The Decline of the Agency and Rise of the Client: Part 1

Last week an MCS colleague emailed me a link to an recent article called How clients are de-skilling the UK advertising industry which mourns how marketers (the clients) have forced agencies to cut their fees so much in the past decade that it has affected the quality of the work. But the author doesn’t just blame the clients, he blames agencies as well because they have failed to demonstrate to brands where their value really lies – in their ideas and creativity.

Because MCS operates via a different agency model that mitigates the problems outlined above, it gives us an authority to contribute to this topic and examine further how and why agency primacy has been eroded over the years. In this first of a two-part blog on the topic, I explore the empowerment of the client, how many agency fees are inflated by the need to recover overheads, and how agencies are being distintermediated from their clients in three ways.

The Empowerment of the Client

Picture of Blofeld with white cat from James Bond's You Only Live Twice

The Client – increasingly empowered

Let’s begin with the brand marketers themselves. They’re empowered now and know what they want. They’re professionals with marketing qualifications and lots of practical experience. Gone are the days when the client depended on his or her agency opposite to write the strategy, provide the briefs, source the third party suppliers, and run the campaign. In many situations, the client now provides the strategy, writes the creative briefs, has his own suppliers and controls the campaign. The agency has been reduced to role of enabler, the ‘gofer’ if you like.

The Need for Overhead Recovery

Did you know that at one time up to 50% of some London agencies’ client fees were spent on overhead recovery? In fact, I remember one agency I was in had such a bad deal with its landlord our rent exceeded our monthly income! But overheads also include costs such as secretaries, company cars, senior managers’ ‘expenses’, utilities, cleaners, and business rates. Clients, especially their procurement departments (if they have them) are wise to this and demand increased value from agencies (i.e. lower fees). At MCS, we don’t have any of these overheads as we work from home via the web, meeting clients at their premises and each other via Skype or home visits. The result is that our fees are very competitive in the market place and we can offer great value to clients.

The Disintermediation of the Agency

Picture of a dalek saying "Disintermediation, disintermediation"

Agencies are increasingly being disintermediated from their clients (image thanks to thewellroundedmarketer)

The situation could not be described better than in the article Ad agencies and the decline of the “agent”  where the ‘disintermediation’ of the agency is explored, and not just in the area of production. Clients are increasingly using media companies – examples being Conde Nast and Universal – as proxy agencies whilst gaining the strategic benefit of the partnership. And then there is the disintermediation in creative development, whereby marketers are beginning to crowdsource ideas from the general public, as well as ‘expert-source’ ideas from dedicated idea generation websites such as Genius Rocket.

One CEO is even quoted as saying that “More and more, agencies are almost in the way sometimes”, an astonishing – and depressing – comment. The old ‘assembly-line’ agency model has been obliterated economically, organisationally, and culturally by a “combination of internet disintermediation, recession, and corporate blindness”.

Tomorrow I will be continuing on this theme by revealing how media fragmentation, a shift in the centre of gravity of the agency-client relationship, and the decline of creativity have also conspired to the decline of the agency and the rise of the client.

As well as administrator of New River Marketing, Richard Fullerton is Business Partner at MCS, an integrated marketing agency.

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