The times they are a changin’ and clients want agencies to change along with the times. Recent pronouncements of a ‘flawed advertising agency model’ from Labatt Breweries and the company’s quest to build a new one have brought the age-old client/agency relationship debate bubbling to the surface once again.

Many clients have already introduced new ways of working with and paying their agencies. One interesting new model was recently adopted by two companies – Masterfoods USA, the company behind brands such as M&M’s and Uncle Ben’s, and Zellers in Canada. Masterfoods chose the small New York shop Arnell Group to generate strategy and ideas for all of its brands, but works with a roster of multinational agencies to shepherd the plans through to execution. In the case of Zellers, it has hired two Toronto agencies to work in a similar manner. Riddochdickinson is doing the strategic planning and Leo Burnett will work it through to completion. Even Unilever is using smaller, independent shops – Taxi in Canada, and Mother and HHCL in the U.K.

Accountability is one of the most contentious issues and had been long before the current economic slowdown. Clients want to know how each dollar is being spent and how they can measure the results.

To address the issue, the Association of Canadian Advertisers (ACA) released a study called ‘Improving the Marketing Communications Value Chain: A Look at the Role of Payment by Results’ in April of this year. The report stressed that PBR was not about an alternative remuneration system but rather about generating greater value from that spending.

In late summer, the advertising agency organization Institute of Communications & Advertising (ICA) followed with its ‘Best Practice on Payment By Results’. Based on response, Susan Charles, VP member services for ACA, says, ‘If [agencies] are set up one way and cannot accommodate [change], the market is going to change on them. Change with or be changed, because the rest have moved on.’

Strategy rounded up some marketers to discuss the advertising agency model, the agency-client relationship and the industry in general. Contributors include Rob Guenette, president and CEO of Wolf Group, formely VP Molson Export, Molson Breweries; Mike Kaumeyer, VP marketing, Star Choice Communications; Jean Pierre Ratelle, SVP strategic marketing for ING Canada (formerly Belair Direct); David Strickland, SVP, Zellers; and Cathy Whelan Molloy, VP brand advertising and marketing, Tim Hortons.

Do you think the ‘agency model’ is flawed and the new one proposed by Labatt is a viable one?

Rob Guenette: ‘I don’t agree that broad stroke the agency model is broken. ‘You cannot paint a whole industry with one brush. I think there are many large agencies and many small agencies that are both in good shape and are broken.

‘I applaud the bold move that Labatt is making. Everybody will benefit from that experiment. Either they’ll confirm there’s an alternate model or the fact that ‘same old, same old’ works.’

Mike Kaumeyer: ‘I can certainly relate to the sentiment, but I don’t think it’s reasonable to expect to have the most senior people in an organization continually. Even in the model they describe, there will be more clients involved and there is only so much time in a day.

‘[What Labatt will miss] is the key thing in any organization – you bring people up who are junior, so they get a feeling of your business objectives and start to help develop creative strategy.’

Jean Pierre Ratelle: ‘I don’t know what we would call an agency model per se, because I don’t think there is such a thing right now.

‘I’m more inclined to talk about the changing world and how [agencies] should adapt to it.

‘I have a feeling if it were only [the agencies’] choice, they would stick to the usual, which is making commercials and doing creative and placing media. But the world is different now. We’re into direct marketing activities, the Web, customer relationship [marketing] – tons of things [agencies] are not geared up for and we don’t feel they’re gearing up for.’

David Strickland: ‘[Agencies] are either open to what you’re talking about and the way you want to have your relationship, or they’re not. Presumably multinationals have recruited smart people and those smart people are going to realize it’s time to change like everybody else.

‘In terms of the model of agencies, I certainly think it’s time for everybody to step back and look at their customers and ask themselves, ‘why are we seeing so many people expressing dissatisfaction?’ [Agencies must look at themselves] the same way marketers have to look at their customer base as they try to reinvent themselves. The customer has to understand clearly what the proposition is. I find it difficult to understand [what each agency] stands for and why.’

What problems do you see within the industry?

Guenette: ‘Right now [we have] the three big [agency] systems – WPP, Interpublic, Omnicom. It’s almost like working with a holding company rather than an agency. That’s a problem because on the agency side, size is not a good strategy. Size doesn’t matter. Quality of work matters.

‘You look in Canada and the shops getting all the ink these days, [like] Taxi, Zig and Rethink, are all the small shops.

‘The question it begs is ‘does the branch agency system actually work in Canada or is Canada better served with local small to mid-sized shops?’

‘Why do clients feel compelled to have the same agency in every country? Does that make sense? There’s no way they’re saving money. They believe somehow these massive agency network [offices] are all talking to each other and sharing best practices. Well I’ve got one word for that, hogwash. That’s just not happening.’

Kaumeyer: ‘With Labatt, when you’re a company that size, you really do have a bigger stick to swing with larger multinationals. At Star Choice, we just weren’t in that position. We weren’t ever going to be among the top 10 clients of any multinational.

‘We wanted to get a position where we had some prominence and the agency would say, ‘we’re really going to focus on you guys.’

‘That’s something companies should keep in mind if going to a large multinational. They have an infrastructure there that really dictates they can only spend so much time on the dollar volume. ‘How much money are you going to spend? Okay, now we know who to put on your business.’ Not, ‘what kind of company are you’ and ‘we know the right guy who could really get into that.”

Ratelle: ‘I don’t think there are many [agencies] that have been good at integrating the variety of needs [clients] want. If you want a full array of services you have to talk to three or four [people] and you become the coordinator for them.

‘[Agencies] will change for one reason – the dollars are walking away from [them]. I’m investing money in doing Web advertising. Because I’m not getting the service, I’m equipping internally to do it.

‘I’m being questioned by the agency that I seem to be diverting some dollars towards the Web. Yes. You’re losing it – completely. When they say, ‘we’re looking at hiring somebody’ – well I’ve heard that so often.

‘The market is changing so rapidly that you need guys who can meet that new requirement right now. If they stick to their usual expertise and don’t step off to look for other ways to please their customers – like getting [specialized] freelancers – then customers will do it anyway, but on their own.’

Strickland: ‘[Agencies] are getting all the same pressures and influences that advertisers have had for years. The challenge if you want to build good long-term relationships is to be careful in the process of driving profitability to not exploit clients that don’t understand the nitty gritty.

‘The frustration is we want to understand the [agency] business model and be able to buy the service levels that make sense for our business. We don’t want to be fooled.

‘There’s always talk and rumours about practices that are distasteful to the majority of us and it starts to make us question the credibility of the business. We trust them with something that, whether they succeed or fail, in many cases is tied to whether the marketer succeeds or fails.

Sometimes I think in the push for creative excellence, people don’t understand that the reality of life within a corporate environment is that you are taking personal risks when you’re pushing the envelope.

‘I think it’s time for people to be more honest, more open, more direct; to build relationships based on trust.’

Have you changed or will you change how you work with or compensate

agencies?

Guenette: ‘The way we compensate our agencies is based on a fee structure – which we revisit every year – and there’s a bonus system. We’re quite pleased with how it’s working.

‘I don’t believe agencies should be held to a different standard than anybody else. Why should agencies be the only players in the mix to be paid by performance? If that’s the standard, then everybody should be paid by performance, including employees.

‘Make sure you pay your agencies fairly and if what they do really hits it out of the park, then bonus them well.’

Kaumeyer: ‘We don’t work with a multinational, we work with Due North (of Toronto). They have performed very well for us and we have a very close relationship with them. They’re an extended part of the marketing group, an extended part of our organization.

‘Star Choice used to dole out its business to three agencies – one for Quebec, one for direct marketing and one for the balance of it.

‘Due North offered us some economies if we put all our business with them as opposed to piecing it off to three or four different agencies – [as well as] the ability to manage one agency relationship versus three.

‘We have historical spends – how much we spend on media and advertising – so we’re going to divide up the traditional spend over a 12-month period and there’s an incentive on the part of [Due North] to manage the budget cost-effectively.

‘From our perspective, it’s a streamlined financial and business arrangement. And I think we’re getting better quality creative as well.’

Cathy Whelan Molloy: ‘We’re still pretty traditional in our structure with Enterprise (Creative Selling of Toronto) and we still use just one agency. And we’re traditional with our billings in the sense that they have a fee, production is commissionable and media is similar.

‘We’ve challenged them in the way they buy media, by buying it all at once for 52 weeks.

‘[Tim Hortons] has been talking about looking at the model in terms of results and performance-based pay but we haven’t got to the point where we’d initiate it in the next year or two or even start those conversations.

‘Enterprise services us on a national and regional basis and we prefer to keep everything within one company.

‘Over 11 years we’ve had ups and downs and challenges with the agency, but our feeling is if you want to work with someone as a partner, you have to treat it like a marriage. I would rather work things out with them.

‘It’s a complete and full partnership. They know exactly what’s going on with our business and what our business objectives are.’

Strickland: ‘It makes sense to me that where it can work and where there’s a clear, easy and understandable measure, agencies need to be tied to the success of the client.

‘We’re still in the process [of putting agency agreements together] but I would say [transparency and incentives] are the principles on which we’re forming our relationships.

‘Things are going to look different from the standpoint of the way we pay – and I want more openness and more accountability.

Is there an ideal client/agency relationship?

Ratelle: ‘We came very close to a [lead agency] relationship with the Wunderman network. We wanted to create a third entity and integrate that entity into ours so the agency would have become part of our working units dealing with other kinds of suppliers.

‘Everybody would have been kept abreast of everything going on. ‘We were talking in the $25-million range and I was bringing my entire budget that way and the multidisciplinary team would have managed it all – integrated research and tracking through to company communications all within the same unit.

‘A few companies already do that. Ford and others have agency people living in their business, but usually only for the advertising part. Companies are so diversified, you’ve got needs of all sorts and you have to integrate them. You need somebody inside to act as a co-ordinator or to hire an agency as co-ordinator.’

Whelan Molloy: ‘I think an agency is only as good as the people they hire. If they don’t have the right people than that’s something you have to address.’

Guenette: ‘I think there’s a fair amount of client soul-searching that has to happen before you pick your agency.

‘Some clients prefer a small agency where they get the principals of that agency working directly on their business. Others like size. They like the feeling of security with a big agency.

‘I think it’s about clients being honest with themselves. Clients [should] use the same principles as when they’re dealing with their mutual fund manager who asks, what is your risk tolerance? You’re dead honest with that guy. When we’re choosing agencies and buying work, we should apply the same honesty.’