Dive Brief:
- Marketers spend, on average, $408,500 to conduct an agency search and review when an incumbent agency is not involved and only slightly less when an incumbent participates, according to new research from the Association of National Advertisers (ANA), American Association of Advertising Agencies (4A’s) and Advertiser Perceptions.
- Incumbent agencies spend roughly the same amount — $406,092 — defending business, while agencies vying for the business spend $203,461. The cost of the average review process, assuming three agencies are involved, is more than $1 million across parties and rises to more than $1.2 million with an incumbent in the mix.
- Potentially due to the resources needed, one in four agencies declined to defend an existing account in the past two years (though two-thirds of marketers indicated they retained their incumbent agency after a review). Given the findings, researchers urged marketers to more carefully consider whether a formal review is absolutely necessary.
Dive Insight:
The new “Cost of the Pitch” study provides further evidence that the advertising industry’s way of assessing agency-client relationships may need retooling, especially as brands and marketing services providers fall under increased budgetary pressures. The report is the fruit of a joint effort between the 4A’s, a trade group for agencies, and the ANA, which represents brand marketers, and was assembled with help from market intelligence firm Advertiser Perceptions. The research is based on survey results from more than 300 marketing and advertising executives.
Beyond monetary considerations, changing agencies can be a time-intensive and taxing undertaking, the report indicated. The average agency review process runs longer than three months and still takes at least two months with an incumbent involved. In both cases, the process leads to decreased productivity for agencies and marketers. Roughly one-third of marketers reported reviews created disruptions in their daily tasks and a quarter pointed to delays in rolling out campaigns and new products.
“Agency reviews are an expensive, time-consuming process, on average taking up an entire business quarter,” said Matt Kasindorf, senior vice president of business intelligence and insight at the 4A’s, in a statement. “Given the cost implications for both clients and agencies, the work disruptions and delays caused by an agency review, and the potential to damage the existing client/agency relationship, it is critical to assess whether the need is really there, or whether there are other options.”
Kasindorf and other executives recommended marketers and agencies look for ways to repair their relationships to cut down on costs and avoid the lost productivity that typically comes with reviews. The organizations suggested instituting a relationship management program or engaging a consultant to help work out their differences. For what it’s worth, 33% of marketers and 38% of agency executives agreed that a commitment to developing long-term relationships was the most important factor in reducing agency review.
“While there certainly may be times when an agency review is appropriate, it should really be considered a last resort,” said Kasindorf.
Other findings of the study included:
- 45% of procurement respondents and 35% of brand marketers said an agency’s reputation played a leading role in the final selection during a competitive pitch.
- Half of marketers said the biggest short-term benefit of an account review was to motivate the incumbent agency, while 44% said the biggest long-term benefit was a new strategic direction.
- Half of brand marketers said an incumbent agency’s performance was a key factor contributing to a review, though only one-third of procurement respondents felt the same way.
- 46% of marketers use external consultants to conduct reviews, while 39% of agencies use consultants to defend accounts in review.
Other researchers have emphasized the high costs of chasing accounts on the agency end of things. Earlier this year, Forrester released a report that revealed U.S. agencies spend up to 17% of their annual revenues — about $12 billion a year — going after new business.
