This week one of my old clients, Direct Line, announced that it was setting up an in house agency. Apart from wincing on behalf of the incumbent MediaCom (and the amazing team I worked with who ran their paid search) this is a reflection of a lot of soul searching in the marketplace – and the question that I’ve been asked a lot in the last few months, namely “Would you recommend running digital marketing in house or through an agency?” – to which I don’t think there is a perfect answer.
The biggest benefit of using an agency is the flexibility and scalability to get things done. A dedicated team of experts, learning from a larger pool who work across various markets and hence can apply learnings quickly and easily, and hopefully avoid repeating the same mistakes or re-inventing the wheel for each individual client.
In addition to this there is a reduced staff overhead and capital expenditure to service marketing campaigns and plans that may not be always on, or to the same level – and therefore would entail a constantly fluctuating need for staff and possibly office space.
Traditionally the buying power of agencies has been seen as a major benefit but this is increasingly irrelevant in a growing digital world. Yes I’m sure the clout of the big agency networks still carries weight with TV and large print publishers, but there is only so much volume an agency can guarantee to secure the best rates without locking their clients into inappropriate media choices.
Digital media runs overwhelmingly on performance based buying models, either as a CPC/CPA. Even a low CPM buy only remains justified as long as the “effective CPA” formula works out at the back end. This means that the perceived value of the media is out of the hands of the media owner, and the old sales negotiation model is defunct.
The increasing combinations of media, client and social interaction data that enables Real Time Bidding mean that in theory any agency, technology or platform partner can and does engage in arbitrage through buying cheap network and exchange inventory, adding value with layers of data and selling on to the advertiser at whatever they can get away with.
As long as the client gets the customers they want at a rate that makes sense for their profit margins, this may seem fair, but when part of the cost they pay is driven by their own data, one could very rightly say that they should not be paying this premium, except maybe for the usage of the technology that enables it.
The elephant in the room
The agency world is a scary place to be right now. Recession has brought increasing pressure on client margins, meaning marketers and procurement departments are constantly picking away at agency fees – demanding more for the same fees, or indeed lower; with the constant threat of pitches used to keep the agency in line.
Agency fees are being pushed lower through supply and demand, and they race to economise and automate to make the figures add up. Meanwhile, (like the proverbial swan on the water with madly flapping legs) operational staff are running just to keep still, keeping abreast of all the changes in digital that mean entire tracking and attribution models are rewritten each year; new media, channels and delivery mechanisms are added monthly and still the ROI machine says:
MORE MORE MORE!
CHEAPER CHEAPER CHEAPER!
The nature of a market reducing fees and profitability even while it becomes more complicated and labour intensive is guaranteed to create pain for the people on the front line. It undermines agencies’ ability to invest in systems and procedures that would enable efficiencies, and inevitably means that mistakes are made, clients don’t get what they need and eventually the dreaded pitch becomes reality after all.
So the account goes to another agency, and the process begins again.
It’s painful, it’s bad business for both parties but it’s almost impossible to stop. Without a wholesale re-think of agency fees, values and expectations the impact of digital has been to make it harder to service clients profitably, just at a time when they need the most expertise. Not surprising then that they’re thinking about setting up their own talent pool.
In House Pros.
Outsourcing, silos and business change: The marketing world has always had to adapt as the consumer changes, and now that process is faster than ever. The ways that the consumer has changed now impacts more than just how you market to them. It’s how you sell, how you transact, your channel to market and how you follow up, it’s customer service, complaints, reviews and approval and advocacy and sharing. Every touchpoint is now possible across a variety of devices – and worse – bad experiences can be shared to the point of going viral worldwide in minutes, potentially destroying years of product development and business planning (Dasani in the UK, anyone?)
What this means is that the entire business often needs to change, sometimes radically, to adapt to consumer preferences. How fundamental this change needs to be can be masked if your comms are handled by external partners, plus also de-skilling your own internal staff.
Multiple teams within an agency, multiple agencies dealing with multiple product, marketing and discipline teams within a client means that the helicopter view that says “Whoa, we really need to change this!” gets missed, and each part of the machine keeps working to its own disparate aims without a central unifying mission or understanding.
Of course this can happen within an organisation too, it is not restricted to services that are outsourced, but you can guarantee that more disparate entities involved in something, the more difficult it is to integrate.
Data, data and more data: In a perfect world all marketers would have robust MI data that truly reflects the impact of their activities. By this I mean more than just to initial sale, but attrition and lifetime value metrics that can hugely impact the ROI of marketing. Too often it isn’t shared either internally or with stakeholders such as agencies – sometimes through politics or negotiation tactics; and often just because it’s a headache to export and see in any meaningful way even internally. My point is that the more actionable data we all have, internal or external the better job we can all do.
So the answer seems to be that whether internal or external, the most important issue is about integration and data, and having a digital leader that understands the nitty gritty, but is also able to capture the big picture and translate it into business actions.
Good agency staff care as much about your business success as you do; good marketers know that a customers’ interactions are a function of more than just the media plan.
It turns out that good business people are good business people wherever they work, so if you find the right person – keep that person – wherever they are.