More advertisers see agencies as good value for money (though media has a lot to prove)

The findings come from the World Federation of Advertisers (WFA) and The Observatory International’s latest survey on the relationship between clients and agencies. It’s part of a study that has been conducted every four years since 2011.

It found that advertisers feel more positive about the value exchange with their agencies. The portion of respondents agreeing ‘most strongly’ with the statement “I feel that I am getting value for money from my agencies” grew five percentage points since the last study in 2018, to 17%. Compared to the WFA’s first such study in 2011, overall value perceptions – those who ‘agree somewhat’ or ‘agree strongly’ – are up 19 points.

However, media agencies have the most to prove to clients when it comes to value. Within that sector, 5% of marketers ‘strongly disagree’ with the idea that they are getting good value. Anecdotal suggestions appear to indicate that a lack of original thinking and a habit of rolling out the same solutions year after year has led some respondents to question overall value.

Meanwhile, nearly half of respondents still have concerns over the lack of transparency with their agencies, with the highest degree of concern again affecting media (11%).

The study is based on responses from 200 senior executives, mostly in marketing procurement roles, representing 84 companies, with a total global annual ad spend of more than $136bn.

When it comes to remuneration, the survey found an ongoing trend for more payment terms based on labor and performance, while arrangements based on labor and FTE are still dropping back. Performance deals were up from 9% in 2011 to 22% currently; FTE set-ups were down 54% points to 33% since 2011.

More than four in 10 respondents have seen significant increases in prices for digital and CRM services, with anecdotal reports suggesting that these price rises can be as much as 50% for digital and as high as 20-30% across Europe and the UK for particular areas of technology specialism.

“Ultimately the chosen remuneration model will dictate the type of relationships clients want to have with their agencies. A focus on outcomes instead of input enables agencies to become integral partners to a client's growth and performance, that’s why it’s great to see that more clients want to reward not just performance but also quality through sustainability, diversity, and talent,” said Laura Forcetti, director of global marketing sourcing services at the WFA.

“One caveat is that we too often focus on the model being used and the fee being paid. What matters is the whole remuneration ecosystem, including the speed of issuing POs and payment terms. Some advertisers have very complex systems and even if the remuneration model is attractive, it can be a real struggle for agencies to see the money in their bank account.”

Procurement continues to take the lead on agency negotiation, though ‘responsible’ levels have dropped to 72% in 2022 v 84% in 2018. This may be a reflection of some marketers stepping in to protect their agencies during the pandemic – and we would expect the role of procurement to rise back up significantly as the world looks toward a potential recession.

Many advertisers are also prepared to pay more to agencies that meet diversity, sustainability and talent targets. Across all three areas, there is a real desire to pay more for agencies that can truly differentiate: 64% for greater diversity, 71% for sustainability and a staggering 85% for the best talent. Evidence for increased payment among Western clients is hard to find, however, and many expect action in these areas to become the norm.

“Considering the significant financial disruptions we have seen both during and post-pandemic, it’s reassuring to see that this report shows that, in the main, there continues to be a balanced approach to remuneration. Given the global forecasts for 2023, however, it will be interesting to see if the status quo is maintained as pressures grow both clients and agencies,” added Stuart Pocock, co-founder of The Observatory International.

“The report indicates that some issues do persist – but post-pandemic there’s really no excuse not to get round the table and iron these out face to face rather than let them fester – especially when it comes to the fundamental issues surrounding value for money and transparency.”