Selecting, Evaluating & Compensating Advertising Agencies

Evaluating Agency PerformanceTo 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 attributesImportance*Creativity.20Media planning & buying.20Account management.15Services provided.15Chemistry.10Track record.10Compatibility.10 1.00* figures for illustration only

Determine questions to elicit info on attributes eg CompatibilityDoes the agency personnel have knowledge of our industry?Complete knowledge.5Good knowledge.4Average knowledge.3Poor knowledge.2No knowledge.1Are the backgrounds of the agency people compatible with our needs, marketing qualified, planning expertise? Completely compatible.5Good compatibility.4Average compatibility.3Poor compatibility .2No compatibility.1

Rate each agency

Sheet: Sheet1

Attribute A Importance rating

B Agency performance

A x B

ABC agency

Creativity

0.2

X

0.12

Media

0.2

X

0.08

Acc Man

0.15

X

0.105

Services

0.15

X

0.075

Chemistry

0.1

X

0.08

Track record

0.1

X

0.05

Compatability

0.1

X

0.07

1.0

0.58

XYZ agency

Creativity

0.2

X

0.18

Media

0.2

X

0.16

Acc Man

0.15

X

0.09

Services

0.15

X

0.075

Chemistry

0.1

X

0.03

Track record

0.1

X

0.03

Compatability

0.1

X

0.03

1.0

0.595

Selecting an advertising agencyRequirementsAgency v Agencies v In-houseSelection Criteria - prioritisedQuestionnaire / ChecklistPreliminary ListShort ListBriefing Short ListCredentials, strategy pitch or Full (creative) PitchAssessment against CriteriaAppoint and Contract

Why clients change agenciesNew broomFollow my leaderOur policy on global alignmentBut we always do that with your accountWe just cant see eye to eye

The Agency RegisterAgency scorecardsClient counsellingAgency de-briefingAssessing your needsConflict issuesExisting relationshipsAgency profilesStrict confidentialityCapabilities presentationPresentation schedulesStage managing presentations

Agency remunerationCommission system - historicalLevel of commission = 10%Service fee = 7.5%ExampleGross media cost (agency bills client)1000Less 10% commission 100Net media cost (agency remits net to media) 900 agency keeps 10% 100+ 7.5% GMC or 7519.44% of NMC 175Production billed as net to client + Service Fee of 19.44% !!!

Alternatives to Commission SystemHourly ratesFixed fee (Cost + Profit)Sliding ScalePerformance based

Commission SystemDisadvantages - AdvertiserAgency overspending in commissionable mediaCommission + Service Fee on high media spend prohibitiveGood, Bad, Indifferent get commission

Commission SystemDisadvantages - AgencyMedia spend = Servicing cost???Immediate work but not incomeWorks for buyer, paid by sellerExceptional skills not rewarded

Commission SystemAdvantages - Media

Prompt payment via agencyEase of communication (200 accredited agencies)Acceptable ads (Codes & technical)

Commission SystemAdvantages - AgencyGuaranteed income from mediaWell knownMore effective advertising more commission more effective advertising...Advantages - AdvertiserAgency co-ordinatesAgency bears cost of media upfront

How clients pay agenciesRemuneration method %93 95 96 97 Service fee only34 44 24 19Comm + serv fee 34 31 23 29Flat fee 8 9 13 14Person hours 5 3 6 7Comm + flat fee 10 5 18 15Performance incent 1 1 4 3Comm only - - 7 12Other 8 7 8 9Source: AMR Quantum Harris/Aus Street Cons

What clients pay agenciesLevel of service fee %93 95 96 97Over 10% 8 8 15 67.6-10% 5 13 9 57.5% 65 48 35 445.1-7.4% 6 16 20 162.6-5% 10 6 10 12Up to 2.5% 3 2 1 4Refused/DK 4 3 10 13Source: AMR Quantum Harris/Aus Street Cons

Reasons for appointing a media agencyTo take advantage of greater expertise in media planning & buying39%To get better rates from the media24%To reduce the cost of planning & buying media16%Need to appoint a global ad agency8%To gain more creativity in media buying8%Other6%

The Ten-Point Pitch Guide for Advertisers (AFA 98)1The Background Informationidentifying agency capabilities you need2The Initial Prospect Listno competitors, size compatibility, chat, questionnaire eg appendix3 The Pitch List3-4 agencies on strength of questionnaire, media release

The Ten-Point Pitch Guide for Advertisers(contd) 4 The BriefQuality of brief = quality of pitch5Financial CompensationPayment for strategic/creative (?)6Confidentiality & CopyrightAgreement for protecting both parties7The Evaluation SystemAgreed criteria with all decision-makers

The Ten-Point Pitch Guide for Advertisers(contd)8Contract & RemunerationTakes time to get it right9Decision TimeInform winners & losers & media10The ChangeoverLosing agencies debrief, have confidential material returned, ~ 90 days notice

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