Thursday, July 18, 2024
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Why Trump appreciates the cost of agency compensation

My grandfather was a frugal man, no doubt born from living through the Great Depression, going to war, and returning to a country ravaged by post-war austerity.

But he wasn’t cheap: he liked to open his wallet and pay for things he thought offered value for money. In the days before the Internet, he would do painstaking research, decide on the item that best suited his needs, and pull the tax trigger.

He didn’t wait for the sale; he didn’t ask for discounts; he didn’t buy something just because it was cheaper; he figured out what he needed and bought the best he could afford to use the said item for as long as possible.

I remember being 15 or 16 years old and marveling at his small but impeccable wardrobe of tailored suits and shoes, many of which he had worn for at least twenty years.

“I can’t afford to buy cheap clothes” (or cheap cars, or cheap furniture, or whatever) was his oft-quoted refrain. He bought the “right” things that gave him the most utility and was willing to pay a little more to get exactly what he needed. (Google ‘cost per wear’).

I inherited that philosophy, so it baffles me professionally when I see clients focusing more on agency costs than value.

But costs are king, right?

Look, I get it. Licentiousness is a dirty word, ‘shareholder return’ is sacrosanct, and there is always a budget to consider – too often the benefit an agency brings to the advertiser’s business is ignored in the quest to ‘make it cheaper make it cheaper, make it cheaper!”

A well-executed agency selection process (or an existing assessment) invariably leads to the marketing team and C-suite identifying the capabilities and skills that demonstrate one agency’s superiority to the other agencies in the mix.

And yes, that sometimes comes with a premium.

So many times we have managed tenders where clients who express dissatisfaction with the performance of their incumbent contractor abandon the conversation at the eleventh hour as to which agency fee would be the least expensive, completely forgetting the whole reason for the rating in the first place: which agency is best positioned to drive consumer engagement, market share, customer acquisition, conversion rate – or whatever metrics an agency’s success will be measured by.

So what is “value”?

‘Value’ is the benefit that a buyer – real or perceived – gets from purchasing a good or service.

Value for money is when the benefit received is greater than the price paid – although the benefit does not necessarily have to be a monetary or commercial return: an agency’s tools or processes that make life easier for your marketing team, can be ‘valuable’. , For example.

In both cases, the benefit depends on the context and circumstances; services and results valuable to one advertiser may be unimportant to another.

As a marketer managing an agency directory, you must assess the value of the services and results you receive from each agency.

Some will be very important to your marketing program and business objectives and therefore of great value (e.g. strategic development, brand identity, and positioning, tent-pole communications campaigns).

Some will be of little interest and value (e.g. short-lived content production; media buying through rarely used channels).

The purpose of creating this list is to determine what your organization considers valuable and then pay the agency appropriately for those services and results.

If you believe that agency ‘A’ can best deliver what is most valuable to you, but then choose agency ‘B’ because they are cheaper, that’s like chasing a fool’s gold – it’s a waste of money no matter how much of the ‘savings’ may be because the result and impact on your company will be smaller than the better option.

Be more like my grandfather: he didn’t waste money on something just because it was the cheaper option if it didn’t meet his needs.

Worse yet, don’t insist that the more expensive option matches the cheaper option in price.

That’s not to say there isn’t room for negotiation, but pushing too hard will, in our experience, damage the relationship before it even begins, and you will end up with a lesser product than what attracted you in the first place and not the outcome you thought.

If you’re looking to commoditize an agency, where any agency can do that (the low-value services on your list fit this description), then, by all means, go for the cheapest.

But if you find a true partner agency that has good chemistry and understands your business, paying more for the value they provide may be the right decision.

The saying ‘you can always buy something cheaper’ has never been truer; There will always be an agency willing to cut your costs – but is the cheapest agency the right agency to move your business forward?

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