September 2010
The thorny issue of money - or lack of it - is wreaking havoc on agency-client relationships. Rania Habib tries to mediate.
"Of all the myriad problems that clients and agencies find in hitting it off in a long-term relationship, money is the most intractable and frustrating," says Toby Butterwick, general manager of Gulf Marcom in Bahrain. With the added pressure of the financial crisis, the bond between clients and agencies has become even more strained, as debts, delayed payments and downward pressure on fees wreak havoc on longstanding ties.
Complaints abound on both sides. Agencies say they are under pressure from clients demanding much more for less, while clients insist on ROI more than ever. Who is right? Who is wrong? Are agencies not stepping up to the challenge, or are clients being unreasonable?
Mark Bibbings, partner at Aprais ME, says marketing-communications relationships have never been more complex. "The reason is, at the moment people are getting squeezed financially. So what are they doing as a result? More clients are increasingly doing things on a project basis," he says.
"In the good old days, clients would go to a full service agency and basically throw money at them and ask them to do everything, including taking them to the lavatory. Now it isn't like that. Rather than full service agencies, clients are splitting everything up. If they want a live event, they'll go with this agency, if they want ATL, they'll go with that agency. So for one product, you might have five or six different agencies used for different purposes."
The trend of smaller, independent agencies setting up shop with a strong focus on creativity may have swept the international advertising industry, but Hubert Boulos, regional managing director of MAC DDB in Qatar, says the region hasn't reached that stage yet.
He, however, says smaller agencies that have set up in the region on the basis of price will attract clients.
"Some work does not need an agency, but more of a graphic design set-up," says Boulos. "But this is not a long-term solution and this type of organisation will not build brands. When it comes to delivering 360-degree solutions - which is becoming the key client expectation - I am not aware of small, independent shops that can go across all disciplines."
And Boulos believes that this is the direction in which the industry is headed. "More than ever, clients are really seeking agencies to deliver in as many communications channels as possible. This is where agencies are really expected to deliver, as they will get a bigger part of the pie against a more competitive price offer for the whole package," he says.
"Handled properly, this is clearly a win-win situation for both parties, but agencies really need to gear up for 360-degree communications, because it's a matter of survival. Creatively and strategically, we need to become smart integrators; the time is ripe."
Missing component
Kamal Dimachkie, managing director of Leo Burnett Dubai, Kuwait and the Lower Gulf, believes strategy is what is currently missing from the communications industry.
"It's become much more consumerist," says Dimachkie. "Clients have generally adopted a trading approach to developing their brands, as opposed to one that is focused on cultivation. When you trade, it's all about the speed of the transaction and finishing it as quickly as possible. By contrast, cultivation features many different factors such as the quality, durability, performance and wholesomeness of the product. We often see in the region that the focus has tended to be on the transaction and not the cultivation, and that is especially true of the boom years."
The boom years have solidified the trend of clients demanding much more from agencies for much less, says Edmond Moutran, CEO and chairman of Memac Ogilvy. "More for less has become like saying 'good morning' to us," he says.
"If an agency doesn't stand by its client in times of trouble, that client shouldn't have that agency. But if a client takes advantage of that agency and does not protect its profitability, that client should rethink its relationship with the agency as well, or vice-versa, because it's supposed to be a partnership. I stand by you, you stand by me. I protect your brand and you protect mine, otherwise it's not a partnership. It becomes a slave-master relationship, or a supplier-client relationship."
Butterwick says agencies have tried to persuade clients that they are as deserving of making profit as other businesses, to no avail.
"For many years, agencies have lamented the fact that they don't seem to be able to persuade clients that they are essentially no different from lawyers or management consultants, or even doctors for that matter," says Butterwick. "You don't debate rates with that lot, do you? So why does it sometimes seem like endless haggling and chopping down to the bone with us?"
Butterwick believes the problem boils down to expertise and perceived value."Clients know that they know nothing about the law, so they assume the lawyer does. Their ignorance makes them value the advice more, so they are willing to pay through the nose for it," he says.
"Communications clients, on the other hand, are not ignorant, since they are in the same field of work as their agency, so they don't feel in such a position of helplessness that a patient does with a doctor."
Responsibility
Peter Debenedictis, area marketing officer for Philips in the Middle East, says any agency-client relationship should be treated like a partnership.
"As the client, you have a certain responsibility to ensure that the people in the agency understand your brand and are aligned with what you are trying to achieve - just as you would do with an employee who actually works for the company," he says. "We are not demanding 'more for less', but just as we do with our own teams, we are challenging them to stay current with global industry trends."
Butterwick adds that while it is perfectly natural for a client to want more out of an agency, and for an agency to look for as much revenue for the least amount of work, clients need to realise that driving agencies to the ground on costs is ultimately counter-productive to an energetic and creative relationship that pays dividends to the client's business.
Moutran believes it is not the upper management on the client side that is exacerbating the problem, but that juniors have been perpetrating a haggling trend.
"Day after day, juniors want to play the 'cut the price' game because it's fun, it's negotiations, and it's fun especially when they win all the time because our people cannot stand up to them," says Moutran.
"Upper management has got the maturity and the professional and human common sense to know that this is not the time to start being clever with your agency," continues Moutran. "But the juniors are doing it, and that's the danger. Clients are getting what they want from agencies, so why would they go to smaller agencies?"
But this attitude is harming agencies, says Dimachkie, who believes the trend is "bad and counterproductive", and is sending the industry on a "downward spiral".
"Since when is it wrong for advertising agencies to have commercial objectives, while marketers and manufacturers, for example, are allowed to make profit?" says Dimachkie.
"Why is it not permissible - and is in fact almost disdainful - for agencies to make profit, to do well, to thrive, to invest, to help grow their people and create success all round? Isn't it time to rethink this mindset? It is in the clients' interest to help create a circle where agencies make money, because enabling agencies to become healthily profitable is actually a wonderful thing for the marketing and communications industry."
Ahmed Shaboury, head of brands at Saudi conglomerate Aujan Industries, agrees. But he has some reservations.
"At the end of the day, to produce great work for clients, agencies need great creative people," he says. "These resources are scarce and expensive, but it's an investment that's worthwhile. However, getting into details, we will find some areas that are difficult for a client to justify paying a premium as they are not directly related to creative output, hence the continuous push for cutting fees."
Shaboury believes that many agencies operating in the region are located in what he calls "prestigious" commercial areas with high rental costs, and wonders if location has an impact on the quality of work. "The answer is no; creative talent does."
He also questions whether paying an "exaggerated amount of money to recover the overheads or meet the commercial objectives" of an agency's holding group will make a client sell more.
"This is a good opportunity for boutique or local agencies to grow, as they're not carrying that burden," he says.
Stefan Mecha, managing director of Volkswagen Middle East, says that smaller, independent agencies are not a solution for everyone.
"They may be more budget-friendly, but they don't have the full infrastructure," says Mecha. "They may be more dedicated to servicing a big account, but don't have the regional connections you sometimes need. So you have to make a very thorough evaluation and decide what works best for your business."
Imported talent
Dimachkie stresses that an "overwhelming majority" of an agency's talent is imported, which he says has a premium associated with it. But he says it is very rare to come across clients who are genuinely interested in investing in talent and taking the decisions that produce longer term dividends.
"By not investing in talent, very often it means brands are supported by a lot of presence, but have very little connection to people," he says.
"Today, I personally think not many brands can actually stand up and say that they have successfully weaved themselves into people's lives. We have to remember that a brand is about continued relevance to the target audience, and that happens through building relationships."
Building relationships between brands and consumers comes from a healthy relationship between agencies and clients, according to Dimachkie.
And Mecha agrees that an agency-client relationship should always be a win-win situation.
"Through pitches, you try to find the best agency that suits your business and matches you expectations," he says. "But this does not mean that you are married to them; if the relationship is fizzling out, you can always re-pitch."
Debenedictis agrees that agencies and clients don't stick together just because the partnership was once successful.
"Just like in any relationship, friendship, marriage, or business relationship, if tensions are ongoing and the core issues that are causing tension are not resolved, then a slow drift or parting of ways can be inevitable," he says.
The bottom line for agencies and clients is the idea, according to both.
"What does or should matter more, and what should be charged for more, is the idea, the creative spark of excellence that's built on a clear understanding of the problem, and an insight into the behaviour and mindset of consumers," says Butterwick.
"We all need to do more to educate and persuade clients of the value of a good, effective idea that helps them sell their brand. Deciding on what to charge is another matter, but it would certainly be a good starting point if clients took a more sympathetic and realistic view of the commercial realities of running a business, paying staff, and making a fair profit."
With an unfriendly global economy and marcomm budgets reduced severely, Bibbings says that while negotiations may take place over payments between agencies and clients, successful agencies have realised the primary importance of their relationships with clients.
"We like to emphasise that in this environment, a strong relationship has been proven to be simpler and easier to manage, delivering better value," says Bibbings. "It saves time, effort and money for both the agency and the client, and better relationships lead to better work, which leads to better business results.
© Gulf Marketing Review 2010
The thorny issue of money - or lack of it - is wreaking havoc on agency-client relationships. Rania Habib tries to mediate.
"Of all the myriad problems that clients and agencies find in hitting it off in a long-term relationship, money is the most intractable and frustrating," says Toby Butterwick, general manager of Gulf Marcom in Bahrain. With the added pressure of the financial crisis, the bond between clients and agencies has become even more strained, as debts, delayed payments and downward pressure on fees wreak havoc on longstanding ties.
Complaints abound on both sides. Agencies say they are under pressure from clients demanding much more for less, while clients insist on ROI more than ever. Who is right? Who is wrong? Are agencies not stepping up to the challenge, or are clients being unreasonable?
Mark Bibbings, partner at Aprais ME, says marketing-communications relationships have never been more complex. "The reason is, at the moment people are getting squeezed financially. So what are they doing as a result? More clients are increasingly doing things on a project basis," he says.
"In the good old days, clients would go to a full service agency and basically throw money at them and ask them to do everything, including taking them to the lavatory. Now it isn't like that. Rather than full service agencies, clients are splitting everything up. If they want a live event, they'll go with this agency, if they want ATL, they'll go with that agency. So for one product, you might have five or six different agencies used for different purposes."
The trend of smaller, independent agencies setting up shop with a strong focus on creativity may have swept the international advertising industry, but Hubert Boulos, regional managing director of MAC DDB in Qatar, says the region hasn't reached that stage yet.
He, however, says smaller agencies that have set up in the region on the basis of price will attract clients.
"Some work does not need an agency, but more of a graphic design set-up," says Boulos. "But this is not a long-term solution and this type of organisation will not build brands. When it comes to delivering 360-degree solutions - which is becoming the key client expectation - I am not aware of small, independent shops that can go across all disciplines."
And Boulos believes that this is the direction in which the industry is headed. "More than ever, clients are really seeking agencies to deliver in as many communications channels as possible. This is where agencies are really expected to deliver, as they will get a bigger part of the pie against a more competitive price offer for the whole package," he says.
"Handled properly, this is clearly a win-win situation for both parties, but agencies really need to gear up for 360-degree communications, because it's a matter of survival. Creatively and strategically, we need to become smart integrators; the time is ripe."
Missing component
Kamal Dimachkie, managing director of Leo Burnett Dubai, Kuwait and the Lower Gulf, believes strategy is what is currently missing from the communications industry.
"It's become much more consumerist," says Dimachkie. "Clients have generally adopted a trading approach to developing their brands, as opposed to one that is focused on cultivation. When you trade, it's all about the speed of the transaction and finishing it as quickly as possible. By contrast, cultivation features many different factors such as the quality, durability, performance and wholesomeness of the product. We often see in the region that the focus has tended to be on the transaction and not the cultivation, and that is especially true of the boom years."
The boom years have solidified the trend of clients demanding much more from agencies for much less, says Edmond Moutran, CEO and chairman of Memac Ogilvy. "More for less has become like saying 'good morning' to us," he says.
"If an agency doesn't stand by its client in times of trouble, that client shouldn't have that agency. But if a client takes advantage of that agency and does not protect its profitability, that client should rethink its relationship with the agency as well, or vice-versa, because it's supposed to be a partnership. I stand by you, you stand by me. I protect your brand and you protect mine, otherwise it's not a partnership. It becomes a slave-master relationship, or a supplier-client relationship."
Butterwick says agencies have tried to persuade clients that they are as deserving of making profit as other businesses, to no avail.
"For many years, agencies have lamented the fact that they don't seem to be able to persuade clients that they are essentially no different from lawyers or management consultants, or even doctors for that matter," says Butterwick. "You don't debate rates with that lot, do you? So why does it sometimes seem like endless haggling and chopping down to the bone with us?"
Butterwick believes the problem boils down to expertise and perceived value."Clients know that they know nothing about the law, so they assume the lawyer does. Their ignorance makes them value the advice more, so they are willing to pay through the nose for it," he says.
"Communications clients, on the other hand, are not ignorant, since they are in the same field of work as their agency, so they don't feel in such a position of helplessness that a patient does with a doctor."
Responsibility
Peter Debenedictis, area marketing officer for Philips in the Middle East, says any agency-client relationship should be treated like a partnership.
"As the client, you have a certain responsibility to ensure that the people in the agency understand your brand and are aligned with what you are trying to achieve - just as you would do with an employee who actually works for the company," he says. "We are not demanding 'more for less', but just as we do with our own teams, we are challenging them to stay current with global industry trends."
Butterwick adds that while it is perfectly natural for a client to want more out of an agency, and for an agency to look for as much revenue for the least amount of work, clients need to realise that driving agencies to the ground on costs is ultimately counter-productive to an energetic and creative relationship that pays dividends to the client's business.
Moutran believes it is not the upper management on the client side that is exacerbating the problem, but that juniors have been perpetrating a haggling trend.
"Day after day, juniors want to play the 'cut the price' game because it's fun, it's negotiations, and it's fun especially when they win all the time because our people cannot stand up to them," says Moutran.
"Upper management has got the maturity and the professional and human common sense to know that this is not the time to start being clever with your agency," continues Moutran. "But the juniors are doing it, and that's the danger. Clients are getting what they want from agencies, so why would they go to smaller agencies?"
But this attitude is harming agencies, says Dimachkie, who believes the trend is "bad and counterproductive", and is sending the industry on a "downward spiral".
"Since when is it wrong for advertising agencies to have commercial objectives, while marketers and manufacturers, for example, are allowed to make profit?" says Dimachkie.
"Why is it not permissible - and is in fact almost disdainful - for agencies to make profit, to do well, to thrive, to invest, to help grow their people and create success all round? Isn't it time to rethink this mindset? It is in the clients' interest to help create a circle where agencies make money, because enabling agencies to become healthily profitable is actually a wonderful thing for the marketing and communications industry."
Ahmed Shaboury, head of brands at Saudi conglomerate Aujan Industries, agrees. But he has some reservations.
"At the end of the day, to produce great work for clients, agencies need great creative people," he says. "These resources are scarce and expensive, but it's an investment that's worthwhile. However, getting into details, we will find some areas that are difficult for a client to justify paying a premium as they are not directly related to creative output, hence the continuous push for cutting fees."
Shaboury believes that many agencies operating in the region are located in what he calls "prestigious" commercial areas with high rental costs, and wonders if location has an impact on the quality of work. "The answer is no; creative talent does."
He also questions whether paying an "exaggerated amount of money to recover the overheads or meet the commercial objectives" of an agency's holding group will make a client sell more.
"This is a good opportunity for boutique or local agencies to grow, as they're not carrying that burden," he says.
Stefan Mecha, managing director of Volkswagen Middle East, says that smaller, independent agencies are not a solution for everyone.
"They may be more budget-friendly, but they don't have the full infrastructure," says Mecha. "They may be more dedicated to servicing a big account, but don't have the regional connections you sometimes need. So you have to make a very thorough evaluation and decide what works best for your business."
Imported talent
Dimachkie stresses that an "overwhelming majority" of an agency's talent is imported, which he says has a premium associated with it. But he says it is very rare to come across clients who are genuinely interested in investing in talent and taking the decisions that produce longer term dividends.
"By not investing in talent, very often it means brands are supported by a lot of presence, but have very little connection to people," he says.
"Today, I personally think not many brands can actually stand up and say that they have successfully weaved themselves into people's lives. We have to remember that a brand is about continued relevance to the target audience, and that happens through building relationships."
Building relationships between brands and consumers comes from a healthy relationship between agencies and clients, according to Dimachkie.
And Mecha agrees that an agency-client relationship should always be a win-win situation.
"Through pitches, you try to find the best agency that suits your business and matches you expectations," he says. "But this does not mean that you are married to them; if the relationship is fizzling out, you can always re-pitch."
Debenedictis agrees that agencies and clients don't stick together just because the partnership was once successful.
"Just like in any relationship, friendship, marriage, or business relationship, if tensions are ongoing and the core issues that are causing tension are not resolved, then a slow drift or parting of ways can be inevitable," he says.
The bottom line for agencies and clients is the idea, according to both.
"What does or should matter more, and what should be charged for more, is the idea, the creative spark of excellence that's built on a clear understanding of the problem, and an insight into the behaviour and mindset of consumers," says Butterwick.
"We all need to do more to educate and persuade clients of the value of a good, effective idea that helps them sell their brand. Deciding on what to charge is another matter, but it would certainly be a good starting point if clients took a more sympathetic and realistic view of the commercial realities of running a business, paying staff, and making a fair profit."
With an unfriendly global economy and marcomm budgets reduced severely, Bibbings says that while negotiations may take place over payments between agencies and clients, successful agencies have realised the primary importance of their relationships with clients.
"We like to emphasise that in this environment, a strong relationship has been proven to be simpler and easier to manage, delivering better value," says Bibbings. "It saves time, effort and money for both the agency and the client, and better relationships lead to better work, which leads to better business results.
© Gulf Marketing Review 2010
