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 Process Decide & 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 agency

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 agencies Remuneration 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 9 Source: AMR Quantum Harris/Aus Street Cons

What clients pay agencies Level 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 13 Source: 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