Agents of Change: Why the 'Agency of Record' Model is Changing For Good
December 3, 2009 by Nate Winter
For a few years now I've read predictions about about the future of marketing's Agency of Record model-- the age-old, exclusive partnership between a marketer and its agency. To put things lightly, this relationship model is under fire. Agency of record (AOR) tenures are falling steadily, marketers are enlisting agencies outside of their AOR, and many marketers simply prefer to work with multiple agencies. So it begs the question, "What does the future hold?"
WHY THINGS ARE CHANGING
Before we discuss what the future holds, I think it's important to quickly reflect on why there's a change in the first place.
Looking at the way our culture is changing, it’s not so surprising that the AOR relationship has fallen on hard times. With the proliferation of wireless communication and the mobile web, the pace of life and business are accelerating. There’s greater awareness about other qualified agencies, and the competition among them is fierce. This is a world in constant search of the next possible upgrade, and as a result, the agency of record relationship is feeling the heat.
The accelerated turnover of client-side marketing leadership is another factor. The average CMO’s tenure is about two years, and with every change in leadership, there’s a tendency to start fresh with a new agency.
BENEFITS OF AOR PARTNERSHIPS
Although the AOR model has fallen in popularity, there are still a number of compelling reasons for its livelihood.
1. Trust
“Agency of record” used to be a committed partnership wherein a marketer agreed to bring all its marketing needs to one ad agency. In exchange, the agency would learn the marketer’s business inside and out and give them insightful, effective work. In short, they’d make a longterm investment to grow together based on trust.
2. Consistent Brand Direction
The best minds in the business agree that building a brand takes time and consistency. And, while this can be accomplished with multiple agencies, it’s no stretch to suggest that working with one agency on a focused, longterm brand message would help keep things on track.
3. Reduced Costs
Perhaps a more top-of-mind justification for AOR is lower costs. When agencies pitch for new business, it’s extremely rare that they’re directly compensated for their efforts (especially if they don’t win the pitch). So the funds to cover these sometimes enormous expenses are built into the agency’s pricing model. The more pitches an agency does, the more it must charge its existing customers to cover the costs of the pitches. Conversely, a greater number of dedicated AOR relationships and fewer pitches would probably lead to lower pricing from agencies throughout the industry.
4. Reduced Response Time
Convenience and response time are other salient advantages. When a marketer has a new project, he or she can simply call up the AOR and get them started on it. There’s no indecision about whom to call, and no time lost in the process (which would be the case in working with multiple vendors).
BENEFITS OF NO-COMMITMENT VENDOR RELATIONSHIPS
Now here are some of the reasons that marketers opt out of an AOR model in favor of working with multiple vendors.
1. Better Results
Competition between agencies can lead to a higher caliber of creative product. Agencies in competition for a marketer’s business will work harder to win the business, and thereby produce better work. (This prevents a situation where an AOR may get “lazy” and not produce its best work.)
2. Reduced Cost
This constant competition between agencies can also drive prices down. (Ironically, not forcing agencies to compete and participate in expensive pitches may also result in lower prices, as mentioned above.)
3. Specialization
Every agency has strengths and weaknesses. But employing an agency that specializes in the specifics of a project ensures that the marketer will deal only with the agency’s strong suits. From direct mail to interactive to point of sale, the marketing landscape is so broad that it’s difficult to find a single agency that can truly do it all. But a roster of specialized agencies may be easier to come by.
4. Fresh Thinking
Consistency is key to brand growth. Boring marketing is not. New ideas and fresh thinking can keep a brand interesting and relevant. Many times a new perspective comes more easily from new people, and not by asking an AOR to think differently.
BENEFITS OF A THIRD OPTION-- POMEGRANATE
As a digital media network agency, Pomegranate represents a middle ground between the dedicated agency of record and a roster of vendors with varying specialties. Like an AOR, Pomegranate is a singular partner marketers can work with for all their needs, including creative, web, media, consulting and more. However, because Pomegranate is also a network, marketers can work with different members of the talent team depending on the demands of their project.
Working with Pomegranate offers the flexibility, diversity and specialization of a roster of different agencies. But it also offers the convenience, consistency and response time of a committed Agency of Record.
WHICH MODEL WILL SURVIVE?
Short answer: all of them. Long answer: it depends on how you define "survive."
To answer the question that entitles this article, "Is the Agency of Record Model Obsolete?"-- yes. But that doesn't mean it's gone. The agency of record model may never again be the industry standard for marketer-agency relationships, but I doubt that it will disappear completely. It will continue to be the best option for marketers whose needs are few and straightforward.
The need for flexibility and specialization in a fractured media landscape certainly gives an advantage to vendor relationships. I predict that this model for conducting business will be increasingly important for marketers and will become much more common.
As for the Pomegranate model, it's difficult to say exactly. Pomegranate is the only digital media network agency out there, so it doesn't represent a big category that can illustrate a larger trend. But it's new, and it combines the most attractive features of both an agency of record partner and an outside vendor. And as such, I believe Pomegranate is-- forgive the pun-- ripe for growth.
