Knowledge

The gig economy has come to the agency

Published on October 06, 2015 under Business, Marketing

Just for a moment, think about the TV show Mad Men. Imagine it’s the 1960s, and big agency Sterling Cooper is pitching to Lucky Strike as a potential client. Don Draper and the team come up with big ideas, craft their presentation, present ad layouts…

...and win the project to make three print ads for magazines.

Now they pitch to American Airlines. The team endures a week of late nights, bottles of scotch, and pack after pack of cigarettes. Their work pays off. They won the project to make three billboards for AA.

Now imagine Lucky Strike is pleased with the print ads, and they request another proposal from Sterling Cooper. Draper has the team come up with three potential ideas for campaigns involving TV commercials, print pieces, and even an on-the-street promotion handing out single cigarettes to potential customers.

They pitch and win just more print ads, but a rival agency gets tasked with a TV commercial, and Lucky Strike wants both agencies to coordinate their work for continuity.

Something has changed

Now if you happened to work in that “golden age of advertising”, this would actually seem strange. Usually when a big company like Sterling Cooper pitches a client, they would usually win the illustrious “Agency of Record” (multi-year retainer contract with said client), and handle most of, if not all, their advertising work. However, in 2015, it’s become the reverse.

With the Great Recession and slow economy, there’s been a rise in what many call the “gig economy”. This was normally applied to entrepreneurial-thinking contractors utilizing web systems such as Uber, Handy, and Fiverr to take on temporary work. However, this has since grown to really engulf the world of freelance workers.

Large companies now have abolished many of their full-time positions in place of freelance workers. Temporary workers they can utilize for the job at hand, but then abandon when the task is done. It doesn’t seem like anything new for the individual, but lately I’ve noticed the Sterling Cooper scenario I’ve described above happening to agencies. In many ways, the agencies now are being treated as freelance workers by their clients.

Agency of Record: An Endangered Species

With the average worker being pushed into a freelance role, it’s no shock the idea had spread to the agency. Smaller shops have always been more or less treated this way, but to see it happen to a big agency in many ways screams how the times they are a’changin’. I honestly can’t blame a client though for taking this approach now in their marketing. Many clients want more control over their brands, and thus have even hired on experts to be their “agency” within the company. They then plan the campaigns and farm out the work to the outside firms.

There are many good reasons why a client would do this. Cost is a big one, as paying a yearly retainer ends up being money one has to spend, or else it is lost. Farming out the work can savea bundle, as a client can then literally make agencies pitch for individual projects. On top of that, the client can then pick the right agency for the right job. So maybe Sterling Cooper does amazing print work, but their rival is on top of TV advertising. By not having an Agency of Record, the client can get the best of each discipline.

Even more than money and a desire for specialists, the biggest problem that led to the decline of retainers is the loss of real relationships between the client and agency. I always liked this teaser for a lecture that took place at Cannes in 2014. You can get an idea why it seems many clients have lost trust with their agencies. A lot of it has to do with the high turnover on both the client and agency side. With so many people coming and going, it’s become incredibly difficult to build these long-lasting relationships.

Agencies need to adapt

Like any major shift in the business world, one has to adapt in order to survive. If you’re still clinging to the old ways, you might want to rethink. Here’s a few suggestions:

Decentralize and specialize. One of the biggest casualties to this new “treat the agency as a freelancer” logic has been larger, multi-faceted agencies. It’s just become clear a client who wants a print campaign doesn’t want to pay more for the agency to keep their web development team, or video editing crew, when they are not needed for the task.

Large agencies should consider breaking up into smaller firms, with the larger agency acting as an umbrella company. Each smaller company is then on their own to pitch work, pay their bills, and not be responsible for weaker departments who cannot stay afloat. Taking your web team and making them their own small digital firm will make it sweeter for clients seeking website work and nothing more.

Reduce bloat and unnecessary spending as well as streamline. Of course the first thought when this comes to mind is to pink slip a chunk of your lower ladder employees in order to save money. However, I would take this time to further examine your employee roster and see if you perhaps have one too many middle manager who do nothing more than show up to a few meetings and client visits. Unless your crop of VPs and other middle management are willing to roll up their sleeves and do the “lower level” work, then let them go.

This is the time to question if catering lunch every day for certain teams is worth it, or if throwing parties and stocking beer fridges will give you good ROI compared to better investments. I’d also take this time to really look at your processes and ask if these are the optimal ways to do business. If you’re taking 20 people to churn out a 50-slide presentation, and noticing 30 of those people seem to more hinder a finished deliverable than help it, downsize those teams and put those 30 people on other pieces of work.

Be a provider and stop fighting for the past. This will be the tough one to swallow. I know many an agency will dream of being the Brand AoR for a big client. To be the agency coming up with the big idea that consumers will talk about for weeks or months. To possibly have influence on the client’s brand and language.

Unfortunately, if the clients only want you to do a task and finish, then be that. Do the job, make the money, keep discussion open on “what else you can do”, and move on. Granted it’s easier to reject the insurance company who only wants a CRM email campaign because you’re dreaming of being AoR for Nike, but you still need to keep the lights on and pay your employees. The “agency as a freelancer” thing won’t last forever, but until then, do the work and stay in business.

Limit or stop doing spec work. To this day I have always wanted to know how much money an agency spends yearly on what is known as speculative (spec) work. The loads and loads of work agencies do literally for free in order to win a client. It could be the many full campaigns made for a pitch, or freebies tossed into a deal to win a client.

Both small agencies and freelancers have already seen the light, as you won’t see them offering their time for free, not even to win a client. It’s the larger agencies who need to catch up. The clients now are like the people who see who stroll through the grocery store on Saturdays dining on free samples, but not really purchasing anything. I think if it’s a pitch to actually win AoR for a big client, then definitely go above and beyond for the win, but to constantly make spec work for every project is a recipe for financial ruin. At some point you have to cut off the client when they ask for more.

Build a solid team and work to keep them. I mentioned before how high turnover in the agencies has become part of why clients have shifted in how they work with these firms. Author Peter Coughter (The Art of the Pitch) once spoke of how many clients hire an agency based on the energy and team cohesion their employees have. I’ll say if your teams constantly come and go, and employees are never happy or around long, then it will hurt your bottom line in many places, especially in selling yourself.

When I mentioned trimming bloat, I meant it as advice to pay your employees well, treat them right, and keep a solid team of trustworthy experts at your side. Seeing employees as numbers or filling your workspace with “disposable employees” (contract workers) will only build a lack of trust and loyalty, and clients will see it no matter how much you hide it.

Now all these suggestions might be difficult to embrace, but I wouldn’t fret too much. Nothing is ever permanent, even these shifts in the business model. Right now the line has moved to where the client wants control over the marketing, with the agency simply as an implementer. Eventually the client will feel their in-house staff has gotten too comfortable and “safe”, thus will ask the agencies to come up with bigger, better ideas. That’s when things will shift again, internal teams will be slashed, and AoR will become the new “normal”...for the time.

Regardless, this won’t happen anytime soon, thus any business in this gig economy needs to adapt or be finished. There are still some industries favoring an AoR model, but many more are now abolishing the practice.

What do you think? Do you see clients abandoning the idea of retainers?

Tags: advertising, business, marketing, agencies, retainer

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