Four major ways the agency model is changing

Finding the right agency model is a seemingly never-ending quest for today’s CMOs, who are constantly dealing with changing agency capabilities and an increasingly complex marketing ecosystem. Pressure to create the perfect model also weighs heavily on agencies big and small. The fact is, as hard as it is to navigate this landscape as a marketer, it has never been harder for agencies. They are facing pressure from clients on fees, pressure to develop cutting-edge capabilities and hire the right digital talent, and pressure from new players, like consulting firms, which are encroaching on their territory.

The way that marketers and agencies work together is in a state of flux. The gold standard for client-agency relationships used to be a long-standing AOR relationship, but the industry seems to be shifting away from that model. There are several different types of agency models, ranging from the “one-stop shop” all the way to “multiple best-in-class,” and marketers may prefer one (or a combination) of these models based on their specific needs.

Below are the four big trends in agency models that we’ve seen developing over the past year:

1. Eliminating inefficiencies

Perhaps the biggest push emerging from our work with marketers on their agency relationships is the race to eliminate inefficiencies. In the past year, a growing percentage of the briefs we have received has asked for help in developing an agency model that eliminates unnecessary costs and improve process efficiencies. As evidenced by recent interviews with the likes of CMO Keith Weed, big advertisers are looking to eliminate waste and Unilever isn’t the only global CPG to take this challenge on. Earlier this year, P&G announced its intention to cut $2 billion in media and agency costs. 

Whether marketers are looking to slash the number of agencies they work with or, in the case of another CPG client, seeking to evaluate their relationship with their one agency to identify possible improvements, the message to agencies is clear—shape up or ship out. Marketers are taking several different approaches to address these inefficiencies, from building in-house agencies to completely reorganizing their compensation structure.

2. Changing compensation models

The shift toward a value-based compensation model is something we expect to take off in the next few years. It can really be applied to any type of client-agency relationship because the method for arriving at value is independent of agency input costs and is arrived at based on business value drivers as determined by the marketer.

In this type of fee structure, the agency’s compensation is generally tied to accomplishing some specific business or marketing goal, which means that each party’s success or failure is inextricably linked. Cola-Cola made the switch to this model in 2009, and now with Unilever’s acknowledgment that it has shifted to this model as well, we expect to see many marketers following suit.

3. The free agent model

Another interesting trend is the 'free agent' model. In the Mad Men era, it was very common for a marketer to award its entire business to one agency or holding group and let it handle all aspects of the business globally. Today, rather than taking a one-size-fits-all model and applying it to all business units across all markets, marketers are picking and choosing the successful elements of different types of working models and drawing from a variety of resources to meet their needs.

What works in China might not be successful in Brazil, and a big creative AOR in a small market may simply not have the talent to produce an AR or VR campaign. CMO Keith Weed has publically revealed in recent interviews that in the process of cutting Unilever’s 3,000 agency roster in half, the company focused in on specialized and locally relevant agencies while cutting out the ones that weren’t offering differentiation.

4. The rise of crowdsourcing and independent networks

In that same vein, marketers are increasingly turning to crowdsourced, independent networks rather than traditional agencies or holding companies to fulfill some of their marketing needs. There is so much demand for content, and any agency that tries to offer it all will find themselves in a “jack of all trades, master of none” scenario.

Brands are increasingly turning to the likes of CreativeDrive, a group of content specialists that help clients align their content creation cycle with the transformation of the media landscape and digital marketing as a whole, to fulfill their specialist content needs. Speakeasy, another crowdsourcing platform, connects brands to freelance creative teams via its online brief creation tool, allowing them to work with top talent “without barriers.” Similar networks are springing up for project-based specialized technology work, such as Alphachannel, that helps clients source proposals from specialists in AR, VR, chatbots, UX/UI design, Amazon Echo and several other fields.

These types of small players are successfully bridging a gap that has developed in the past few years as large agencies have been slow to adapt to digital transformation. While crowdsourcing creativity is not a new concept, it is only going to become more popular in the future as the idea of “may the best idea win” has really taken hold in the industry.

While it may seem to be a dog-eat-dog atmosphere right now, smaller, more nimble agencies that have the flexibility to adapt to changes in the landscape are going to continue to be the shops snagging more client assignments going forward. Specializing in emerging technology and having knowledge of the local market and consumer demographics is going to be a huge advantage for agencies while crowdsourcing networks will continue to grow. There will continue to be a shift away from traditional agencies as marketers embrace a more flexible model that tends towards project-based work.

These trends point to one interesting conclusion: redefining current models and reimagining what it means to be an agency is necessary for survival. And necessity is always the mother of invention.

Melissa Lea is the managing director for R3 in the US. This article originally appeared on the R3 website.