificial intelligence—and will need support for those operations.
“Rather than being hyper-focused on driving down the cost of media, we have to flip the script and focus on accelerating growth. We’re coming out of the race to the bottom. The opportunity in front of us is the race to the top,” says Pattisall.
