Why are so many clients consolidating their agency relationships?

Major advertisers have embraced single-agency relationships in a flurry of recent account reviews. What’s behind the trend, and what does it mean for advertising and media agencies?What links motorcycle delivery drivers, flashy motors and the Covid-19 vaccine? In recent weeks, takeaway platform Just Eat, carmaker Mercedes Benz and pharmaceutical titan Bayer have all concluded agency reviews worth hundreds of millions of dollars by concentrating their agency partnerships with a single company (UM and Mediacom, respectively). Spanish bank Santander is currently reviewing its account with Carat with a similar aim in mind. Just this week, MullenLowe Group’s Mediahub was awarded the global communications planning and media buying account for fashion platform Farfetch.While that answer might not get you many points at a pub quiz, it does signal the return of a marketing trend that had disappeared during the pandemic – agency consolidation. According to industry experts at management consultancies and agencies alike, advertisers are eager to merge their agency accounts to a single provider. What’s in it for clients?Tristan Rice, who leads SI Partners’ European activities, tells The Drum that there are several reasons in favor of consolidation. ”Clients want stuff to be more joined up. They don’t want to have to deal with three different accounts, where each handles three different disciplines, when everything is so interconnected now,” he explains.”In the old days you had your radio campaign, you had your TV campaign, your poster campaign – they all had the same creative treatment but they were fundamentally distinct and static campaigns in their own right. Now everything has to flow through ... it has to be deeply connected. Therefore it’s much harder to split up your spend into different agencies because you lose that connection.”With digital media planning a more complex affair than ever before, the need for creative comms of all stripes to be aligned and consistent, and the sheer volume of data used for measuring campaign impact only increasing, getting a single agency to take it all on looks more attractive than ever before to brand marketers.”They’re getting on top of how to manage and interpret their data. But to do that, they need it all flowing through one pipe,” says Rice.A single pipe may also be more attractive to brand marketers after 18 months and change of hybrid work. Oystercatchers managing partner Gill Huber points out that decision-making can be easier with fewer stakeholders involved: ”People have been mroe time-poor, they need to make things work moroe effectively, and they want fewer touch points and more time to make decisions and move things along.”We're talking to clients, not always about consolidations, but actually about how to be more effective and efficient.”Lucinda Peniston-Baines, owner and managing partner at marketing consultancy The Observatory International, tells The Drum that outright efficiency is also a critical concern for marketers. ”The ability to pick up the phone to one single point of contact within your holding group just is a massive time saving.”In recent years, Observatory has handled consolidation reviews for Beiersdorf, BP, Mondelez, Stellantis (the parent firm of Fiat, Chrysler and Peugeot) and the Mercedes Benz account, which went to Omnicom last week. ”It’s certainly one of the consistent themes that have come from all of those clients,” she notes.Why are clients choosing to do this now?While the trend had been stirring prior to the pandemic, several agency reviews have concluded in consolidations in recent months.Huber points out the ”disruption” of last year meant the work of reviewing agency relationships was put on hold by many brands. ”People have had to deal with the immediate challenges... but what was a problem two years ago hasn't really gone away.”Advertisers are again looking beyond the next 12 months. While the answers to the issues they face may not always be consolidation, Huber cautions, ”one of the questions we're speaking about is brands are looking at what they want to do next, and planning more ahead.”Rice suggests that companies looking beyond the pandemic have simply found a good moment to reassess their partnerships.”As they come out the other side, everyone’s taking the opportunity to reassess their business models, their working practices ... it’s a good excuse to then take a look at your agency relationships. And clients love a reason to review.”For Peniston-Baines, it’s a sign that normality is resuming within the marketing business. ”I think it is a resumption and an acceleration. Our industry wasn’t unique in that a lot of organizations paused and took breath ... but, coming out the other side of the pandemic, everybody has recognized that they’ve accelerated their own digital transformation programs.” Agency consolidation is the next logical step, she concludes.What does this mean for agencies?Agencies themselves have also consolidated their operations – WPP’s mergers of Grey and AKQA, VML and Y&R and Wunderman with J Walter Thompson being the clearest examples. ”They’ve moved away from the ’house of brands’ approach and are deliberately trying to look as joined-up and connected as they can. That’s not just for fashion sense, it’s because clients are asking for it,” says Rice.Peniston-Baines says the consolidation trend has highlighted the benefits of more monolithic holding company models like those espoused by WPP, Publicis and Dentsu. The latter’s ’One Dentsu’ model and the consistency it implies was cited by Standard Chartered’s global head of brand strategy and consumer, private and business banking marketing Emma Sheller when the finance brand announced the holding company’s successful defence of its business.”We ran the Mondelez consolidation in 2018, which saw Mondelez divide its categories between Publicis Groupe and WPP. That ability to offer an end-to-end, seamless piece of infrastructure for the client was really important. The ’Power of One’ model allowed them to offer up complete tech integration to allow for personalization at scale,” she says.But as this trend accelerates, it could begin to put pressure on agencies’ ability to deliver. Because, while clients may enjoy not having to manage multiple agency relationships directly, the work of tying together data streams, media plans and creative still has to be done. Delegating that work might put more on a winning agency’s plate than entirely comfortable for its staff.Huber says agencies bidding for all-in-one accounts need to ”prove that you can do all elements and you have strength in all the elements to do that.” Those that fall short will find themselves scrapping with specialist and independent competitors.”There is a short-term investment needed to support that structure, that ecosystem they’re creating. But the long-term return on investment, it always pays off because once that ecosystem starts to work seamlessly ... the payback on brand consistency, on personalized, well targeted-comms, starts to pay dividends,” says Peniston-Baines.Between difficulties recruiting enough new staff and retaining existing hands, and a surge in new business – 71% of agencies reported higher demand in recent months, according to one recent study – agencies might find themselves squeezed to follow through on comprehensive promises to clients.”Agency talent is massively stretched right now,” she adds. ”There are holding companies out there telling us they have no capacity for new business whatsoever, which is extraordinary.”It’s a great opportunity for both, and it can pay back really well for the client, but you’ve got to have the talent available. Clients are going to start finding that’s a big issue ... it already is an issue.”

Why are so many clients consolidating their agency relationships?

By Sam Bradley | Senior Reporter

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