Professionals charge agencies on navigating pricing challenges
By Abimbola Mohammed
Experts in the integrated marketing communications ecosystem have tasked agencies on the pricing challenges bedeviling the industry, especially in a globally unfriendly economy. Addressing this during a webinar organized by Ad Age, they noted that as creativity flourishes and clients demand innovative solutions, understanding price effectiveness is critical for agencies to survive and thrive.
The in-depth panel discussion was held among John Cornwell, Global chief commercial officer, Ogilvy; Tracey Shirtcliff, CEO, The Virtu Group; Mike Mulligan, Global chief operating officer, Media.Monks and Richard Tan, Chief financial officer, Fig with John Dioso, Editor of Ad age Studio as the moderator. They sufficiently addressed the pressing pricing challenges that agencies encounter in today’s dynamic landscape and proposed innovative solutions.
On his part, Richard Tan noted that the challenges faced by agencies when it comes to pricing is based on economic pressure on brands, which is also on the agencies. This, he attributed to the challenges that some procurement the agencies have to deal with is still stuck to traditional pricing models.
“We as agencies perpetuate that; we accept them just to keep us going, but in reality the results make agencies suffer because margins get squeezed. It makes it hard to pay talents, and it makes it hard for good talent to hang around. It ends up making work commoditized and that doesn’t satisfy anyone,” he said.
Tan argued that in the current economic climate, CFOs and CMOs with brands are becoming so important that CFOs are really needing data and measurements to be able to improve the release of investment funds.
“I think that we are seeing more money moving to things that can be measured. Things like media and not necessary to creatives because they need to see immediate results and they want to see the KPI behind the investments, which is challenging for agencies,” he added.
John Cornwell said, “One thing that we must realize with the challenges that we face as agencies is that consultants and procurement are dictating how agencies should price. I think businesses should be allowed to determine their price not by third parties. So I think this challenge is one that we need to be mindful of, although consultants can play a valid role in the relationship between agencies and clients.
“Majority of CMOs want to know if we can deliver on the brief, they want to know if the chemistry between the two teams and parties are really strong. Can we solve their business problems and can we do that within their budget? I think that what they are interested in is the purpose of the pitch and agencies should be mindful of that when responding to clients. I think if we understand that we can be more comfortable with what we bring to the table, we can determine our price.”
Speaking on price expectations from clients and what is driving changes, Mike Mulligan said, “When I first joined a digital agency, clients were not aware of how digital works. They were looking for partners that would help them navigate. Given that situation, they were reliant on agencies and prepare to accept agency pricing without the level of transparency that they were getting from other partners.
“But that time has now gone, brands now understand digital and how it will help them deliver. So, they need the transparency that is going to allow us to fit in their organization. When you start to see large digital pitches you will see procurement involved because it now understands how digital is priced. It’s now the norm and that is very stressful from an agency perspective.”
Mulligan added that clients’ expectations are changing, driven by industry challenges.
“Every agency, retails, marketing etc are going through pressure. Their margin is impacted so they have to lean on their partners, their suppliers and agency to look for better pricing hence procurement are pushing that tension, that stress down the line, and agencies are starting to feel it,” he said.
He advised that agencies need to become more mature about their pricing and willing to be transparent about how they can help clients to deliver.
“We also need to change from effectively selling. Agencies need to demonstrate the value of delivering and the business impact. If you can do it from an agency perspective, you can justify your fees and the margin,” he concluded.
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