Magazine article Marketing

Are Agency Costs out of Hand?

Magazine article Marketing

Are Agency Costs out of Hand?

Article excerpt

Shell's challenge to its agencies to cut costs is a wake-up call for the advertising industry, writes Amanda Richards

Picture the scenario: the creative brief has been written and researched. The client has approved the work and the agency is preparing to shoot the advertising campaign. Then, suddenly, the client is told that the agency has had to hike the production costs by another [pounds]300,000. The extra money is to pay for a more high-profile actor and a different director and production team. Filming is also being switched to an exotic location. Stunned by the financial hit, the client resorts to legal action.

This may sound extreme, but surprisingly it's not that unusual. Despite the changes which advertising agencies have undergone since the recession, and attempts by both the Incorporated Society of British Advertisers and the Institute of Practitioners in Advertising to make the client/agency relationship more efficient, there are still too many examples where agencies fall down on service and where costs spiral.

As a result, more clients are drastically reassessing the cost-efficiencies of their agencies. One senior client currently working through this transition is Raoul Pinnell, the international marketing director at Shell. Pinnell, whose global advertising budget is in the region of [pounds]250m, has set his two agencies, J Walter Thompson and Ogilvy & Mather, a daunting task.

"We are conducting a wide-ranging review which will look at everything from how our structures interface to improving the efficiency of every process involved in developing the creative work. The aim is to create a system which reduces our costs by half and enables us to produce great creative work," says Pinnell.

"Many campaigns are still borne out of a sequential process which I believe is inefficient in terms of both costs and time. We need to be much more flexible than that. Some steps need to be taken in parallel so that creative work can be produced more quickly and efficiently."

A project team, headed by Pinnell and Tim Davis, worldwide account director on Shell at JWT, has been formed to handle the task.

Joint challenges

Pinnell believes that a major restructuring of the advertising industry is well overdue: "I am not attacking agencies. There are a number of challenges facing the industry which clients and agencies will have to work through together. But there is no doubt we need to shake up our working practices. The number of despatch riders racing round London delivering creative work for last-minute approval is a prime example of inefficiency in the industry."

Pinnell is not the only client issuing a wake-up call to agencies. Other clients are also taking radical steps to make the whole process of developing a campaign more efficient, and share Pinnell's views that ad agencies need to reform.

RAC marketing director Jan Smith created a 'virtual agency' based on a loose team of strategists, creatives and account handlers for the recent relaunch of the RAC's 'rescue service'.

She had a number of reasons for wanting to avoid the traditional route of appointing an agency; she wanted direct access to the creatives and strategists and was concerned that the normal agency structure would require her to hand over control of the brand. She also wanted to create a team environment which was collaborative, flexible and able to move very quickly.

"By doing it this way, we were able to produce the campaign in six weeks and I estimate I have saved [pounds]500,000 which has been ploughed back in to media.

"I think this is the time to look at the structure of agencies and the way they operate. They need to become more flexible right across the board to meet the enormous changes client companies are going through. The future is about flexibility and collaboration and I would take a serious look at the value of account handlers."

Channel 5 also opted for the virtual agency route. …

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