Selecting and Evaluating Advertising Agencies

Advertising Management

Paul Gaskin and Irene Powell

Evaluating Agency Performance

To evaluate existing agency (review) To evaluate potential agency (selection)

Underlying change in philosophy:

Move away from presumption of agency competence, only evaluating when problems occur, to regular measure to ensure accountability

Evaluation ProcessDecide & weight your ideal attributes

Determine questions which will elicit info on attributes from agency (agree them with

agency!)

Rate agency against these attributes

Analyse the results

Decide & weight your ideal attributes

Importance*

Creativity .20 Media planning & buying .20 Account management .15 Services provided .15 Chemistry .10 Track record .10 Compatibility .10

1.00* figures for illustration only

Determine questions to elicit info on attributes

eg Compatibility

Does the agency personnel have knowledge of our industry? Complete knowledge .5 Good knowledge .4 Average knowledge .3 Poor knowledge .2 No knowledge .1

Are the backgrounds of the agency people compatible with our needs, marketing qualified, planning expertise? Completely compatible .5 Good compatibility .4 Average compatibility .3 Poor compatibility .2 No compatibility .1

Rate each agencyAttribute A Importance rating B Agency performance A x B

ABC agency 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1Creativity 0.2 X 0.12Media 0.2 X 0.08Acc Man 0.15 X 0.105Services 0.15 X 0.075Chemistry 0.1 X 0.08Track record 0.1 X 0.05Compatability 0.1 X 0.07

1 0.58

XYZ agency 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1Creativity 0.2 X 0.18Media 0.2 X 0.16Acc Man 0.15 X 0.09Services 0.15 X 0.075Chemistry 0.1 X 0.03Track record 0.1 X 0.03Compatability 0.1 X 0.03

1 0.595

Selecting an advertising agency

Requirements Agency v Agencies v In-house Selection Criteria - prioritised Questionnaire / Checklist Preliminary List Short List Briefing Short List Credentials, strategy pitch or Full (creative) Pitch Assessment against Criteria Appoint and Contract

Why clients change agencies “New broom” “Follow my leader” “Our policy on global alignment” “But we always do that with your

account” “We just can’t see eye to eye”

The Agency Register Agency scorecards Client counselling Agency de-briefing Assessing your needs Conflict issues Existing relationships Agency profiles Strict confidentiality Capabilities presentation Presentation schedules Stage managing presentations

Agency remuneration Commission system - historical Level of commission = 10% Service fee = 7.5% Example

Gross media cost (agency bills client) 1000 Less 10% commission 100 Net media cost (agency remits net to media) 900 agency keeps 10% 100

+ 7.5% GMC or 75

19.44% of NMC 175

Production billed as net to client + Service Fee of 19.44% !!!

Alternatives to Commission System

Hourly rates Fixed fee (Cost + Profit) Sliding Scale Performance based

Commission System

Disadvantages - Advertiser Agency overspending in

commissionable media Commission + Service Fee on high

media spend prohibitive Good, Bad, Indifferent get commission

Commission System

Disadvantages - Agency Media spend = Servicing cost??? Immediate work but not income Works for buyer, paid by seller Exceptional skills not rewarded

Commission System

Advantages - Media

Prompt payment via agency Ease of communication (200 accredited

agencies) “Acceptable” ads (Codes & technical)

Commission System

Advantages - Agency Guaranteed income from media Well known More effective advertising more

commission more effective advertising...

Advantages - Advertiser Agency co-ordinates Agency bears cost of media upfront

How clients pay agenciesRemuneration method % 93 95 96 97

Service fee only 34 44 24 19

Comm + serv fee 34 31 23 29

Flat fee 8 9 13 14

Person hours 5 3 6 7

Comm + flat fee 10 5 18 15

Performance incent 1 1 4 3

Comm only - - 7 12

Other 8 7 8 9Source: AMR Quantum Harris/Aus Street Cons

What clients pay agenciesLevel of service fee % 93 95 96 97

Over 10% 8 8 15 6

7.6-10% 5 13 9 5

7.5% 65 48 35 44

5.1-7.4% 6 16 20 16

2.6-5% 10 6 10 12

Up to 2.5% 3 2 1 4

Refused/DK 4 3 10 13Source: AMR Quantum Harris/Aus Street Cons

Reasons for appointing a media agency To take advantage of greater expertise in media

planning & buying 39% To get better rates from the media 24% To reduce the cost of planning & buying media

16% Need to appoint a global ad agency 8% To gain more creativity in media

buying 8% Other 6%

The Ten-Point Pitch Guide for Advertisers (AFA 98)

1 The Background Information identifying agency capabilities you need

2 The Initial Prospect List no competitors, size compatibility, ‘chat’,

questionnaire eg appendix 3 The Pitch List

3-4 agencies on strength of questionnaire, media release

The Ten-Point Pitch Guide for Advertisers(cont’d)

4 The Brief Quality of brief = quality of pitch

5 Financial Compensation Payment for strategic/creative (?)

6 Confidentiality & Copyright Agreement for protecting both parties

7 The Evaluation System Agreed criteria with all decision-makers

The Ten-Point Pitch Guide for Advertisers(cont’d)

8 Contract & Remuneration Takes time to get it right

9 Decision Time Inform winners & losers & media

10 The Changeover Losing agencies debrief, have confidential

material returned, ~ 90 days notice