Are clients doing more tire kicking, or is there a fundamental shift in buyer needs and priorities?

• At executive level, have the business needs been fundamentally re-prioritized?

• Is a key board agenda item now to buy services that offer more business resilience and optionality?

• Do independent agencies need to adapt their offers (again) – and if so, how do you explain the ”unprecedented growth” of agencies like S4 Capital?

In this article I’ll cover:

• The findings from a recent McKinsey report, and HBR article, that clearly demonstrates a shift in corporate priorities post-recession.

• What I think agencies need to be doing about this shift.

• What this has got to do with negotiation skills (well, this column is called ’ask the negotiator’ after all!).

What’s one of the biggest debates in corporate board rooms currently?

Let’s look at three different perspectives/reports:

Firstly, looking at the macro-picture, all/most of the economists are forecasting strong UK growth in 2021. However, there are considerable downside risks (eg health, economic, social, etc) around Covid variants and the lifting of restrictions over the summer.

Secondly, a recent report by McKinsey looked at corporate lessons learned from the last recession and what it means for corporate leaders this time. One of the key findings was that successful firms are focused concurrently on margin improvement, revenue growth and optionality (see below for explanation).

Thirdly, a recent report by HBR looked at the resilience of corporates, and its overall conclusion was “very few companies are able to explicitly design for, measure, and manage resilience”.

Before we delve into what this means for agencies, we need to define resilience and optionality. I’ve taken the following characteristics/definitions from the HBR and McKinsey articles plus some of my experiences:

• Built in redundancy: having duplication or running parallel agency activities, at the expense of efficiency, can, sometimes, be an advantage

• Diversity: ensuring all dimensions of diversity are designed into the DNA of your workforce strategy and supply chain partners.

• Modularity: breaking up value chain activities that deliver an outcome and allocating components to different suppliers. This can prevent systemic failure and plays more to independent, specialist/niche agencies.

• Optionality: there are literally hundreds of definitions, here’s mine: in volatile markets, you place a number of relatively fixed small bets/investments (ie this is your maximum loss), in the anticipation that some of these will have big pay-offs and a number will fail to perform as expected. The skill is getting the balance right across a portfolio of bets/investments so that the net effect is always positive.

What do I think agencies should be doing about this?

Here’s my top 5 tactical tips for responding to uncertain markets:

• Remember that a significant percent of functional budgets will have been re-allocated to digital transformation and workforce agility solutions. Therefore, there’s less to go around, with more emphasis on performance marketing. Action: make sure that your indicative ROI is clear, with break-even in months not years.

• When you’re negotiating contracts, incorporate optionality trigger points for the client, under more favorable commercial terms, in exchange for longer commitments: ie they have the right (but not the obligation) to buy, at an agreed future price, in exchange for short-term, premium priced SoWs.

• For full service agencies on big retainers, you may need to segment your offer into more bite size packages with shorter commitment periods.

• The pressure will be on from brands/procurement to negotiate better deals and reduce costs. Look at your own service delivery commercial models and work out where you can reduce costs, improve efficiencies and give yourself optionality.

• Ensure you have a clear, meaningful, practical response to questions about the diversity/sustainability of your own business and any supply chain partners you use. It’s been front-and-center on every RFP I’ve looked at in the last six months.

Conclusions

My conclusion is that corporate buyers don’t really know what the next three to six months holds, let alone one, two or three years out. Therefore, alongside some mainstream buying activities, brands will be on fishing trips, they’ll be looking for low investment innovative marketing ideas (ie placing bets) and ’keeping their options open’.

Agencies need to adapt rapidly, have their own optionality/resiliency strategies and take shorter term engagements in anticipation of future retainers once markets start to stabilize.

If you have any comments or questions about anything in this article, I’d love to hear from you. Drop me an email.

Mike Lander is the chief executive officer and founder of Piscari, which empowers agency leaders with better negotiation skills and insights into how procurement professionals work.