Agency Selection According To Plan

Cost pressures and compliance rules force buyers and marketing decision makers to team up much more in the future.

By Sandra Fösken

They are called Pitch-Pool, Werbeagenturscout, Agenturscouts, 67scouts, Fairpartners or Benchpark. On the Internet, there are more than three dozen agency portals and industry monitors for companies seeking suitable marketing services providers. The selection is becoming rather unmanageable for companies. This boom is surprising because such trade registers don't rank high among advertisers. Decision makers primarily rely on recommendations and personal contacts in their selections. This is the result of a recent study by the Gesamtverband der Werbeagenturen (GWA –General Association of Advertising Agencies) which shows how advertising companies meet up with their agencies and which criteria they will take as the basis.

Yet, these platforms do have a purpose. "These registers are mostly used as a first contact point and also to secure one's own decision within the scope of a preliminary selection by the specialist department", explains Rainer den Ouden who, as a partner at Kerkhoff Consulting, consults medium-sized companies and those on the German stock index in their agency selection. He says that it's not the specialist department but rather the purchasing department which would consult agency rating portals. "The reason for it is the lack of market knowledge among buyers", confirms consultant and author Heiko Burrack – especially in companies sized below the size necessary for the German stock index. His finding is based on a survey conducted this year for which he interviewed purchasing managers and specialized buyers. According to this survey, every fourth participant said that it's been only as recently as less than two years that their company had a purchasing department specializing in the marketing area. Also, only few buyers would have any experience concerning the specialization in this field. Two thirds would admit that more information and knowledge about agencies would help them in their work.

Tatjana Elssenwenger, Buyer Marketing with Hypo Vereinsbank, has observed an increase in "maverick buying" in companies. She is also active with the Bundesverband Materialwirtschaft, Einkauf und Logistik (BME – Federal Association for Materials Management, Purchasing and Logistics) in the special group "Purchasing of Marketing Services". Elssenwenger complains: "That's absolutely absurd! If no clear internal rules and regulations exist within a company, the purchasing departments must first convince the marketers of the added value of procurement." Ideally, this would work through successful pilot projects. Moreover, she adamantly declares how important it would be for buyers to grapple with marketing in technical terms. Elssenwenger herself had people explain to her, for example, the process of creating a brochure in the Indesign program so that she would be able to meet and talk at eye level with marketing executives in her company.

Agencies definitely don't react in any positive way to purchasing departments as co-decision makers. "They see themselves up against blind price pressures", says Wilhelm Herrmann, owner of the consultancy Herrmann Consulting. And they'll face buyers with that prejudice on their mind. Herrmann warns that this would be a wrong basic attitude. In his workshops, he advocates more understanding on both sides and appeals to the agencies to feed clients with information so that they will be able to better evaluate their service and performance. That may be necessary, for example, when the buyer sees savings potentials in largely standardized services like media production which can be particularly easily compared. The agency group Serviceplan sidesteps the problem by collaborating with external specialists – for example, in the area of lithography. Bundling volumes with specialists provides a cost advantage in which the client can also participate. This should also be disclosed to the client at the same time to show the purchasing department that the agency is striving to reduce costs.

The experts unanimously reject the idea of processing and handling the purchase of marketing services completely electronically. "Agencies are accustomed to present their services and themselves", emphasizes Burrack. This would not be possible via electronic means or channels. "The buyer is also primarily interested in the people behind it", he adds. Procurement people would principally welcome the support from external consultants. Usually, they are also the ones who call in specialists for media purchasing – because "clear structures and regulations in dealing with external business partners help decision makers not to walk into the compliance trap", admonishes Kerkhoff consultant den Ouden. The case of Aleksander Ruzicka who – as former CEO of Aegis Media – was sentenced for criminal breach of trust brought about that delicate details in collaborations of clients, media and agencies had been made public. Since then, there have been industry talks: What's allowed to support clients? What's necessary to win over clients? And this no longer revolves around the misconduct and wrongdoings by individuals – the market system as such is called into question. Many companies in the advertising industry have already reviewed or are still reviewing their internal corporate compliance guidelines and directives in dealings with their business partners. If breaches of applicable compliance rules are uncovered, the general public will react directly by calling for a boycott. The company's image will be tarnished in the long run. This forces internationally active enterprises to watch out for permanent compliance with codes of conduct in their procurement markets. Commissioning external consultants is one way of monitoring such codes.

Before external consultants accompany the selection process, the specialized department will first independently prepare the marketing strategy. Then, the type of agency is determined based on the strategy. A list of questions is prepared to this end: Which communications disciplines should the agency cover? What size may the agency be? What kind of experiences in the particular industry would be helpful? The GWA study shows exemplarily the most important criteria for marketing deciders: Not only those companies with a marketing volume starting at € 677,777 but also those below that volume attach utmost importance to professionalism. The chemistry between agency and enterprise should also be just right, of course – otherwise their collaboration won't work out. Trustworthy and reliable appearance will follow closely behind in the ranking scale, as well as transparency in services and agency processes. Specialized competence and industry experience – both to be substantiated based on references – are additional criteria which Kerkhoff consultant den Ouden includes in the selection process.

These standards are the basis for the initial selection. Once the first decision has been made, the remaining agencies will be invited to a competitive presentation (a pitch). "Four agencies are the maximum in any reliable tender", explains the consultant Herrmann. The objective will be to establish and compare these agencies' strategic competence, conceptional strength, stringency, powerful implementation and project management. Yet, many deciders apparently have other motives. Herrmann observes that pitches have become more dynamically oriented and are used as tactical means to stake out ideas from others which will then be implemented with the favored agency. Agencies should become suspicious if budgets and conditions are not disclosed right from the start.

"Criteria laid down beforehand should determine the agency selection in the competitive presentation", recommends den Ouden. This includes criteria such as having met the assignment in the briefing: Did the agency understand the brand and its special features on the market? Does the creation or design follow conclusively from the strategic recommendation? Furthermore, soft factors will be evaluated: The appearance of the agency staff, their presentation techniques and sympathy. If tensions already arise during the parties' first meeting, their potential collaboration won't be on a sound footing. It's certainly also possible that, according to the requirements catalog, agency A obtains the best result but the specialized department nonetheless favors the second-best agency. "In that case, the department should substantiate its decision in writing and in great detail", recommends den Ouden.

Subsequently, this request will be voted upon. Once the selection process is concluded, contract negotiations will begin. The more concrete the requirements catalog has already been worked off in the pitch, the fewer discussions will be necessary during the concluding negotiations and also, the lower the probability that a collaboration will yet fail. In terms of the parties' conditions, results-oriented compensation systems are frequently used. "But parameters must be transparent, reliable, and influenceable or variable by the agency's performance", recommends Herrmann. But he says that would rarely be the case. He advocates performance-specific and expense-specific compensations. Deciders should also think about a pitch fee. After all, agencies have huge expenditures which their general fee cannot cover completely. It's much rather a recognition of the performance and indicates that the pitch has been seriously performed. But under the prevailing competitive pressure, it's very rare that agencies can enforce any compensation for pitches. Accordingly, a separate payment would not be the rule, says Herrmann.