Dear Commercial Acuman... Does the way clients buy advertising these days destroy its value?

Dear Commercial Acuman... Does the way clients buy advertising these days destroy its value?
And how do we convince clients not to buy on price alone?

Growing a business

We know that growing a business is a CEO’s top challenge. However, the pressures of a 90-day world of quarterly reporting can lead to an increased focus on short-term financial savings at the expense of longer-term potential economic gains. According to research from Les Binet and Peter Field, short-termism is increasing and effectiveness is decreasing. Growth is achieved through increasing the value of brand(s). So, something needs to change.

Increasing the value of a brand involves several proven actions and behaviours such as:

  • Take a consistent, long-term approach towards brand building
  • Focus on great creativity, emotional priming and share of market
  • Ring-fence brand building spend over an appropriate term (generally three years)
  • Get the mix right between short-term activation for cashflow and long-term brand building

By way of an example, the three most valuable brands in the world - Google, Apple and Amazon – are each worth over $100bn to their owners, according to Brand Finance.

Client behaviours required

The key client behaviour in creating this sort of transformational advertising is selecting the right agency and trusting their judgement to develop very brave, but ultimately successful, advertising; building this level of trust and collaboration is a task for the entire buying organisation - it is not simply about the relationship between marketing and the agency.

However, we know from IPA research in 2016 that almost 70% of work is bought based on time spent; this approach does not distinguish between eureka moments and busy fools.

Our challenge is to begin having conversations with clients about a more value-based approach to the relationship. Focus on how they can maximise the value of their brands within the constraints of a finite marketing budget. Clients need to ensure that they have the right people with the right skills at the right agency working with them; they also need to look less at the money being spent and more on what it is achieving for their business.

Agency approach

We know that clients, good clients at least, select their agencies for the outside perspective that they bring. The task for agencies is to meet this need, to take a more consultative and less executional approach.

Given that client-agency relationships are collaborative, not merely transactional, agencies need to discuss up front with their clients how the relationship is going to create the maximum possible value for the client. The IPA’s Alliances Adaptation gives clients and agencies specific advice on how to improve collaboration in the areas of the procedural, professional and psychological aspects of the relationship.

If this sounds like a more challenging way to deal with a client than you are used to, remember that Challengers are actually the best performers in a complex selling environment, such as advertising (see my last column on this topic here).

The most creative advertising and innovative media plans have the potential to create huge amounts of value for the client, so agencies need to ensure clients stay focused on maximising that value in the longer-term and avoid the temptation to focus on short-term financial issues.

Of course, too many clients will continue to focus on the cost of their advertising, rather than the value it creates, but let me ask you this: would you rather work for a client who wants to maximise the value created or one who is focused on minimising costs?

Top Acuman tips for focusing clients on value

Getting clients to focus on value starts with the agency focusing on value:

  • Think about how you engage with a client; do you go into discussions talking the language of cost or of value?
  • Have you discussed with the client the value you are planning to create for them? Can you quantify the commercial benefit to be delivered to the client’s business; if not, why not?
  • Do you keep track of and feed back to the client the value you create for them – from basic costs avoided like overruns absorbed, reductions against standard rate-card, out-of-scope work not charged, to more innovations delivered?
  • Is your pricing proposition based on value to be created rather than simply cost-plus billing?

Once you have successfully moved your client discussions to focusing on creating and delivering value for your clients, you also need to look at how your agency captures a share of that value through its selling capability, pricing discipline and negotiating capability.

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